As the country’s demand for electricity continues to grow, expanding domestic power generating capacity is an increasingly important issue. While the government has worked to add capacity in recent years – notably, the first phase of the 2000-MW Sabiya power station came on-line in 2011 – more will need to be done to avoid any potential shortfalls.

RISING DEMAND: Kuwait’s six existing power plants currently have an installed capacity of 14,593 MW, while the country’s water facilities can produce 400m gallons per day (gpd). Of the two, power is in shorter supply. “Power is a big problem in Kuwait but the water situation is manageable,” said Suhaila Marafi, the director of studies and research at Ministry of Electricity and Water (MEW), speaking to the local media in March 2011.

MEW has estimated that, with peak demand rising by 6-8% per year, an additional 10,000 MW of installed electrical generation capacity will be necessary by 2020. The country is also planning to increase water capacity to 700m gpd by 2015, according to public statements by the former minister of electricity and water, Badr Al Shuraian, in March 2011. In total MEW plans to spend KD7.5bn ($27bn) through 2014 to enhance its power and water infrastructure.

FUEL SECURITY: Looking ahead, part of the challenge for the government will not only be building more plants; it must also source sufficient amounts of fuel to keep them running. Currently, the country consumes about 200,000-300,000 barrels of oil every day for domestic production of electricity, according to the Kuwait Petroleum Corporation (KPC). While this has made economic sense in the past, the government now stands to benefit more from selling this oil rather than using it for power generation.

Another fuel option for power generation is natural gas, which Kuwait presently uses as a feedstock for some power plants. However, during the summer months, when electricity demand rises, the country is unable to supply a sufficient amount of domestic natural gas and instead relies on imports of liquefied natural gas (LNG). In April 2011, Hashin Al Rifai, a planning manager at KPC, told the local press that the country would import 0.5bn cu ft per day of LNG between March and November of 2011. To put this figure in perspective, in 2010 the country produced about 1.17bn cu ft per day of natural gas. However, the Kuwait Oil Company (KOC) has said that it is aiming to more than triple its output of natural gas, to 4bn cu ft per day, by 2030.

A GROWING PRIVATE ROLE: At present, the government owns all of the power and desalination plants that contribute to the national grid, although day-to-day operations are often contracted out to private companies. A good example of this model is the new power plant at Sabiya, which came partially on-line in June 2011. The state-owned facility will be operated and maintained by General Electric for seven years following the commencement of full commercial operations. At present, six gas-powered turbines are active, which are able to generate 1400 MW of electricity. The plant is expected to enter its full combined-cycle commercial operations in 2012, at which point its total capacity will be around 2000 MW.

Although this model of state ownership has worked well to date, the government has taken gradual steps to increase the role of the private sector in the supply of utilities. In June 2010 new legislation was passed that regulates the formation of joint stock companies for power and water projects, which has set the stage for the emergence of independent water and power projects (IWPPs). Although IWPPs are widely used in the GCC region, they have heretofore not been implemented in Kuwait. Under this model, a joint stock company (in which the government sometimes holds a share) builds and operates the plants, selling electricity and water to the government at prices specified by long-term contracts.

Soon afterwards, the MEW announced plans for the country’s first IWPP, to be built at Al Zour North. In March 2011 Adel Al Roumi, the head of the Partnerships Technical Bureau – the agency responsible for the issue and oversight of the country’s public-private partnership projects – told the state news agency that all preparations had been completed for the establishment of the Northern Al Zour Power Generating Company, the shareholding firm that will be responsible for both the construction and operation of the Al Zour North IWPP.

As of February 2012, the government had yet to determine the private sector strategic partner for the project, which was tendered on March 24, 2011. In late March, Eyad Ali Al Falah, the assistant undersecretary for technical services at the MEW, said that 11 companies had prequalified to bid. He added that the government would hold no more than 24% of the shareholding company, while the strategic investor would own at least 26%. The balance of shares would be sold to the public in an initial public offering.

The Al Zour North plant, which will have a capacity of 1500 MW, is expected to become operational in 2014. As originally conceived, it was due to be steam-fired, but MEW changed its plans following the discovery of substantial natural gas reserves in northern Kuwait. Authorities eventually plan to locate four power plants in the Al Zour area, with a combined capacity of 4800 MW.

The project at Al Zour North will be Kuwait’s first IWPP but is unlikely to be its last. With many of the GCC members moving towards a fully privatised model for power generation, Kuwait may not be far behind. Abu Dhabi, Oman and Qatar have all made moves to privatise their respective utilities industries.

ATTRACTING INVESTORS: However, for the IWPP system to work in Kuwait, the government needs to find private sector partners for these joint stock companies. In this respect, the government may be helped by the fact that the country generally scores well on global rankings. For example, the “2010-11 Global Competitiveness Report” (GCR), published by the World Economic Forum, ranked Kuwait 35 out of 139 nations, a jump of four spots over its position in the previous ranking. The country’s strengths, according to the GCR, include its tax policy, national savings rate, fiscal balance and the quality of investor protection.

In addition, the government is considered a reliable partner once contracts are signed, with the risk of non-payment very low. However, securing a major contract, especially in politically sensitive areas such as the energy sector, can be a lengthy and risky process. The cancellation of a proposed joint venture between KOC and US-based Dow Chemical to build the world’s largest polyethylene plant in December 2008 underscored the difficulty of pushing large projects through government channels. The deal, which was estimated at $17bn, was criticised by some lawmakers as requiring too large an investment.

More recently, development of the Al Zour refinery has experienced delays. In March 2009 the government suspended progress on the project in response to allegations by lawmakers that the construction contracts had been awarded outside the normal channels of approval. Work on the $14.4bn project, which was initially due to be completed in December 2011, restarted in June 2011 and the refinery is now expected to come on-line by 2016.

ALTERNATIVES: Producing more power and water is, of course, only one solution to dealing with the threat of shortages. Demand-side management, for example through encouraging conservation, is also important. As Saad Akashah, the chairman of Kuwait Catalyst Company, told OBG, “The new refinery at Al Zour will support the local needs, as well as the export ambitions of Kuwait. However, the solution is not only to produce more fuel to supply electricity and clean water, but also to save on consumption.” To this end, Kuwait could raise its electricity prices, which are heavily subsidised by the government.

Importing power is another option. In 2009, Kuwait was linked to Saudi Arabia, Bahrain and Qatar through the GCC grid, which expanded to include the UAE and Oman in 2011. To date, Kuwait has received only a very small amount of electricity from the GCC grid. As Saudi Arabia faces the same summer peak demand period as its neighbour, it has little to export. However, with Qatar already running an electricity surplus and the UAE expected to be able to export electricity when its nuclear power programmes comes on-line (currently projected for 2017), the grid could prove an economical alternative to major increases in installed generation capacity in the longer term.