The Attraction of Power

Qatar

Economic News

22 Jul 2010
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With the laying of the foundation stone for the new Ras Laffan B Power and Water Plant project at Ras Laffan Industrial City this week, Qatar's demand for power and water looks to be sated for at least a few years to come. However, recent rapid increases in demand for power and water means the need for more plants in the future is growing - a development offering more opportunities for private-sector participation as independent power producers (IPPs).



The stone was laid by the heir apparent, Sheikh Tamim bin Hamad Al Thani. Speaking at the event, Minister of Energy and Industry Abdullah bin Hamad al-Attiyah expressed the importance of such projects, as guaranteeing the provision of electricity and desalinated water are essential ingredients for the country's continued economic development.



The plant will be one of the largest infrastructure projects to date in Qatar and will be constructed by Q-Power, a Qatar Shareholding company incorporated through the participation of the Qatar Electricity and Water Company (QEWC). They hold a 55% share alongside the UK's International Power, which holds 40%, and Japan's Chubu Electric Power company, which holds 5%.



"The objective of the company is to develop, own, operate, maintain and transfer electrical production and water desalination projects and related pipelines and infrastructure," explained the minister. "In future, the government will endeavour to admit more local, regional and foreign companies to the field of electric power generation and water desalination."



The sector was restructured to allow private sector involvement in the 1990s. Distribution and transmission were taken over by a new public sector body, the Qatar General Electricity and Water Corporation (QGEWC), now re-branded as Kahramaa. Generation and desalination were put under the QEWC.



The majority of shares in the QEWC were sold via an initial public offering (IPO) on the Doha Securities Market. While the government retained 42.74% of the company, 16.86% was taken by private investors and 40.4% was sold to major companies, including Qatar Petroleum and the Qatar National Bank, which hold around 10% each.



Following an Emiri decree in 2001, a new private generation company was established. The Ras Laffan Power Company was formed as a joint venture between the US AES Corporation, which holds 55% of the equity, QEWC, which holds 25%, Qatar Petroleum, which holds 10%, and the Gulf Investment Corporation of Kuwait, also with 10%. The first watts of power hummed onto the grid in mid 2004; with the plant's addition of 750 MW to the grid at a cost of $720m, this bought the total installed capacity in the state to 2750 MW of power and 107m gallons per day (g/d) of water.



With the commencement of work on Ras Laffan B, the project is expected to deliver 1025 MW of power and 60m g/d of water when it is fully commissioned in 2008. However, the first production is expected in April 2006.



Speaking at the stone laying ceremony, al-Attiyah said that the initial result of privatisation had been a great decline in the costs of power and water - of up to 40% in existing stations and projects under construction.



The Power and Water from Ras Laffan B will all be sold to Kahramaa with a power and water purchase agreement signed for a 25-year period after the project is completed. The plant is not expected to meet demand for that long though.



"Growth in demand is about 10% a year, or 250 MW a year," explained Fahad Hamad al-Mohannadi, general manger of QEWC, when speaking to OBG this week. "This project could meet demand for three to four years; but because an older plant will be phased out in 2006, this plant will only suffice for two to three years."



Demand from a growing population is being augmented by massive demands from a rapidly expanding industrial sector.



"Now you have projects like Qatar Steel Company developing their expansion," continued al-Mohannadi. "They are focusing on Kahramaa to supply the power now, they have not finalised this yet, but if they do, then it is 350 MW right there."



One project that is expected to increase demand particularly drastically is the plan for an aluminium smelting plant at Mesaieed. This joint venture between Qatar Petroleum and Norwegian firm Hydro will comprise of a metal plant, a cast-house, and a dedicated power plant. The project is expected to reach a full capacity of 570,000 tonnes a year of primary metal by 2009. The facility will be expandable, with room to easily double capacity.



"We are discussing building a huge plant that will supply the aluminium smelter and with the excess going onto the grid," said al-Mohannadi. "So this project will not be like an IPP. It will be the aluminium smelter with an expansion to start supplying power from Mesaieed which has no major power plant built yet. Power there currently comes from Doha."



Further plans to meet demand are also in preparation. An expansion of the Ras Abu Fontas B (RAFB1) co-generation plant and a new IPP known as Facility B are both part of a strategy to meet Qatar's domestic power needs until 2015.



The proposed capacity for the RAFB1 project is 400-500 MW, with 20m-27m g/d of water. The project will be executed by QEWC. The hope is that the expansion will be completed within 15 months of the project's signing, which is expected to be in October this year.



Facility B will run in parallel with this, with the key agreements being inked by April 2006. According to recent reports, the project will have an expected capacity of around 1000 MW and is set to include an option for the successful bidder to take up further projects - known as C, D and E - that are hoped to meet demand until 2015.



With plenty of natural gas to fuel its power stations, Qatar will undoubtedly be able to leverage costs to produce cheap electricity. Their inclusion of the private sector seems to be paying off as well. As long as demand is met, consumers - both households and Qatar's growing industrial base - will continue to enjoy the benefits of cheap power.

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