'Black Thursday'

Economic News

22 Jul 2010
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DUBAI: The massive power outage last week that cut electricity to all parts of the city made for an uncomfortable day in the early summer heat - but far more worrying was the lack of answers that have been offered for the causes of the blackout.



The day, labelled "Black Thursday" by many pundits - perhaps overzealously - saw traffic lights go out, air conditioning cease, water supplies run dry and ATM machines stop working. While some institutions quickly fired up backup generators, others languished without power for up to nine hours. Widely circulating claims suggest Dubai business lost an estimated Dh268.46m ($73m) as a result of the outage.



Yet while the power cut certainly was disruptive, its impact may be slightly over-hyped. As it happened on a Thursday, a non-working day for many, losses were comparatively minor. The power cut happened on a morning most people didn't come to work; those that did went home early. People sought refuge in the generator-powered malls to escape the 40-C heat, while others headed to nearby Sharjah, which was not affected.



The important questions the event raised, have, however, gone largely ignored. For example, how could citywide blackouts be triggered by what the Dubai Electricity and Water Authority (DEWA), the emirate's only power operator, dubbed a "technical failure" - an apparently minor fault? Was this due to unexpectedly heavy loads? Why did the multiple back up systems fail to be activated?



The government of Dubai has stayed tight lipped on the causes of the incident, except to be quite adamant in refuting circulating rumours that the culprit was a fire in Jebel Ali, the location of the emirate's main power facilities. Beyond that, DEWA has given few further details.



Yet this is not the first time that power has cut out in Dubai and the city has delivered only a vague explanation. A similar blackout happened in 1999 and was blamed on "a sudden drop in the gas fuel control feeding the power plants in Jebel Ali".



While a second loss of power in six years is hardly cause for panic, it has put some pressure on DEWA to offer some assurances, which so far have not been forthcoming. The lack of information is not surprising, as the government-run DEWA remains firmly in control of all the emirate's power and water operations. Unlike many electricity and water companies in other parts of the Gulf, Dubai does not seem to have any intention of privatising its utilities, either.



This is in sharp contrast to just down the road in Abu Dhabi, where almost all the power and water sector is run by private companies. Back in the late 1990s, Abu Dhabi Water and Electricity Authority (ADWEA) took the decision to privatise its utilities and by 2002, Taweelah A2 had become Abu Dhabi's first independent water and power project (IWPP). By 2003, there were four other IWPPs contracted out, and the government plans to have all power and water plants in Abu Dhabi privatised by 2006.



Even Oman, generally seen to be less liberalised than its booming northern neighbour, shines in comparison when it comes to its power and water industry. It awarded a build-own-operate-transfer (BOOT) deal to Tractebel back in 1996 and has since followed by tendering out several construction contracts for power and water stations. Muscat has even begun offering IPOs for a number of its power plants.



Meanwhile, Dubai has defiantly stated that its own power generation system is sufficient for its needs, but the blackout has added calls to get the entire UAE on an electricity grid. At the moment, only the smaller northern emirates operate in this way. A UAE-wide power grid is set to come online by 2006, but many questions remain, such as what pricing structure will be used and which emirates will carry the load.



Until this happens, Dubai will be on its own. As shown by its chronic traffic problem, the emirate is expanding at a rate that is putting heavy strain on its infrastructure. The breakneck speed of real estate development has seen power and water demands mirror the rapid pace of growth, too. Last year it was reported that demand for electricity was up 12.2% while water demand rose by 10%.



Future power needs are set to increase even more sharply. "For the next five years, we are forecasting on the power side average growth in demand of 14-18%, which is based on developer predictions and our own," Saeed Mohammad al-Tayer, CEO of DEWA, recently told the press.



DEWA is trying to keep pace with the surging demand and has been building and refurbishing plants. By the end of 2005, Dubai plans to have a generating capacity of 4500 MW and a desalination capacity of 268m gallons a day. These upgrades are part of $1bn in new power and water projects set to double the emirate's installed capacity over the next five years.



But ambitious building may not be enough. Dubai, poor in energy resources, depends heavily on neighbouring emirates Sharjah and Abu Dhabi to supply a steady flow of natural gas. With the expected jumps in power demand, the emirate has been forced to look outside the UAE's borders. A recent agreement signed with Dolphin Energy Limited (DEL) has made Dubai's electricity future look a bit more secure, but the emirate will have to wait until 2007 before it gets the first deliveries.



In the meantime, Dubai may need to re-examine its power and water consumption. With acres of green grass, man-made bodies of water and little awareness of water conservation, Dubai, which receives around 6.5 cm of rainfall a year, ranks among the highest per capita water and power consumers in the world. Changing these wasteful tendencies might need more attention.



Also important is going to be re-examining the decision to keep the utilities in the hands of the government. For years, Dubai has justified keeping its basic industries in the hands of the state by insisting that Dubai's leadership has enough of a business-like attitude to run vital industries efficiently. This has served them well thus far, and made Dubai a model to follow for economies all over the world. However, the economy might finally be outgrowing the government's shoes, and with utility demand in the burgeoning emirate not even close to letting up, its job will be getting no easier.



Last Thursday's power outage exposed another small crack in the country's infrastructure, spreading inconvenience rather than chaos. But even minor incidents will have major repercussions if power problems become more regular and proper explanations continue to be elusive.

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