Uncertainty regarding the security of power supply is prompting real estate developers in the northern emirates to make alternative arrangements.
Ajman is one of several northern emirates currently experiencing uncertainty over future power supplies. The Federal Electricity and Water Authority (FEWA), which is officially charged with securing provision for most of the northern emirates (Sharjah is the exception - its power is provided by the devolved Sharjah Electricity and Water Authority), has been stretched to capacity keeping pace with galloping demand from new construction projects. It has accused local government of failing to adequately plan for the strain these developments and mega-projects are placing on infrastructure.
Hassan Abdullah Al Ghasyah, FEWA's executive director of supply, underscored this, saying, "local government authorities have not coordinated on precise water and power requirements with FEWA." He went on to say that it had resulted in shortages and the need for independent generating capacity.
Other emirates are being affected by the lack of power, too. For example, the Dh30bn ($8.2bn) Al Salam City project, due to be built in Umm Al Qawain (UAQ) by Tameer, was recently indefinitely postponed. Tameer accused the government of failing to provide a clear outline of energy and water provision for the project, prompting a quick response from the UAQ government, which took the unusual step of publishing a private clause from the project contract, showing that liability for power, water and canalisation lay with the developer.
The root cause of the power shortage stems from the increasing difficulty in sourcing feedstock for generation. Most of them have either limited or no fossil fuel resources, instead relying on either natural gas sourced from neighbouring states such as Qatar, or diesel from Abu Dhabi. Ras Al Khaimah (RAK), for example, produces only 30m cubic feet per day (cu f/d) of gas, and is forced to import 40m cu f/d from Oman via the Dolphin pipe network, and a further 80m cu f/d from UAQ (one of the few northern emirates with the capacity to export fuel).
Soaring prices have led Ajman to look toward coal for its future energy security. Earlier this month, the emirate signed a Dh7.3bn ($2bn) deal with Malaysian power company MMC to build the Gulf's first coal plant, which is anticipated to come online in early 2012.
The 1 GW plant should provide sufficient capacity both to meet Ajman's current demand and create a cushion for future growth. However, the lignite feedstock will need to be sourced from several thousand miles away - most likely South Africa - an ironic situation given the abundance of natural gas in the region. The emirate's situation is not helped by ambiguity over who is in charge of power provision. FEWA, despite its role as official provider, appears to be devolving responsibility, allowing both private sector developments and individual emirates to seek their own deals.
In the meantime, the supply gap is likely to result in increasing numbers of developers offering their own generation capacity. For instance, Eye of Ajman, a Dh3.5bn ($950m) real estate project currently under development by the Bonyan Group, will be supplied with its own generators in a bid to reassure investors.
Other projects aiming to carry out their own power generation in Ajman include Sweet Homes Real Estate, involved in several developments throughout the emirate, and High Sky Properties, which is currently developing Triple Towers.
The Federal National Council recently gave approval for private companies to generate power and desalinate water under the supervision of FEWA. This may ease short-term bottlenecks and stop further cancellations of projects. The danger, however, is that small-scale generation will further push up demand for limited feedstock, thus exacerbating the price situation.