The utilities industry in Oman is going through a transitional period in anticipation of major restructuring and renewal plans in the water and electricity sectors. While large-scale retail competition in electricity is not yet feasible, changes in technology – like the introduction of cost-reflective tariffs (CRT) – are making distributed provision more cost-effective.

The most significant development in the electricity sector is the planned introduction of a spot market to allow generators without long-term contracts to sell power on a half-hourly basis at a market clearing price. Projected for launch in 2020-21, the intended outcome is to increase sector competition. If Oman moves forward with developing the commercial mechanisms to make additional capacity available outside of the power and water purchase agreement (PWPA) model, the market stands to benefit from gains in competition and efficiency.

In the water sector, the sultanate’s procurement agency has worked to bring considerable new capacity on-line across Oman’s five water zones as part of efforts to address the supply shortages during peak demand periods in 2017, particularly in the Muscat demand region. Oman is also on the verge of a major shift towards renewable energy as the government rolls out regulations and projects to harness power supply from solar plants and wind farms. Oman’s utility-scale solar ambitions might yield results soon, when the sultanate launches tenders for its first large-scale solar photovoltaic (PV) independent power project (IPP), which is expected to launch in 2020 (see analysis).

Sector Structure

Nama Group, formerly the Electricity Holding Group, holds shares in nine state-owned companies involved in the generation, transmission, distribution and supply of power. The group is wholly owned by the Ministry of Finance and in turn owns 99.99% of shares in Oman Power and Water Procurement Company (OPWP), which is tasked with purchasing required power and desalinated water in bulk from privately operated generation and production facilities connected to power and water transmission systems. OPWP is required by sector law and its licence – from the Authority for Electricity Regulation (AER) – to ensure that sufficient generation resources are available to meet future power demands in the country’s two primary electricity systems: the Main Interconnected System (MIS) and the Dhofar Power System (DPS).


OPWP contracts generation capacity through competitive tenders that are open to international bidding. The terms of the power purchase agreements (PPAs) signed with winning bidders permit foreign investors to own 100% of power generation plants on a build, own, and operate (BOO) basis. Wherever beneficial, OPWP seeks to co-locate power and water projects when planning new capacity to benefit from the co-procurement savings associated with pairing power generation and thermal desalination. Recent examples include the Salalah Independent Water and Power Project (IWPP) in Dhofar and the Barka II IWPP.

OPWP also procures standalone desalinated water facilities under a bulk supply agreement with the Public Authority for Electricity and Water (PAEW) – rebranded in 2017 as Diam. Diam acts as the water department, developing and extending networks to pipe water to customers in its service areas. New distribution networks that opened in 2017 include Al Amerat, Bahla, Al Rustaq and Al Buraimi.

The government heavily subsidises potable water distribution in the country, and domestic users pay less than half of the true cost of the water they consume. With state spending constrained in a low oil-price environment, Diam is planning to concentrate its limited resources on large-scale water transmission projects, to ensure that production from new desalination plants can be effectively distributed.

Formal regulation of the water sector is expected to remain in flux through 2018 as part of a planned industry restructuring. Government agencies like Diam are actively developing internal “shadow” regulation frameworks in advance of these changes.

Electricity Network Structure

Electricity is typically sourced from privately operated power generation plants performing under a long-term contract with OPWP. Oman Electricity Transmission Company (OETC), a Nama Group subsidiary, owns and operates the main electricity transmission network in the sultanate. In 2017 Oman’s electricity networks underwent a major renewal aimed at strengthening transmission infrastructure and providing reliability and fuel-saving benefits through increased interconnectivity both regionally and internationally. Work continues in the form of the UAE Interconnect Project – providing Oman with access to the power systems of the other five member states of the GCC – and the North-South Interconnect Project, which is a proposed 400-KV transmission link from Nizwa to Duqm and the Dhofar Power System (see analysis).

The MIS covers the governorates of Muscat, Buraimi, and most of six other regions, serving roughly 864,500 customers. Components of the MIS include power generation facilities owned and operated by various private companies, a 400/220/ 132-KV transmission grid owned and operated by Nama Group member OETC and three distribution networks owned and operated by Muscat Electricity Distribution Company, Mazoon Electricity Company and Majan Electricity Company.

The second main electricity system, the DPS, covers roughly 101,449 electricity customers in the city of Salalah and surrounding areas in Dhofar Governorate. In 2017 the DPS was served by two generation facilities, a 220/132-KV transmission grid owned and operated by OETC and a distribution network owned and operated by Dhofar Power Company. Leading oil and gas exploration and production company Petroleum Development Oman maintains its own power network connected to the DPS via a 132-KV link with a transfer capacity of up to 150 MW between the town of Thumrait and Harweel oil fields.

The Rural Area Electricity Company (RAECO), another Nama Group member, provides power to more remote areas of the sultanate that are not covered by the MIS or DPS. The small energy requirements of these areas have been met economically by using diesel-fired generators located close to them.

Electricity Use

Average electricity demand in the MIS grew at a modest 3.9% in 2016 to 3364 MW. With the introduction of CRT for large commercial, government and industrial consumers in 2017, peak electricity demand is projected to grow slowly in the MIS, at an annual average rate of 6% per year, according to the OPWP Seven-Year Statement ( 2017-23), from 5920 MW in 2016 to 8960 MW in 2023.

Electricity demand growth in the Dhofar region was slightly lower than low-case forecasts anticipated in 2016, with average demand rising 4% to 349 MW and peak demand measuring at 497 MW, up 0.5% over 2015. Average demand between 2016 and 2023 is projected to grow by 7% annually to reach 559 MW, while peak demand is expected to grow at about 6% per year over the same period to 765MW, according to OPWP estimates.

In Duqm, the demand for electricity is expected to grow significantly as the Special Economic Zone Authority Duqm (SEZAD) realises development plans that are set to transform the area into an industrial hub. RAECO demand projections of approximately 650 MW by 2025 reflect the substantial anticipated economic and population growth.

However, the actual pace of growth remains uncertain and will depend on unpredictable factors associated with global markets, the investment climate and government incentives. According to expected demand scenarios developed for the Musandam Governorate by RAECO, there could be 9% annual growth in peak demand, from 74 MW in 2016 to 132 MW in 2022. This reflects an overall reduction in demand relative to that reported in the previous Seven-Year Statement issued by OPWP.

Demand Forecast

Recent projections for electricity demand growth have been revised downward from previous forecasts due to slower economic growth and the impact of the introduction of CRTs for large consumers. CRTs were introduced in early 2017 to promote the efficient use of electricity by incentivising high-value customers with consumption above 150 MWh to avoid consumption at peak times. Tapering off-peak load by making it more expensive is transforming power usage, with larger customers shifting production schedules to avoid consumption at peak periods.

Implementation of automatic meter reading (AMR), currently limited to high-value consumers, also allows distribution companies to apply CRT while supporting the reduction of losses by obtaining accurate meter readings and detecting any issues in electrical connections. The AMR initiative builds on incentives offered by AER that have contributed to a major reduction in physical losses in the system achieved by distribution companies.

Reduction in forecast demand resulting from the economic slowdown and the implementation of CRT have also impacted procurement strategies, resulting in several project deferrals. Notably, the Misfah IPP, which was launched in 2016 to develop between 750 MW and 850 MW in the MIS, was deferred for at least one year in a decision announced by OPWP in June 2017. The company cited the economic downturn and slowdown in electricity growth demand as reasons for suspending the project, along with efficiency improvements and the impact of the newly introduced CRTs. “We didn’t see the need to have the plant up and running in 2021, so we delayed until 2022, and next year we’ll announce capacity,” Yaqoob Saif Al Kiyumi, CEO of OPWP, told OBG.

The deferral of new capital expenditures will help OPWP to contain the level subsidies provided by the government to the electricity sector. Project deferrals also help with the availability of domestic gas for future power plants in the context of competing gas needs for economic development. Though the Ministry of Oil and Gas has reportedly approved gas allocations to the next two IPPs that OPWP plans to procure, it has indicated that future natural gas supply is constrained, according to the OPWP Seven-Year Statement (2017-23).

New Capacity

Significant new generation capacity is planned for the MIS in 2018, with the Ibri IPP – a major new natural gas-fired power project – coming online in April to deliver early generation capacity of 940 MW. Total contracted capacity for 2018 will surge to around 7400 MW, supplemented with contributions from contracts with Sohar Aluminium Company (SAC) and the GCC Interconnection Authority that will be used to meet peak demand requirements and cover any shortfalls in a high-demand scenario. By April 2019, Ibri IPP is scheduled to come on-line and deliver the full capacity of 1509 MW, shortly after Sohar III – another a major new natural gas-fired power project – begins delivering its full capacity of 1708 MW.

The net contribution of Ibri and Sohar will bring the total contracted capacity in the MIS to 8944 MW in 2019, sufficient to offset the planned decommissioning of the 405-MW capacity Ghubrah IWPP and 326-MW capacity Wadi Al Jizzi IPP in September 2018, and also enough to secure capacity requirements through the end of 2020.

Beyond 2020, even the additional capacity made available through UAE Interconnect and SAC will prove insufficient for meeting high-case demand growth forecasts. Four power stations will reach the expiry of their purchase agreements with OPWP between December 2021 and March 2022. OPWP will need to tender approximately 1600 MW of generating capacity to cover the remaining deficit against capacity targets in 2022.

To achieve this, the company plans to adopt a new capacity procurement methodology by the end of the first quarter of 2018 – the Power 2022 Procurement Process – which will allow existing generators with expiring contracts to compete with new project bidders for long-term contracts. All out-of-contract plants are expected to compete for new power and water purchase agreement contracts, according to OPWP in its Seven-Year Statement. Only capacity offers that are competitive with new generation bids are likely to be extended.

“One of our promises to developers is that there will be opportunities to realise residual value in the future,” Al Kiyumi said. “We are offering an opportunity for existing generators to extend operational contracts for a period that will depend on the plant’s technical utility level and conditions.”

Further Procurement

In Dhofar Governorate, a new natural gas-fired power project owned by the Dhofar Generation Company – the 445-MW Salalah II IPP, located close to the port town of Salalah – is scheduled to begin commercial operation in January 2018. The new plant will supplement existing contributions from Salalah IWPP, operational since 2012 and currently generating 445 MW of power and 68,000 cu metres of water per day for Dhofar.

With both plants feeding into the DPS, contracted capacity is projected to meet OPWP’s generation security standard in Dhofar for several years beyond 2023, and the company has no further plans for power procurement as per its Seven-Year Statement. One possible exception is wind resource development in Dhofar, where energy diversification strategies may drive new procurement beyond 2020.

The only power currently generated in Duqm and its surrounding areas is supplied by Duqm power station, a 66-MW diesel-fired power plant that is owned and operated by RAECO. As the area develops into an industrial and logistics hub, the options considered to meet the growing demand include expanding the existing power plant, procuring rental diesel generators, constructing a new fuel oil or gas-fired power plant, or purchasing power from OPWP, which is subject to the completion of the North-South Interconnect project, which would also provide an interconnect with the Duqm demand area, through the town of Haima.

RAECO is also considering purchasing additional power from local utility Marafiq, a joint venture between Takamul Investment Company and Semcorp Utilities. A captive combined-cycle gas turbine plant with more than 300 MW of capacity is under development by Marafiq to meet the demand of projects belonging to Oman Oil Company within Duqm Special Economic Zone. Early power is projected to come on-line by the middle of 2019.

In Oman’s northernmost Musandam Governorate, RAECO owns and operates six diesel-fired power stations, which have a combined installed capacity of about 88 MW. The majority of units are nearing the end of their technical life and are expected to be decommissioned shortly.

The newly inaugurated 120-MW Musandam IPP, supplied and built by Finland-based technology group Wärtsilä, is expected to contribute sufficient capacity to meet all demand scenarios through 2023. The plant was delivered on a turnkey contract in November 2017 and will be operated by a consortium led by Oman Oil Company under a PPA with OPWP for supply to RAECO.

Electricity Spot Market

In parallel to the Power 2022 Procurement Process, which will play a key role meeting future demand gaps in the MIS, OPWP is developing the electricity spot market, aiming to increase competition in the power generation market and make more capacity available outside of the PWPA model.

Initial plans to launch in 2020 – in time for the expiration of PPAs in 2021 – have been modified, and the launch date has been pushed to the end of 2021 in OPWP’s latest Seven-Year Statement. The revised timelines and industry confusion around the OPWP implementation strategy have led some to question the commitment to spot market implementation in Oman. “Of course we’re not going to liberalise the market fully from day one,” Al Kiyumi, CEO of OPWP, told OBG. “But it’s quite a good step to understand what is required if the government decides to do that in the future. That will help companies with expired power PPAs, if they don’t want to compete with new capacity, to sell their power on the spot market,” he added. OPWP submitted detailed market rules to the AER in January 2017 for regulatory approval to sell electricity in the spot market, and will need to conduct a procurement round for IT systems before beginning operational trials.

Water Production

Demand for water in Oman is primarily driven by population growth and tourism projects. Though production from the privately operated desalination plants that are under contract to OPWP is sufficient to meet average demand requirements, the country experienced supply shortages during peak demand periods in 2017, particularly in the Muscat demand region of the MIS.

To meet the sultanate’s water requirements Diam utilised contingency reserves from existing wells in undersupplied demand regions. Limiting the use of groundwater sources with a total capacity of around 100,000-110,000 cu metres per day is consistent with Oman’s national policy aimed at limiting well production to replenish aquifers.

In a bid to avoid future shortfalls, OPWP is also working to bring considerable new capacity on-line across the sultanate’s five water zones – MIS, Sharqiyah, Musandam, Duqm, and Dhofar.

Average water demand in MIS stood at roughly 746,000 cu metres per day in 2016, with the OPWP projecting 5% yearly growth to roughly 1m cu metres per day in 2023. Peak demand in the zone is expected to rise from 897,000 cu metres per day in 2016 to 1.29m cu metres per day over the same period, according to the Seven-Year Statement by OPWP. The principal sources of desalinated water used to meet potable water demands for the MIS include Ghubrah IWPP, Ghubrah II IWPP, Barka IWPP and Barka II IWPP, and Sohar IWPP.

Capacity on the grid is expected to surge in the second and third quarter of 2018, when the 281,000-cu-metres-per-day Barka IV independent water project (IWP) and 250,000-cu-metres-per-day Sohar III IWP are both scheduled to come on-line. The 102,000 cu metres per day Barka IWPP contract will also be extended to 2021 to offset the impact of retiring the Ghubrah IWPP desalination units in March 2018. Another desalination project scheduled to commence operations in Qurayyat in the fourth quarter of 2017, will contribute 200,000 cu metres per day of new capacity, equivalent to 17% of Oman’s peak water demand. The combined capacity of the three major water desalination plants coming on-line – Qurayyat, Barka IV and Sohar III – will add 731,000 cu metres per day to the grid.

OPWP also floated a tender in September 2017 seeking bids from consultancy firms to provide financial and commercial advisory services for a surface water treatment plant at a water dam at Wadi Dayqah. The IWP will be awarded on a build, own, operate and transfer basis. The next major additions to the MIS are anticipated to occur in 2022, when the 300,000-cu-metres-per-day, Ghubrah III IWP and the 200,000-cu-metres-per day North Batinah IWP are scheduled to begin operations.

Governorate Gains

In Sharqiyah Governorate, annual average water demand is expected to grow by 7% per year, from 93,000 cu metres per day in 2016 to 115,000 in 2023. The principal source of water in the Sharqiyah Zone is currently Sur II IWP, owned and operated by Sharqiyah Desalination Company, with a capacity of 131,000 cu metres per day. This includes the 48,000-cu-metre-per-day expansion completed in the first quarter of 2017.

The temporary Aseelah IWP, awarded in January 2016 to Muscat Water, also came on-line in 2017, contributing an additional 10,000 cu metres per day with an option for a two-year contract renewal beyond expiration in 2021. The temporary IWP is a necessary stop-gap in order to meet the potable water demands of the Ash Sharqiyah North and Ash Sharqiyah South governorates before the Aseelah IWP is brought on-line to contribute 80,000 cu metres per day capacity in the second quarter of 2020. A request for proposal was issued for the Aseelah IWP in March 2016, and OPWP was planning to award the project to private developers – on a BOO basis – by the end of 2017.

In Dhofar Governorate, the Directorate-General of Water is the principal entity responsible for the supply and distribution of potable water, apart from small, private networks. Salalah IWPP, owned by Sembcorp Salalah Power and Water Company, is the only source of desalinated water for the Dhofar water network at the moment. OPWP is in the process of awarding a contract for Salalah III IWP, expected to contribute new capacity of 100,000 cu metres per day when it comes on-line in 2020.

As many as eight pre-qualified bidders were reported to have submitted bids for developing the IWP on a BOO basis. Investigation by OPWP were also under way in 2017 into a site for a third IWP, potentially to begin operations in 2022.

The new projects are required in order to meet an annual average growth rate of 9% in potable water demand in Dhofar, with demand forecast to rise from 42.6m cu metres in 2016 to 78.4 cu metres in 2023, according to the OPWP. In Al Wusta, the Duqm area is currently served by an 8000-cu-metre-per-day-capacity desalination plant owned by RAECO, and several local water sources.

With projected demand expected to grow dramatically for both industrial and domestic water as Duqm develops into an industrial hub, there is an urgent need to develop new water supply sources to avoid a considerable shortfall.

Contributing to meeting rising demand, RAECO plans to expand its plant to produce an additional 4,000 cu metres per day in 2018. OPWP also initiated a procurement process in 2016, in response to a PAEW request for a new Duqm IWP with a capacity of 60,000 cu metres per day. This would be sufficient for meeting capacity targets up to 2023.

Lastly, in Musandam Governorate, OPWP initiated procurement of the 16,000 cu metres per day Khasab IWP with bidder pre-qualifications in the final quarter of 2016. In late 2017, OPWP was reportedly planning to tender the plant by the end of the first quarter of 2018 for early water in 2021.

OPWP is also reviewing plans to build a mobile desalination project, with a capacity to produce up to 100,000 cu metres per day to meet temporary shortages for potable water in different parts of the country. The project can be mounted either on land transport vehicles or sea-faring barges, providing mobility to various sites depending on water demand, according to the Seven-Year Statement released by OPWP. Procurement for the project was awaiting Ministry of Finance approval in 2017.

Almost universally across new projects tendered in Oman, bidders have favoured reverse osmosis (RO) technology over multi-stage flash (MSF) in the seawater desalination process due to its economic advantage. Recent examples cited by OPWP include the Salalah IWPP in Dhofar and the Barka II IWPP in the MIS, where bidders proposed to use RO rather than MSF without any specific guidance in the procurement specifications.

Loss Reductions

The scarcity of water and the need to transport it over long distances makes it important to reduce losses to an economical and operationally manageable level. In 2016 the PAEW reported an increase in unaccounted for water (UFW) lost in distribution from desalination plants and wells to customers via pipe or tanker. UFW across Oman spiked to 39% of the total water entering the Diam system in 2016, according to Diam figures, with South Sharqiyah topping the list with 48% of UFW, followed by Muscat at 45% of UFW.

In its annual 2016 report, Diam attributed much of the distribution losses to commercial rather than physical explanations, pointing to recent changes in billing practices and pledging to carry out a more detailed review of the problem ahead of the launch of a new billing system. The authority also announced plans to address physical losses by employing better technology in active leak detection, as well as establishing a network replacement refurbishment programme that will become increasingly important as Diam assets grow older.

Renewable Energy Projects

Oman is on the verge of a major shift to renewable energy as the government rolls out regulations and projects to harness the potential of solar and wind resources. The prospects for utility-scale renewable energy development received a boost in 2017 with the roll out of CRTs. With organisations seeking to reduce the power they consume from the grid to make them more competitive on pricing, power and water plants are looking harder at captive solar generation.

The focus on renewables builds on the National Programme for Enhancing Diversification, also known as Tanfeedh, which was launched in 2016. The programme set a target of having renewable energy projects contribute 10% to the total power mix within 10 years. To support the government’s objectives in next-generation power capacity development, OPWP is developing plans for a more rapid transition to power supply from solar plants, wind farms and coal-fired generation.

Oman’s utility scale solar ambitions might yield results soon with the construction of its first largescale solar PV IPP with installed capacity of up to 500 MW (see analysis). Tenders were launched for the project in January 2018, with an expected commercial operations date of 2020, according to the recently issued Seven-Year Statement of OPWP.

Wind Power

The wind resources in southern Oman are another renewable energy source expected to help the country achieve its objective of diversifying its energy mix. To support future development in the wind energy sector, OPWP and Diam have established a task force to develop wind power plants. PAEW’s 2016 Wind Atlas Report identified several locations for prospective wind plants, and OPWP plans to develop wind instrumentation stations to support future power development.

OPWP also floated a tender in late 2017 seeking proposals from bidders to conduct a wind resource assessment campaign in multiple locations across the country. The project is intended to develop ground data to give lenders confidence that sufficient resources are available to justify financing.

The first utility-scale wind farm in Oman and the GCC is currently being developed near Harweel in southern Dhofar region by RAECO in partnership with Abu Dhabi’s renewable energy company Masdar. The $200m, 50-MW Dhofar Wind Power Project will operate under a PPA with OPWP.

In August 2017 Masdar signed a deal with a global consortium comprising the US-based General Electric and Spain’s TSK to build the plant and supply the turbines. General Electric will lead the engineering, procurement and construction contract, supplying 13 of its 3.8-MW wind turbines. When all 25 wind turbines become operational, by the end of 2019, enough electricity will be generated to power an estimated 16,000 homes, representing 7% of Dhofar’s installed power generation capacity.

Considering the potential intermittency of wind as a power resource, it is not currently being considered as firm capacity in supply plans. This position may change with experience of the project’s electricity output. While the Dhofar region has relatively modest demand requirements for energy, wind projects are expected to gain increased importance in the event of a north-south interconnection that would allow for energy generated by wind farms in the governorate to be exported to northern areas, WASTE MANAGEMENT: Oman’s Environmental Services Holding Company, be’ah, was established in 2007 and granted a mandate in 2009 to act as the entity responsible for solid waste management in Oman. Over the past three years be’ah has changed the way waste is processed in Oman, culminating in the transfer of waste management responsibilities from municipalities to private operators.

In January 2016 be’ah awarded the first concession to Urbaser, a Spanish waste management company, to undertake the management of municipal waste in South Al Batinah Governorate. By the fourth quarter of 2017 a total of seven tenders had been issued and contracts were awarded for collection activities with the strongest bids coming from experienced waste operators in Oman (see analysis).

Prior to transferring the management of municipal waste from municipalities to private operators, be’ah set out to shift waste from dump sites to engineered landfills. The company originally aimed to close all dumps by the end of 2016, but subsequently pushed back the date of completion due to a lack of landfill capacity. Once it is completed, this process will leave the sultanate with some of the best waste management infrastructure in the broader MENA region. By moving from more than 300 dump sites to well-conceived engineered landfills, be’ah has created the conditions for increased accuracy and efficiency in auditing waste and generating data.

“In one year’s time we will have better sets of data on the composition of waste that will support more efficient practices at diversion sites,” Youssef Barake, managing director of waste management company Averda, told OBG. “Accurate data will allow the industry to be much more precise. The future is not only in collection, but in diversion and treatment.”

By 2022, be’ah aims to divert 60% of waste away from landfills and towards sorting facilities, with this figure rising further to reach 80% by 2040. Part of achieving these goals will depend on investing in public awareness about best practices and the importance of residential waste segregation.

Diversion projects under consideration include waste-to-energy programmes in areas such as Fara and Dhofar, which aim to convert waste into fuel using solid recovered fuel or refuse-derived fuel techniques at industrial sites.


Driven by the need to optimise utility provision in the sultanate, the government of Oman is investing in both new technologies, and new approaches to water and power generation, as well as transmission and distribution.

Projections for electricity demand growth were revised down in 2017 over previous forecasts due to slowed economic growth and the impact of the introduction of CRTs for large consumers. The attempt to taper off-peak load by making it expensive is transforming usage in the country, with larger customers shifting production lines to avoid consuming power at peak periods.

In the water sector, the country experienced supply shortages during peak demand periods in 2017, particularly in the Muscat demand region of the MIS. In a bid to avoid future shortfalls, OPWP is working to bring considerable new capacity on-line across the sultanate’s five water zones.

What is the greatest investment potential for Oman, however, lies in turning the sultanate into a global centre for solar energy research and development. The next five years will be critically important for seizing the advantage, organising an effective regulatory regime and thus demonstrating the sultanate’s determination to become a global leader in renewable energy management and diversity.