Gulf oil producers and other countries in the Middle East and North Africa (MENA) need to pump nearly $250 billion in the next five years to expand their power sector and face a rapid growth in domestic demand.
According to an official Arab report, nearly $148 billion will have to be invested in raising generation capacity while the rest will cover transmission and distribution (T&D) of electricity supplies.
The study by the Saudi-based Arab Petroleum Investment Corporation (Apicorp), an affiliate of the Organization of Arab Petroleum Exporting Countries (OAPEC), said growth in MENA’s power sector would far overtake GDP growth during 2013-2017, with the first projected at around 7.8 per cent against real GDP growth of 4.5 per cent.
“This would require an investment in MENA power sector of about $250 billion, nearly 59 per cent for new generation capacity and the remaining 41 per cent for T&D,” said the study sent to Emirates 24/7 on Saturday.
It said the growth rate of 7.8 per cent translates into a five-year power capacity increment of about 124 GW above the 2012 level, partly through combined power/water desalination plants.
“Therefore, with current reference costs – reflecting prevailing prices of engineering, procurement and construction (EPC) and country investment climates – the resulting capital requirements will be in the order of $148 billion for power generation during the forecast period.”
The study by Apicorp senior consultant Ali Aissaoui showed the six-nation Gulf Cooperation Council (GCC), which controls over 40 per cent of the world’s proven crude deposits, accounts for 43 per cent of MENA total and 53 per cent of the Arab world total, noting that expenditures for nuclear power generation is implicit in the case of the UAE and Iran.
“As for investment in T&D, it derives from the need to develop adequate transmission networks to supply electricity to industries, businesses and households in the region. These networks are differentiated between transmission and distribution grids.”
A breakdown showed investment requirement in the GCC would total around $104.7 billion, including $63.1 billion in power general and $41.6 billion in T&D. The report estimated the required total capital at around $61.1 billion in Arab Mashreq, $31.2 billion in Arab Maghreb (North Africa), nearly $4.1 billion in the rest of the Arab world, and $49.2 billion in Iran.
Aissaoui said investment on this scale would not occur without addressing current challenges, prominent among which are fuel and funding.
He said these challenges, are considered far beyond the scope and resources of any public utility or private developer.
“The fact that the power generation sector is the single most important industrial user of natural gas in key countries in the region, raises the extent proven reserves can meet long-term fuel demand. Indeed, although most MENA countries are endowed with substantial gas reserves, supply
sustainability should not be taken for granted,” he said.
“As for funding constraints, they should be considered in the context of the restructuring and liberalization that has been taking place in the region. While these reforms have key features in common, they differ somewhat in terms of
institutional design and application.”
He said that as a result of high population growth, fast expanding urban and industrial sectors, increasing needs for air conditioning, and heavily subsidized electricity tariffs, many countries within MENA have been struggling to meet fast-growing demand for electricity.
With ongoing turmoil, catching up with unmet demand may be perceived as socially and politically more desirable, he added.
“Investment of this scale will face many challenges, prominent among which are fuel and funding. The first stems from the scarcity of natural gas in key countries in the region and the opportunity cost of generating electricity using high-value export oil products instead,” he said.
“The second results from the inadequacy of internal and external financing and the reluctance of many MENA governments to support cash-strapped
public utilities, which are committed to continuing to invest should the private sector be not forthcoming. Both fuel and funding challenges involve significant policy dilemmas that need to be addressed quickly and effectively.”