After 20 years planning, Saudi Arabia to introduce competition into power generation

Saudi Arabia’s power generation industry, the largest in the Middle East, is to be the first target of the kingdom’s privatisation programme, the MEED Leaders in Energy Reform conference in Dubai was told today.

It was told that the Saudi Electricity Company (SEC’s) power station portfolio is to be divided into four ahead of share sales which will start in 2017. This will allow the four companies to compete with each other for Saudi electricity customers.

The overwhelming majority of Saudi Arabia’s generation capacity is owned and managed by the SEC which is listed on the Saudi stock market. The SEC is majority-owned by the the Public Investment Fund (PIF), the kingdom’s principal sovereign wealth fund.

Saudi Aramco, which is due for part-privatisation in 2018, is also a major owner of power stations.

Abdullah al-Shehri, governor of the Electricity & Cogeneration Regulatory Authority (Ecra), told the MEED conference that privatisation of power capacity would be preceded by the separation of generation from other parts of the SEC portfolio. The SEC’s power stations would then be allocated to one of four national companies with roughly similar generation capacities.

“The government decided the sector should be privatised, so we are working on a restructuring plan,” said Al-Shehri. “Generation will be totally divested and put forward for the private sector to participate in. The initial stage is to break down power plant legacies into four generation companies, and put them on the market for the private sector.”

Saudi Arabia’s power generation capacity is now about 70GW but it is increasing by about 4GW annually to meet demand. Forecasts suggest the kingdom will need to have capacity of about 130GW by 2030 but investment in more efficient power stations and action to raise electricity prices which started this year is expected to cut this figure significantly.

The SEC is investing heavily in converting its power generation capacity to combined cycle gas turbines.,

Saudi Arabia has had longstanding plans to introduce competition into its power generation industry. They initially called for the creation of geographically-defined units reflecting the original structure of the industry. This has been replaced by a plan for four national power companies with similar capacities and power generation type that will compete to meet the kingdom’s power demand.

The value of the SEC’s power capacity is estimated to be at least $50bn. The size of the offerings in ther four companies has not yet been announced.