Sumitomo Corp, Japan's third-biggest trading house, said on Wednesday its consortium had won preferential rights to build and operate a $6 billion power and water desalination plant in Saudi Arabia. The plant, in Ras Azzour in eastern Saudi Arabia, will be capable of producing 1 million tons of water a day, accounting for a third of the country's total production capacity. The complex will be capable of generating 1 million kilowatts of electricity - equivalent to the output of a typical nuclear reactor in Japan - and processing 1 million tons of water a day. It is expected to increase the supply of fresh water in Saudi Arabia by 30 percent, the report said. A company will be set up to build and operate the complex, with 40 percent of the capital to be put up by the Saudi government and 20 percent each by Sumitomo, the private Malaysian power provider Malakoff and a Saudi firm. The crude-oil fired thermal power plant will be able to generate 850 to 1,100 megawatts of electricity when completed in the summer of 2012, Sumitomo said. The project will sell power and water to Saudi Arabia's state-owned Water & Electricity Co. under a 20-year contract. “Demand for power and water is getting stronger every year in the area, along with increases in oil prices and population,” said Michihiko Kanegae, deputy general manager at Sumitomo Corp. The consortium, comprising Sumitomo, Malaysian power provider Malakoff Bhd and Saudi Arabia's Al-Jomaih Automotive Co, outbid a consortium led by Korea Electric Power Corp and a group comprising Suez Energy and Japanese trading house Marubeni Corp, Sumitomo said. The Saudi government is expected to take a 40 percent stake in the plant while the three companies will hold the remaining 60 percent. The four parties will provide about 20 percent of the necessary funds as equity, the company said. Sumitomo will use equipment made by a unit of Fuji Electric Holdings for the plant. Japanese trading houses are chasing offshore power business to provide steady cash flow to offset earnings volatility in cyclical businesses like oil and gas. Marubeni aims to increase its equity-based power generation capacity to 11,000 MW by 2010, up from the current 6,300. Sumitomo said the company aims to double its power generation capacity to 6,300 MW by March 2011. Sumitomo shares fell 1.6 percent to 1,412 yen by 0344 GMT, against a 1.2 percent fall in the benchmark Nikkei average. Fuji Electric shares declined 4 percent to 360 yen.
