The regional economic growth and demographic changes have highlighted the need for increased spending on infrastructure, in general, and power, in particular, in order to provide modern, reliable and efficient power services to citizens, two separate studies revealed. According to estimates, up to $50 billion could be spent in the GCC countries by 2015 for increased generation capacity of nearly 60,000 megawatts. Additional substantial investments will also be needed to update transmission and distribution networks. Alternative energy sources, such as renewable and nuclear energy, are being evaluated by the governments to meet the increased demand, particularly as some countries run short of gas and the region's fuel mix remains overexposed to gas and oil. Moody's Investors Service pointed out earlier that government support, involvement of private operators, a unified electricity grid, and more regulatory transparency could help ease the burden. Kuwait Financial Center (Markaz) said in a new research on GCC Power Sector that delays in existing projects on account of current global financial turmoil and how this will alter project models such as from independent power producer (IPP) to electricity power corporation (EPC). A regional boom took hold in the GCC at the beginning of the decade, fueled by high oil prices, increased effort at attracting private/foreign investments to the GCC and ever-expansionary fiscal policies among GCC governments, the report noted. Concurrently, population growth and increased immigration led to increasing demand for modern and efficient infrastructure. Many GCC countries used the oil revenue windfalls to support debt reduction programs, but unlike previous oil booms, the GCC governments have also been actively seeking ways to invest these revenues in their domestic infrastructure to provide reliable basic services for their citizens. Markaz noted that the global economic crisis has brought some of this into question, with issues of large-scale project funding and difficulty in refinancing existing projects coming to light. Liquidity remains tight with banks remaining cautious of lending, foreign investment has fled the region for safer havens, and GCC governments face much smaller surpluses, and as a result, will be tightening their purse strings going forward; all of which could have adverse ramifications for power infrastructure spending over the next five years, the research said. As of June 2009, there are 234 power projects spanning the GCC economies with a total value of $162 billion, the report stated. The majority of these projects are in Saudi Arabia and the UAE - a combined contribution of 73 percent of the total. Saudi Arabia takes the lead in terms of number of projects, with 110 currently in various phases of execution, followed by the UAE with 58 projects. Qatar placed third in terms of project value, with 12 percent of the total (or nearly $20 billion) while it only has 14 projects, or 6 percent in terms of number of projects. Growing demand for power in the GCC region, driven by increasing population, has necessitated capacity expansion, bringing the sector into focus. The region's installed capacity increased from 46,579 MW in 2002 to 73,339 MW in 2007, implying capacity expansion at an annual rate of 10 percent. Saudi Arabia and the UAE accounted for 51 percent and 21 percent, respectively, of the region's installed power generation base in 2007. The expansion in installed capacity has been spurred by the growth in electricity consumption. While the region's electricity consumption grew at a CAGR of 8 percent between 2002 and 2007, the trend varies between countries. Power consumption in Qatar grew 11 percent on a compounded basis between 2002 and 2007. During the same period, Kuwait's power consumption increased 6 percent. Saudi Arabia and Kuwait are the largest power consumers in the region. Saudi Arabia accounted for 56 percent of total electricity consumed in the GCC and registered a CAGR of 7 percent between 2002 and 2007. Utilization by Kuwait, which accounts for 13 percent of regional electricity consumption, increased 6 percent during the same period. Markaz findings were supported by Moody's Investors Service, which earlier said in its study that large investments will be required to ensure the continuity of power in the Gulf region due to growing electricity demand. Moody's echoed that unprecedented economic and demographic growth is creating a strain on power supplies in the region. It noted that that these exceptional growth trends are likely to challenge local utilities, which will need to install significant additional capacity to meet rising demand. Power shortages and temporary blackouts have already been seen in certain countries with tight supply margins, and these are likely to increase, particularly where utilities are operationally and financially unable to fully execute their expansion plans. Players in those markets that provide greater transparency in their regulatory framework and tariff-setting, and share some of the expansion burdens with private sector operators will be better positioned to embrace the future demands, Moody's said. Despite these challenges, the credit outlook for the sector is mostly stable. __
