Saudi Electricity Co said on June 20 it would invest 190 billion riyals ($51 billion) to increase generating capacity by 60 percent by 2015 to meet surging power demand. The company would invest around 7 billion riyals a year of its own cash and raise the rest in either loans or Islamic bonds, Chief Executive Ali Saleh al-Barrak told Reuters.
The first Islamic bonds, or sukuk, will be sold this year to raise at least 2 billion riyals. "The suggested maturity is five years," Barrak said in an interview. Saudi Electricity expects private producers to account for as much as 30 percent of the capacity rise, he said.
Barrak did not say what fuels the new plants would use, but dismissed coal. With record oil revenues driving economic growth, demand for power is growing 7 percent a year, Barrak said. "In the most populated areas such as Riyadh ... our studies revealed that demand rose 10 percent between 2006 and 2007."
The company needs to increase to 54,000 megawatts by 2015 from 34,000 MW at the end of 2006, Barrak said. The firm has added 1,500 MW in 2007, and plans to add 2,000 MW in 2008 and 6,000 MW in the following two years.
SEC will grant private operators build-operate-own (BOO) contracts for a 1,600 MW power plant in the Red Sea city of Rabigh in 2008 and for a 2,500 MW plant in the capital Riyadh which is expected to start production in 2009, Barrak said.
Another BOO contract will soon be finalised for a 1,000 MW power plant in Ras al-Zour, where state-owned mining firm Maaden is leading a large industrial project. "We hope the private sector will participate in the construction of plants as independent producers, to contribute to 25-30 percent of the capacity increase planned by 2015." To avoid blackouts like those in 2006, the company is urging industrial users to change working hours to non-peak periods.
"Some firms cut their bills by 20 percent without affecting productivity by switching to non-peak time," Barrak said. The firm hopes the government will agree to raise electricity tariffs for non-residential users which account for 48 percent of total consumption.
"It will help in financing the projects that we need to develop and which require huge capital to meet the demand," said Barrak who has spent 25 years in the company. He declined to give an exact size of the first bond sale.
"It's a programme of issues. It won't be less than 2 billion riyals, it will be more than that". The issue is subject to regulatory approval.
"The size and the timing will depend on cash flow requirements," he added. The firm secured this month "A+" credit ratings from agencies Standard and Poor's and Fitch.
Barrak said the company may continue to cut jobs over the next few years under a voluntary early retirement scheme which aims to reduce the 29,000-strong workforce by 900 this year.
"Pursuing the plan depends on the success of the first phase ... Once (it is) assessed, the firm will make the adequate decision in continuing or reforming the plan," he said.