$316 billion price tag to meet Middle East energy demand

With demand expected to surge 8.3 per cent a year through 2019 the region will need to install an extra 156 gigawatts of capacity over the next five years along with new transmission and distribution infrastructure.

Countries need to empower state utilities with bigger budgets and make themselves more attractive to private investment, the Apicorp report said. Silvia Razgova / The National

The Middle East must invest US$316 billion on utilities over the next five years to keep up with its growing need for power, says a report by a regional development bank.

With demand expected to surge 8.3 per cent a year through 2019 – more than three times the global average – the region will need to install an extra 156 gigawatts of capacity over the next five years along with new transmission and distribution infrastructure, according to a report by the Arab Petroleum Investments Corporation (Apicorp), a development bank owned by regional oil producers.

“We have been concerned that underinvestment in this vital sector and the resulting shortfall in electricity supply could impede economic growth and exacerbate social frustrations,” said Ali Aissaoui, a senior consultant at Apicorp. “These concerns, however overstated they might seem at first, have clearly been vindicated after the Arab uprisings.”

The warning comes as UAE government companies announce plans to expand the scale and scope of utilities. Dubai Electricity and Water Authority expects to spend Dh20 billion on ambitious projects, including a clean coal plant and a 1,000-megawatt solar park, and Abu Dhabi National Energy plans to embark on its first stand-alone water desalination plants.

Summoning that capital for projects across the region will prove difficult because of perceptions of an unfavourable investment climate and a dearth of financing after the financial crisis, said Apicorp. Credit extended to the region’s power sector totalled $7.1bn last year, less than half of a peak of $16.2bn in 2008.

Countries need to empower state utilities with bigger budgets – which the bank called “investors of last resort” – and make themselves more attractive to private investment, said the report.

Another solution is an unusual approach taken by Oman, which requires some private investors to launch initial public offerings on the Muscat bourse.

“It is a regrettable fact that, since the advent of power sectors reforms, public utilities have been starved of funds in the belief that private investors will be forthcoming no matter how volatile and uncertain the investment climate turns out to be,” said Mr Aissaoui. “The bottom line is that public utilities will continue to be underfunded as long as they compete for scarce state budget resources.”

Limited natural gas supplies could also hamper efforts to meet growing power demand, particularly in Bahrain and Syria and to a lesser degree in Kuwait, Saudi Arabia and Libya, said the report. Oman, Iran, Algeria and Qatar rated more favourably.

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