Muscat: According to Ernst & Young's (EY's) Power Transactions and Trends report, the increasing role of the private sector in both power generation and water could boost opportunities for large-scale transactions in Middle East and North Africa (Mena) in the future. With market reform in the region gaining momentum as well as utility unbundling, renewables looks to be a fertile growth area.
"At present, utilities in the Gulf are focusing chiefly on domestic investment. There is a massive need for new power and water capacity, driven by population growth and the increased industrialisation of the region's economies. The projections for new capacity over the next few years encompass not just generation but basic infrastructure. This demand will open up substantial opportunity for private sector involvement and transactions," says David Lloyd, Mena Power & Utilities Transactions Leader, EY.
Transaction activity in the Gulf Cooperation Council (GCC) is largely based on participation of the private sector in capital projects and commercial undertakings. As markets and competition in power generation becomes more established, growth rather than consolidation is expected to be a dominant driver of activity, and more deals to be done between state-owned businesses and the private sector. Despite the focus on growth, oil and gas deals are still being completed between both companies already based in the Gulf and between international players. In (January 2013) Saudi Arabian public pension agency picked up 19.4 per cent of ACWA Power, an independent Saudi power company with a mixture of public and private shareholders. A similar deal was the acquisition of Amendis and Redal, providers of water, wastewater and electricity services, by the UK's Actis Capital from Veolia Services à l'Environnement Maroc SA17 for an estimated $481.4 million, in a leveraged buyout transaction.
A number of Middle East funds are also planning to diversify their investments and acquire assets across the globe. For example, Kuwait and Qatar's sovereign wealth funds were eyeing the UK utility sector in 2013. Saudi Arabia's ACWA Power has recently started to internationalise and Masdar Capital (Abu Dhabi quasi-sovereign) is already the owner of several large-scale renewable assets internationally.
Several other utilities in the Gulf, particularly in Qatar, are known to be interested in establishing independent power plant (IPP) type companies which can compete in international markets for new projects using their substantial capital base and their deep experience of the IPP model. This could have the impact of increasing competition for regulated and renewable assets in Europe.
Substantial (and largely inbound) transaction activity is expected in renewables -- mainly solar and wind. Several substantial renewable energy programs are in the future pipeline, covering all of the Gulf countries. As this market takes off, extensive use of IPPs is expected, with foreign private sector capital coming in to fund, build and operate renewable energy plants.
"The hydrocarbon-rich countries of the Gulf recognise that their resources and capital may not be limitless, given the massive investment needed in generation and subsidies. There's definite interest in switching fuel sources and raising capital from the private sector around the IPP model," says Christian von Tschirschky, Mena Power & Utilities Leader, EY.
In particular, significant transaction activity based on joint ventures between international and domestic companies is expected, with the international companies contributing their renewables expertise and local partners drawing on their local knowledge of land, regulation, environmental issues and power off-take permitting.
© Times of Oman 2014
