Oman awards first-ever contract extension to private power plant

Conrad Prabhu

Muscat - Oman Power and Water Procurement Company (OPWP), the nation’s principal procurement of new electricity generation and water desalination capacity, has inked a deal that formally allows Al Kamil Power — one of Oman’s earliest Independent Power Projects (IPP) — to remain in operation for a further four years beyond its existing contract which expires this year.

Under the terms of an extended Power Purchase Agreement (PPA) signed late last week, Al Kamil Power Company SAOG, which operates a 280 megawatt (MW) gas-powered plant in South Al Sharqiyah Governorate, will continue to be in service up to December 31, 2021.

It follows the successful completion of negotiations with OPWP, a subsidiary of the wholly government-owned Nama Group, leading to a contract extension with revised terms and conditions, the company said in a filing to the Capital Market Authority (CMA) on Thursday.

Significantly, the extended PPA is the first of a number of similar pacts planned by OPWP that will allow for some of Oman’s oldest privately owned power plants to stay in operation well beyond the expiry of their current contracts. This, alongside options to procure new capacity, is key to the procurer’s strategy to ensure adequate capacity to meet galloping electricity demand growth

“Extensions are being negotiated only on a guaranteed capacity basis at economic commercial terms, and all plants have completed independent technical evaluations to confirm the capacity on offer,” the procurer said in its 7-Year Outlook Statement for the 2016-2022 timeframe.

Also expected to receive a contract extension is Barka-1 Independent Power Project, which is co-located with a water desalination plant. With the existing Power & Water Purchase Agreement (PWPA) due to expire next year, OPWP has already
initiated negotiations with the plant owner, ACWA Power Barka, for a contract extension up to December 31, 2021.

An extended contract will see Barka-1 offering 388 MW of capacity during normal operation in Combined Cycle Generation Turbine (CCGT) mode without water production from the multi-stage flash (MSF) component of its desalination capacity. However, if water capacity has to be operationalised in the event of a contingency, then Barka-1 will offer up to 435MW of generation capacity, according to OPWP.

However, for Manah Power — the Sultanate’s first Independent Power Project — ownership of the plant transfers to the government upon the expiry of the current Power Purchase Agreement in December 2020.

OPWP says it is weighing a number of options for the continued operation of the 264 MW capacity plant, including a competitive tender for the sale of the asset, backed by a multi-year Power Purchase Agreement.

While the Al Kamil Power contract extension is the first for privately owned plants, older state-owned generation assets in Al Ghubra (Muscat Governorate) and Wadi Jizzi (Buraimi Governorate) have already received new leases of life — for part of their capacity at least.

Contracts for several gas turbine units of Al Ghubra, offering up to 405 MW of capacity, have been extended up to September 30, 2018, when the plant will be fully retired. Similar extensions have also been granted to a number of gas turbine units at Wadi Jizzi, enabling 326 MW of capacity to be available until September 30, 2018, when the plant is also planned for retirement.

Importantly, future contract extensions for Al Kamil, Barka-1 and other plants nearing the end of their contract, are possible under a new capacity procurement strategy that OPWP plans to unveil later this year. The strategy, which is aimed at liberalizing the electricity sector and opening it up for competition for the first time, will enable existing power plants with expiring contracts to compete directly with new project bidders for long-term contracts.

“The first capacity procurement to use this new methodology is expected to be for contract terms beginning in 2022,” said OPWP.

© Oman Daily Observer 2017