Tabreed Takes Over the Largest DC Market

INTERVIEW

Tabreed Takes Over the Largest DC Market in the World

The Sustainabilist interviewed Adel Salem Al Wahedi, CFO of National Central Cooling Company (Tabreed), to discuss the recent acquisition of Emaar’s Downtown Dubai district cooling assets

Tabreed’s recent acquisition of 80% of Emaar’s Downtown Dubai District Cooling services, the largest corporate deal in the UAE this year, is truly significant. Can you tell us about what the transaction represents and the mindset behind it?

Firstly, the transaction provides us scale in the largest District Cooling (DC) market in the world, which is in Dubai. DC opportunities of this scale are scarce in the market. Tabreed was under-represented in Dubai and had come across limited opportunities to grow due to large volumes locked under existing concessions. This is a transformational transaction which, along with concession growth, will lead to consolidation of Tabreed’s market positioning over time.

Furthermore, Downtown Dubai is the most important socio-economic asset for Dubai which houses the leading landmarks of UAE, including Burj Khalifa – the world’s tallest building, The Dubai Mall - the world’s largest mall, Dubai Opera and Address Hotel, to name a few. The acquisition of Emaar’s Downtown DC assets significantly increases Tabreed’s ranking in Dubai from #4 to #2. We are already market leaders in all other geographies that we operate in.

A longterm concession “ agreement with Emaar provides exclusivity to service current

This acquisition diversifies the customer concentration with high quality, investment grade customers. It provides strong cash and future developments “ flows and future growth potential which is underpinned by long-term contracts with Emaar Group. Over 90% of the connected in the UAE which will result in O&M capacity is contracted with Emaar Group efficiencies. while the rest is with other high-profile institutions. The transaction meets the qualitative It is in line with Tabreed’s strategy and not limited to, customer quality, bankable contributes to the acceleration of growth. contract structure, and project returns. A long-term concession agreement with tests on key parameters including, but Emaar provides exclusivity to service Has the pandemic affected the returns current and future developments in on this investment? Downtown Dubai. Further, the young age Given the nature of the business and the of fleet requires no expansionary capex services we provide, we are not directly for the length of the concession therefore impacted by COVID-19. Our business enhancing cash flow generation. In the model includes a capacity charge and current macro environment when organic a consumption charge. The capacity growth is relatively slower, M&A remains charge is fixed and drives around 85% of one of the key growth drivers. our EBITDA. The consumption charge is variable and is largely a simple pass The integration will lead to operational through of our operational costs. leverage and combination synergies driven Our contracts are very long term (25 by Tabreed’s industry leading O&M years) and we offer an essential utility standards and centralised maintenance service. Furthermore around 70-80% team. Detailed technical due diligence of our business is with government or concluded that plants are operating well government-related entities. Therefore, we and are maintained to the highest of do not expect to see any significant impact industry standards. Furthermore, the from COVID-19, unless this results in Downtown DC assets are of a similar kind customers closing down entirely and debts and design to Tabreed’s existing plants not being paid.

What changes has Tabreed witnessed in terms of district cooling demand and consumption since the implementation of the movement restrictions?

To date we have not seen any material reduction in volumes due to COVID-19 lockdowns. Even the facilities that have been closed to the public require a certain level of cooling for maintenance purposes and to protect their equipment. It is still very early days to have a major impact on volumes. However, I think it would be prudent to assume that the longer this situation goes on until next year, there might be change in consumption pattern. However, volumes only contribute ~15% of EBITDA, hence the impact should not be significant. And at the same, we may also see volume increases for residential customers.

The adoption air conditioner system has been growing globally, along with concerns over their impact on their environment. How does district cooling provide greater advantages in terms of cost in addition to environment preservation?

District cooling is 50% more energy efficient and saves 16% cost over the life cycle of the contract. Therefore, a preferred choice for both corporations as well as governments. District cooling is environmentally friendly, as it reduces greenhouse gas emissions. In 2019 alone, Tabreed’s operations resulted in reduction of 2.06 billion kWh energy consumption which is enough to power 117.5 thousand homes in GCC for a year. In terms of CO 2 emissions saving, it resulted in elimination of 1.23 billion tonnes of CO 2 which is equivalent to removing 268,000 cars from the streets every year. GCC energy needs are increasing and given 70% of the peak energy consumption is cooling, district cooling is the way forward.