Infrastructure Middle East February 2015 by Infrastructure ME

ISSUE 012 | FEBRUARY 2015

ANALySIS

ExECUtIvE INSIght

the new normal Falling oil prices open new fault lines

value chain vision Saudi Aramco chief on petrochemâ&#x20AC;&#x2DC;s future

p18

p46

SPECIAL REPoRt

REINvENtINg thE gRId

Putting the smarts into utility infrastructure PLUS toP 10 UAE INFRAStRUCtURE PRojECtS

INTRODUCTION

The story so far GROUP GROUP CHAIRMAN AND FOUNDER DOMINIC DE SOUSA GROUP CEO NADEEM HOOD GROUP COO GINA O’HARA

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n July 2014, international oil prices were $115 a barrel. Last month, they fell below $46 a barrel, dropping by more than 50% in just nine months. Low oil prices bring both gains and losses to the Middle East and North Africa (MENA) region. According to a study by the World Bank published last month, while the region’s top oil importers – Jordan, Tunisia, Lebanon and Egypt – can look forward to trade balances improved by up to 2% of GDP thanks to lower import and fuel subsidy bills, oil exporters – some of whom depend on oil for 80% of their income – will lose export and fiscal revenue. Yemen and Libya are among the most vulnerable oil producers, while Iran and Iraq could experience a worsening of the oil trade balance (net oil exports) in excess of 10% of GDP in 2015. The report notes the Gulf Cooperation Council (GCC) countries are in a much better position due to their ample reserves, but they too could endure a loss of over $215bn in oil revenues, more than 14% of their combined GDP. For oil exporters, domestic spending commitments would require drawing down reserves, accumulating debt and cutting spending on fuel subsidies and public-sector salaries. In fact, all GCC countries barring Kuwait are headed for deficits in 2015. In all these countries, energy subsidies are being targeted for spending cuts. There is speculation that the Gulf countries may impose a tax on remittances to bolster revenues. Both the UAE and Oman have considered this measure in the past, with the latter recently proposing a 2% charge on remittances by expatriates. Total remittances from GCC countries to the rest of the MENA region amounted to $21bn in 2013, with Saudi Arabia accounting for half that figure. Oil importers such as Egypt, Jordan and Lebanon face a risk, as their economies receive large flows of remittances and aid from the GCC. If the low oil prices persist for a longer period, the future project pipeline could be affected. Last month, Saudi Aramco suspended plans to build a $2bn clean fuels plant, while Qatar Petroleum (QP) and Royal Dutch Shell shelved their $6.4bn Al Karaana petrochemicals joint venture. With the oil and gas industry going through its own commodity cycle, we haven’t seen the end of postponements and cancellations. There could also be renegotiation of contracts to reflect the low oil revenues. Let us wait and watch.

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February 2015

INFRASTRUCTURE MIDDLE EAST

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CONTENTS

012 February 2015 29

COVER STORy

REGULARS

Reinventing the grid

08 Regional update

Putting the smarts into utility infrastructure with Schneider Electric’s Michel Crochon ABB’s Maxine Ghavi Siemens’ Sitaram Chodimella, Landis+Gyr’s Rajiv Sawhney

of renewables; Oman criticises

TOp 10 FEATURE

UAE infrastructure projects While a prolonged slide in oil prices could lead to capex downsizing, the UAE is expected to remain one of the more stable markets for infrastructure projects in the MENA region

Dubai increases the percentage OPEC’s production policy; Kuwait may re-tender airport project ALSO: BizBriefs

12 Global update World Bank downgrades global economic forecast; Europe embarks on quantitative stimulus

14 In focus Industrial powerhouse; New firm to bridge the funds-projects gap in Africa

21 Infrastructure tenders 47 Events 48 Infrastructure milestones This month: UAE’s nuclear energy plan

INDUSTRy SECTORS ANALySIS

bEST pRACTICES

18 The new normal

42 Five-level strategy

OIL & GAS

UTILITIES

38 Poised for consolidation

44 Bringing power

Falling oil prices open new fault lines in the global oil and gas market

Cost pressures and competition to encourage mergers and acquisitions in the energy industry, says AT Kearney

IFS’ Ian Fleming outlines the five levels of asset-management development

to the unconnected

Altaaqa Global’s Robert Bagatsing, discusses the advantages of temporary solutions for remote area electrification

bEST pRACTICES

EXECUTIVE INSIGHT

40 Maintenance as an asset

46 A vision for the value chain

Manufacturers can transform maintenance from an expense into a strategic, competitive asset

Khalid A Al-Falih, president & CEO of Saudi Aramco, outlines four major opportunities for the Middle East petrochemical industry

INFRASTRUCTURE MIDDLE EAST

February 2015

regional UPDaTe

UAE Dubai is increasing the percentage of renewables in its energy mix target to 7% by 2020 and 15% by 2030. The announcement was made by HE Saeed Mohammed Al Tayer, MD & CEO of DEWA, at a panel discussion during the World Future Energy Summit 2015 in Abu Dhabi last month. At the session, Al Tayer also announced that DEWA will release a bid for a 500MW photovoltaic (PV) project in 2016, based on the Independent Power Producer (IPP) model. These statements follow DEWA’s earlier announcement that it is doubling the capacity of phase two of the Mohammed bin Rashid Al Maktoum Solar Park from 100MW to 200 MW.

Clean mix Dubai has increased the share of renewables in its energy mix to 15%

The International Monetary Fund (IMF) has revised its growth forecast for the UAE, reflecting falling oil prices. The IMF forecasts growth of 3.5% in 2015 and 2016, down by 1% from its October estimate. For Dubai, the organisation forecasts 4.5% growth for this year and 4.6% for the next; for Abu Dhabi, 3% for both years.

“[However,] the non-oil part of the economy for Abu Dhabi, which is the part that most directly affects economic activity and employment, is growing at over 5.5% this year and next year,” said Masood Ahmed, director, Middle East and Central Africa, IMF. The slump in oil revenues is expected to lead to a fiscal deficit for the UAE in 2015.

Oman Oman’s total subsidy estimate projections for 2015 declined by 18.5% to $3.39m compared to $4.16m last year, the Times of Oman reported. The decline is attributed to the 50% plunge in crude oil prices in international markets and a reduction in subsidy for natural gas supplied to industries located within industrial estates. The subsidy estimate for petroleum products fell $725m to $1.50bn in 2015, compared to $2.22m last year, as the gap between international crude prices and domestic crude oil prices narrowed. The decline in subsidies may increase, since the Omani budget used an estimated price of oil at $60 a barrel. Only the electricity subsidy showed a marginal 2.9% growth.

INFRASTRUCTURE MIDDLE EAST

Policy pangs Oman has criticised OPEC’s emphasis on market share over revenue

Oman’s oil minister has criticised OPEC’s production policy as “creating volatility in the market” without benefiting oil producers, Reuters reports. Mohammad bin Hamad al-Rumhy, the non-OPEC member’s oil minister, was speaking at an energy industry conference in Kuwait last month. In November 2014, OPEC decided to keep its output February 2014

unchanged despite sliding prices, to protect market share against shale producers. Al-Rumhy cautioned that OPEC’s policy might temporarily force high-cost producers out of the market but that they would eventually come back, making OPEC’s policy useless. Oman’s 2015 budget is based on an average crude price of $85 a barrel.

The UAE’s Shah gas project has started operations and is expected to reach full capacity by yearend, Reuters reports. “Successful commissioning of the Shah gas project has started... We look forward to reaching full capacity this year,” Adnoc Chief Executive Abdulla Nasser Al Suwaidi told an energy event in Abu Dhabi. The multi-billion-dollar project, which will process around 1bn cubic feet a day (bcf/d) of sour gas into 0.5bcf/d of usable gas, is expected to enable the UAE to reduce its growing gas imports. It will also make the UAE a leading sulphur exporter, accounting for almost 5% of global sulphur production. ADNOC holds a 60% share in the Shah gas development joint venture, called Al Hosn Gas, while Occidental holds 40%.

Oman is planning to float tenders to build two more segments of the railway network this year, the Times of Oman reports. “By this year, we are targeting two more tenders. We are still trying to identify those [segments]. However, connecting Duqm and Salalah ports is our priority,” said Eng. Abdulrahman Al Hatmi, CEO of Oman Railway Company, on the sidelines of an event to launch a new brand for the company. He also added that the design for the entire 2,135km network will be ready by year-end. Italferr is involved in designing routes for the entire network of the national railway project. Commercial bids for Sohar-Buraimi phase 1 will be submitted by March 2015, with the contract expected to be awarded in the second half.

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regional UPDaTe

Kuwait Kuwait may re-tender its airport project, Zawya reports, quoting Arabic daily Al-Anba. The daily said a committee formed by the Ministry of Public Works to oversee the project has shortlisted three options, one being re-tendering of the project, which has already been delayed many times. “This option involves new terms, including dividing the project into separate packages for private sector contractors and leaving the execution of the infrastructure and other major construction works to the government, given their high costs,” the report said. London-based Foster and Partners completed the designs for the airport, which was initially due for launch in 2012.

Low oil revenues After six years of surplus, Kuwait may post its first deficit next fiscal

Kuwait’s government has set aside $155bn in the country’s five-year developmental plan for projects, says the Kuwait Times. The amount will be used to finance 523 projects. Oil revenue for the new budget (which kicks in from April 2015) has been calculated at $45 a barrel, way below the $75 a

barrel in the current budget. Oil accounts for 94% of Kuwait’s public revenues. While keeping spending intact, the government is moving ahead with plans to curb expenditure. It has started by scrapping subsidies on diesel, kerosene and aviation fuel, and is considering similar measures for petrol, electricity and water.

Bahrain Faced with falling oil revenues, Bahrain’s cabinet has decided to raise the price of natural gas sold to companies, BNA reports. The price of natural gas sold to industrial users will be unified and raised gradually from April 1, BNA reports, without specifying the size of the increases. The cost of natural gas used to generate energy for industrial projects will also rise. However, the cabinet “stressed that the readjusted natural gas prices for power generation will not affect citizens, nor will it have an impact on Bahrain’s competitiveness or its ability to lure investors in the industrial sector”. Oil accounts for more than 80% of Bahrain’s revenues.

INFRASTRUCTURE MIDDLE EAST

Positive drivers Infrastructure spending has boosted Bahrain’s non-oil sector

Bahrain’s Q3 GDP growth reached 5.1% year-on-year, reflecting the positive impact of infrastructure projects. The Economic Development Board’s Bahrain Economic Quarterly (BEQ) reported that the construction sector, which accelerated from 3.6% annual growth in Q2 to 12.3% in Q3, was the fastest growing sector of the economy. February 2014

The performance of the economy in the near term is likely to benefit from the buildup in infrastructure spending, directed through the Gulf Development Fund. According to the EDB, “infrastructure spending is significantly boosting the momentum in the non-oil sector, and serving as an important platform for continued resilience.”

The Municipal Council has approved the construction of the first stage of the railway linking the country to the GCC Rail network, says KUNA. The first stage cuts through Kuwait from the south and stretches to Al-Abdali in the north, to the Iraqi border. The council approved cutting over 2m sqm from the southern air base’s total area for the project, as well as the relocation of the Ministry of Education’s boy scouts campsite. Two warehouses will be relocated, and farmers who lose land to the railway will be compensated for financial loss. The Ministry of Communications, currently prequalifying consultants for design work on the project, is expected to finalise alignment for the route in consultation with other ministries and agencies.

The first construction contracts for a new crude oil pipeline between Saudi Arabia and Bahrain are expected to be awarded by the second quarter of this year, the Gulf Daily News reports. The front-end engineering and design of the pipeline was completed last year by WorleyParsons of Australia. The pipeline is a key prerequisite for Bapco’s planned Sitra refinery expansion to 500,000bpd total capacity. However, BAPCO will make the final decision on whether to expand its oil refinery next year, a senior executive told Reuters. Peter Bartlett, CEO of BAPCO, said that oil product prices would weaken as crude prices continued to fall, adding that recent expansion in refining capacity in the Gulf – mainly in Saudi Arabia and the UAE – might create a supply glut in the market.

REgIoNAL UPDATE

Qatar Qatar is one of the best-placed GCC countries to weather the current fall in oil prices, says a new study by PwC. Qatar’s vast natural gas reserves and emphasis on gas exports, along with the decoupling of gas and oil prices in the aftermath of the Japanese earthquake of 2011, suggest that it is likely to be one of the bestplaced GCC nations to weather the current fall in oil prices. However, Qatar is not immune to the fall in oil prices, with the country cancelling major downstream petrochemical projects. Moreover, the threat of inflation volatility (due to the unprecedented investment programme related to the 2022 World Cup) remains.

Vast gas reserves Qatar has benefitted from the coupling of gas and oil prices

Qatar Petroleum and Shell have decided not to proceed with the proposed Al Karaana petrochemicals project, and to cancel further work on the project. The decision came after a careful and thorough evaluation of commercial quotations from engineering, procurement and construction (EPC) bidders,

which showed high capital costs rendering the project commercially unfeasible, particularly in the current economic climate in the energy industry. The Al Karaana project envisioned the construction of a new petrochemicals complex in Ras Laffan Industrial City, to be operated as a standalone QP (80%)–Shell (20%) joint venture.

Lower world oil prices will in no way hinder Qatar’s plans to host the 2022 World Cup, says the Peninsula, quoting HE Sheikh Ahmed bin Jassim Al Thani, Minister of Economy and Commerce. Sheikh Ahmed told the World Economic Forum in Davos, Switzerland that Qatar’s plans for infrastructure development and investment will not be affected by the fall in oil prices, saying world oil prices would rise to an average $60 per barrel by the end of 2015, due to increasing demand from Europe fuelled by the European Central Bank (ECB) economic stimulus. The minister, however, forecast that it would take another two years for world crude rates to reach $100 a barrel. He added that Qatar’s current budget (April 2014-March 2015) is based on an oil price of $65 a barrel.

REgIoNAL UPDATE

HE Obaid Khaleefa Al Jaber Al Marri, chairman of Al Jaber Group, said: “Al Jaber Group KSA branch is witnessing substantial growth since we started our operations in Riyadh last year. We are looking to win more projects in the Saudi market in the near future.”

Biz Briefs SOHAR Port and Freezone welcomed its 2,000th vessel in December last year, the first time this landmark figure has officially been reached. Officials at the port welcomed the vessel, a 200-metre Glovis Superior vehicle carrier, at the multipurpose cargo terminal operated by C. Steinweg Oman. Executive commercial manager Edwin Lammers said: “SOHAR has done well to build volumes across all cargo types, and the diversity in our portfolio has been one of our key assets. As more ships come, cargo fees will drop and we will see SOHAR transform from its role as a feeder port to a regional hub.” The Civil Air Navigation Services Organisation (CANSO) has called for more flexible use of military airspace to reduce congestion in Middle East airspace. As part of its five-step proposal to transform air traffic management performance in the region, CANSO has recommended better coordination and partnership between military and civil aviation to ensure flexible use of military airspace to enable shorter routes, cost savings, fuel efficiencies and fewer delays Military airspace accounts for 40% of the UAE’s airspace, resulting in the fourth largest and busiest wait point in the world. Stuart McGregor has joined Trans Gulf Electro Mechanical as general manager with responsibility for the UAE, Qatar and Sri Lanka. McGregor first came to the UAE in 1992, working on a number of projects in Dubai and Abu Dhabi, including Jebel Ali Power Station. In the UK, McGregor held regional managing director/

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INFRASTRUCTURE MIDDLE EAST

Market maker The deal with Etihad ESCO also covers the DEWA head office

board level roles in two of the largest MEP organisations, before deciding to return to the Middle East to further his career. “During 2015, we will continue to target projects that complement our delivery skills, grow our resource levels and look at new countries and regions to operate in,” said McGregor, who has 29 years of experience in the MEP industry. Dubai Electricity & Water Authority (DEWA) and Etihad Energy Service Company (Etihad ESCO) have signed two comprehensive Energy Savings Performance Contracts (ESPC) worth $10.7m. The contracts cover improvement and enhancement of overall energy efficiency of the lighting infrastructure of power plants at Jebel Ali and Al Awir, and seven DEWA-owned buildings, including

the headquarters building. In line with its vision of enabling a performance contracting market in Dubai, Etihad ESCO is partnering with Philips Lighting on the lighting project and MAF Dalkia Middle East on the building project. Both projects are scheduled to be completed by December 2015. Al Jaber Group has bagged the $480m Abha Airport development project in Saudi Arabia. The project will include a new 86,000sqm passenger terminal that can accommodate five million passengers annually. It will also feature 20 passenger boarding bridges, apron and parallel corridors to accommodate 26 planes simultaneously, and car parks that can accommodate 2,800 cars. The construction period is 36 months.

New GM at Trans Gulf Stuart McGregor has 29 years of MEP industry experience

February 2015

Etihad Rail has awarded a design-build contract for employee residences in Mirfa to National Transport & Contracting Company (NTCC). Eng. Faris Saif Al Mazrouei, acting CEO at Etihad Rail, said: “Our selection of NTCC as a contractor is part of our wider strategy to support businesses that play a significant role in driving economic development and growth in the Western Region.” Under the contract, NTCC will build 170 high-quality, serviced beachfront residential units as a long-term accommodation facility for Etihad DB staff. Construction work is expected to be completed in the second half of 2016. Total has announced a research collaboration with Masdar Institute to map the complex behaviour of the region’s carbonate reserves. The Digital Rock Physics (DRP) project will pool the technical resources and expertise of Masdar and ADNOC’s (Abu Dhabi National Oil Company) Petroleum Institute, marking Total’s first R&D collaboration with the latter. The aim of the project is to produce an extensive archive of rock images in microscopic detail, as well as to digitally simulate and test the behaviour of oil and gas reservoirs, with a view to maximising oil recovery. Masdar Institute’s microscopy facility will be used to examine rock samples at the nano-scale, to generate 3D images of the pore network and pore morphology of typical Abu Dhabi reservoir rock cores.

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gLoBAL UPDATE

Round Up The World Bank has downgraded its global economic forecast, citing weak prospects for the euro area and Japan. In its biannual report, ‘Global Economic Prospects’, the World Bank says global gross domestic product is expected to grow 3% in 2015, slower than the 3.4% estimated in June 2014. “Worryingly, the stalled recovery in some high-income economies, and even some middle-income countries, may be a symptom of deeper structural malaise,” said Kaushik Basu, World Bank chief economist and senior vice president. China Premier Li Keqiang told delegates at the World Economic Forum (WEF) in Davos that China will avoid an economic hard landing. “The Chinese economy has entered a state of new normal,” said Li. “The gear of growth is shifting from high speed to medium-to-high speed; development needs to move from low-to-medium level to mediumto-high level. This has made it all the more necessary to press ahead with structural reform.” China’s economy expanded at its slowest pace in more than two decades in 2014 – 7.4% instead of the government’s target of 7.5%. However, WEF founder Klaus Schwab said that even if China slowed to 7% growth this year, it would still remain the biggest engine of global economic growth. Energy leaders see energy price volatility and the future of a climate framework as their top critical uncertainties, according to the latest report by the World Energy Council.

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INFRASTRUCTURE MIDDLE EAST

Soft landing Chinese Premier Li Keqiang has ruled out systemic financial crisis

For the MENA region, concerns about the future of coal and LNG have risen in terms of both uncertainty and impact. These resources, along with energy efficiency, illustrate the increased demand uncertainty for hydrocarbons in the region. Meanwhile, renewables continue to be regarded as an important energy source. According to ‘World Energy Issues Monitor – Energy price volatility: the new normal’, the emissions agreement between China and the US announced in November 2014 has increased the pressure on other large emitters, whose stance on cutting emissions still poses a large question mark for investors. The biggest threat to the stability of the world in the next 10 years comes from the risk of international conflict,

according to the 10th edition of the Global Risks report. In looking at global risks in terms of their potential impact, the nearly 900 experts that took part in the Global Risk Perception Survey rated water crises as the greatest risk facing the world. Other top risks alongside that and interstate conflict in terms of impact are: rapid and massive spread of infectious diseases (2), weapons of mass destruction (3) and failure of climate change adaptation (5). Also, 2015 stands out as a year when geopolitical risk, largely absent from the landscape of leading risks for the past five years, returns to the fore. The report was prepared by Marsh & McLennan Companies and Zurich Insurance Group for WEF. The European Central Bank has taken a dramatic

Not enough to drink New global report rates water crises as the biggest risk

February 2014

step to stimulate the region’s troubled economy, unveiling a massive bond-buying programme worth at least $1.3tn. President Mario Draghi said the quantitative easing could extend beyond September 2016 if necessary, to achieve a “sustained adjustment in the path of inflation” towards the bank’s 2% target. With eurozone inflation turning negative, EU leadership is worried about a deflationary spiral of the kind that has hobbled Japan for nearly two decades. Some in Europe, particularly in Germany, are worried that the ECB’s bond-buying programme might ease the pressure on governments to do more to reform their economies. A more buoyant Europe, alongside a prolonged period of low oil prices, could help shore up the global economy following a period of underperformance. China is planning to build a 7,000km, $250bn highspeed railway line between Moscow and Beijing. The proposed route would take passengers from China’s capital to Moscow via Kazakhstan in just two days, Beijing’s city government said. The current rail route between Moscow and Beijing takes about a week with transfers. First vice president of Russian Railways Alexander Misharin said in November that the construction of the railway would take from eight to 10 years. The high-speed rail proposal follows the $400bn deal signed in May 2014 to build a pipeline to start Russian gas supplies to China. China is also due to conduct a feasibility study on the 1,754km Chennai-New Delhi highspeed rail corridor in India.

IN FOCUS

FREE ZONE

Industrial powerhouse The second largest industrial free zone in the UAE is building up its infrastructure and facilities to attract investors By Mariam Elsayed HFZA has been widely hailed as a free zone that fosters entrepreneurship and economic development, thanks to its initiatives in accelerating business activity in Sharjah and the UAE,” says Saud Salim Al Mazrouei, director, Hamriyah Free Zone Authority (HFZA) and Sharjah Airport International Free Zone (SAIF Zone) speaking to Infrastructure ME. With 1,500 new companies set up in the first nine months of 2014, the total number of active companies in HFZA today exceeds 6,000, helping cement its position as the second largest industrial zone in the UAE. Recently, the free zone opened the first phase of its Food Plastic and Packaging zone. Spread across 380,000sqm, the facility targets the various needs of the fast-moving consumer goods industry (FMCG) in terms of food processing, cold storage, plastic products and packaging. Phase two of the Logistic Village and Food Zone is at the halfway stage, with the completion of power, water and communication networks. The Hamriyah Logistics Village aims to provide an allin-one logistics and distribution centre for companies in the Free Zone. “The warehouse project is almost complete, with most of the warehouses already occupied,” says Al Mazrouei. “There are a number of ongoing projects, including construction of new warehouses and an interchange on the main road, which includes a flyover with slip roads. We follow a strategic approach in achieving our well-articulated plans and provide outstanding services and facilities to our customers every day.” HFZA currently houses enterprises from 155 nations, attracting foreign investment across 500 verticals in key industrial sectors like oil and gas, petrochemicals, maritime,

“

INFRASTRUCTURE MIDDLE EAST

“The vast investment options available at HFZA in various domains, including industrial, commercial and services, today serve as a growth catalyst for multinational firms and emerging entrepreneurs” SAUD SALIM AL MAZROUEI, DIRECTOR, HAMRIyAH FREE ZONE AUTHORITy (HFZA) AND SHARjAH AIRpORT INTERNATIONAL FREE ZONE (SAIF ZONE)

steel, construction and food. “The oil and gas industry has become vital to HFZA, and the zone has emerged as the second largest hub for petrochemicals, oil and gas bunkering and storage in the UAE,” says Al Mazrouei.

February 2015

HFZA is also a leading hub for the steel industry, hosting firms like Eversendai Engineering, Unger Steel, Bhuwalka Steel Industries, Mammut Building Systems and Danem Engineering Works, among others. “Our strength lies in the ability to introduce outstanding products with international standards for our investors,” says the HFZA director. “The vast investment options available at HFZA in various domains, including industrial, commercial and services, today serve as a growth catalyst for multinational firms and emerging entrepreneurs.” The free zone is also planning to launch online and mobile applications by the middle of 2015 to make it easier for companies in the zone to carry out their transactions with the authorities. A recent big-ticket investment for HFZA come from India-based Apar Industries, the fourth largest manufacturer of transformer oils in the world, which recently announced it would set up a manufacturing unit in the zone. Singapore-based Petroleum Specialties, a fully-owned subsidiary of Apar Industries, will built the facility on 30,000sqm of land. The manufacturing unit, which is expected to come up by the end of this year, will cater to the Africa/MENA market and help expand Apar’s reach in the CIS countries. In fact, India is a key market for HFZA, with over 276 Indian companies registered in HFZA in the first half of 2014. “Based on mutual interests, the UAE enjoys a warm economic relationship with India. Currently, a number of Indian companies are expanding to the region to ensure their presence in the Middle East,” says Al Mazrouei. Another important market is CIS, with over 365 companies from CIS countries operating in HFZA. Investors from Russia, Kazakhstan, Uzbekistan, Azerbaijan, Kyrgyzstan, Belarus, Tajikistan, Armenia and Moldova invested in the zone last year.

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IN FOCUS

FRONTIER MARKET

New firm to bridge the funds-projects gap in Africa Access Infra Africa to develop renewable energy projects as independent power producer By Anoop K Menon ccess Infra Africa (AIA) is planning to invest in early stage development of renewable energy projects in Africa. The emphasis will be on transforming good concepts into bankable projects in order to address the issue of funds for the continent remaining unutilised due to a paucity of power projects, with the ultimate goal of building a portfolio of power assets worth over $500m in the continent. AIA is a joint initiative between Access Power MEA, a power project developer focused on the Middle East and Africa, and EREN, a leading investor in power projects, with 400MW of renewable energy assets in operation or under construction, and over 1,500MW of assets under development. Reda El Chaar, executive chairman of Access, explains: “Many governments, international financial institutions and development finance institutions have committed funds for power projects in Africa, but this money is largely left unspent as there aren’t enough projects. But this also opens up opportunities for well-resourced and experienced developers to come in, take early-stage project risks and turn good concepts into bankable projects.” Pointing out that the perception that investing in Africa is high-risk is a relic of the past, he continues, “The Africa of today is not the Africa of 10 years ago. If you look at the Transparency International numbers of countries like Botswana, Namibia and Rwanda, they are ranked higher than countries like Spain, Portugal and Greece. At AIA, we wish to do business in places that are conducive for private sector business, which

INFRASTRUCTURE MIDDLE EAST

“Many governments, international financial institutions and development finance institutions have committed funds for power projects in Africa, but this money is largely left unspent as there aren’t enough projects” REDA EL ChAAR, ExECUTIvE ChAIRMAN, ACCESS applies to the majority of the continent.” El Chaar claims that return on investment (RoI) on renewable energy projects in Africa can exceed returns for similar projects in Europe or even the Middle East. He says: “Returns are always in proportion to the risk

February 2015

taken. In Africa, the RoI can be higher, and definitely better than some of the corporate junk bonds in the developed markets.” AIA will approach renewable energy projects as an independent power producer and is currently pursuing projects in 15 African countries, including Egypt, Uganda, Tanzania, Ghana and Rwanda. Last month, the firm was prequalified by Egypt’s Ministry of Electricity to develop large-scale wind and solar power plants as part of the first round of Egypt’s renewable energy procurement programme. The company is aiming to build a renewable energy portfolio of 300MW in Egypt, and will finalise the size of its investment by the end of the first quarter of 2015 once the Ministry of Electricity provides further clarifications about its procurement strategy. In December 2014, AIA bagged its first major deal with a $17m contract to build, own and operate the second-largest privatelyowned solar PV project in sub-Saharan Africa, excluding South Africa. Under the terms of the deal, AIA will build, own and operate a 10MWp solar photovoltaic facility in Soroti, northeastern Uganda. Future markets on AIA’s radar include Tunisia and Ethiopia. Interestingly, AIA has decided to stay away from off-grid projects, preferring instead to focus on small-tomedium projects on existing grids. “Today, the issue in Africa is the huge bottlenecks on the main grid, which means that you cannot evacuate large mega projects,” explains El Chaar. “Usually, they take a very long time to develop because it takes an equally long time to create the supporting grid. We prefer to focus on smaller-size projects that could be easily plugged into existing grid infrastructure but also factor in the grid’s limitations.”

ANALYSIS

ENERGY SECURITY

The new normal

Falling oil prices open new fault lines in the global oil and gas market

s the bearish trend in in international oil prices over the last six months the precursor to a ‘new normal’ for the global energy markets? Is the Middle East’s oil and gas industry, dominated by OPEC, on the cusp of a structural change where OPEC will no longer decisively influence international oil prices? And what impact will low oil prices and the reduced economic opportunities they imply have on the region’s socio-political fabric? At the 6th Gulf Intelligence UAE Energy Forum 2015 last month, these tough questions were tackled during a high-level panel discussion. The broad consensus, in an audience opinion poll conducted midway through the discussion, pointed to demand uncertainty (rather than supply uncertainty) as the greatest challenge to planning for energy security through 2020. The panellists also seemed to agree that the new Goldilocks oil scenario – the right price level to keep demand going – could be well below the $100 a barrel that oil producers based their planning on, though no one in the room, including

the oil producers, wanted to put a number to it. The discussion also highlighted the impact of falling oil prices on the oil producers themselves, drawing a fault line between countries with deep fiscal reserves like the Gulf Cooperation Council (GCC) group and those without, like Iraq, Iran, Russia and Algeria. Responding to CNN’s John Defterios’ question about redefining energy security in the context of low oil prices, HE Suhail Al Mazrouei, Minister of Energy, UAE, pointed out that supply and demand security require a reasonable price for both buyers and sellers. Lower oil prices could curtail current investment, which would surely squeeze future supply, while higher prices could lead to oversupply because technology and investment will focus on bringing more crude into the market. “The issue today isn’t the amount of supply we can put into the market,” said Al Mazrouei. “We know that shale oil has the potential to grow further. We also know there is potential for countries like Libya, Iran and Iraq to develop or come back to normal production.” Elaborating on the supply side aspect, Dragoman Partners’ Ali Khedery pointed out

that the deal brokered between Baghdad and the Kurdistan region brings a quarter million barrels of Kurdish crude into the market, while Kirkuk’s exports via the northern pipeline have restarted. If sanctions are lifted, Iran could bring an additional million or more barrels to the market. Unconventional production, both in US shale and Canadian tar sands, also introduces millions of barrels of new production into the market, with the US alone accounting for four million barrels. But Khedery cautioned that “the markets are not factoring geopolitical risks we have seen since 2011”, with Libya facing civil war, Yemen disintegrating, Syria imploding and Iraq facing a full-scale insurgency and possible civil war. “GCC countries have deep fiscal reserves and sovereign wealth funds, while Iraq, Iran and to an extent Russia don’t have those reserves,” he said. “Russia, Iran, Libya and Iraq have fiscal break-evens of above $100 a barrel, and in the case of Algeria, it is closer to $150 a barrel. In addition to dynamics in the industry, some of these producers are also looking at regime survival. If the prices remain low, there is a risk of social instability spreading in these countries due to reduced economic opportunities.”

“It is understandable wishful thinking that recovery will come and demand will increase. Thinking that they [China] will have so much thirst that it will keep the price of oil up is a bit of an illusion” LORD HOWELL OF GUILDFORD, FORMER SECRETARY OF STATE FOR ENERGY, UK

INFRASTRUCTURE MIDDLE EAST

February 2015

ANALYSIS

Wrong presCrIpTIon?

Is OPEC’s Saudi-led strategy of maintaining production in a neighbourhood which has gone through a major upheaval since 2011 correct? According to HE Fouad Siniora, Leader of Parliament Majority & former PM, Lebanon, sooner or later oil exporters from the region will have to learn to adjust and adapt to the new pricing scenario, where unconventional oil and gas producers too will have a decisive say. “The motives of Saudi Arabia in this respect are not strictly political alone,” he explained. “This situation was also brought about because of the change in overall supply and demand situations.” Lord Howell of Guildford, former UK Secretary of State for Energy, dismissed OPEC’s forecast of a 60% increase in demand for fossil fuels between now and 2050 as “unrealistic”. He pointed out that while economic recovery is rapid in the UK, it hasn’t been so rapid in the rest of Europe, which means slower recovery in the demand for energy. In Asia, Japan is planning to get its nuclear capacity going again while cutting down on coal, oil and gas imports, while China “wants a different path of modernisation, moving away from the Western gas-guzzling phase”. “It is understandable wishful thinking that recovery will come and demand will increase,” said Howell. “Thinking that they [China] will have so much thirst that it will keep the price of oil up is a bit of an illusion.” He also underlined the growing impact of technology, which increases supply but also flattens demand. “There is demand insecurity because of continuing recession, and the recovery in the West is fed by steroids of quantitative easing, which can stop. But there is also long-term demand insecurity that technology is raising because energy efficiency is increasing at dramatic rates in China, rising Asia, the US and Europe.” Moreover, the price of solar energy is coming down to a level where it can compete with fossil fuels even as Europe is awash with coal. “Despite all efforts by greens, we [Europe] are burning more coal than ever. Therefore, I am not surprised that demand insecurity, which is revenue insecurity, is the prominent issue,” said Howell. Xu Xiaojie, Advisor to the National Energy Administration, China, pointed out that his country is focusing on diversifying its energy imports and managing its energy demand.

“Demand-side growth will increase, but not as fast as organisations like IEA put it,” said Xu. “Our forecast is much lower at around 1-2% domestically.” He also noted that prices of natural gas in 2020 will be much lower than current prices, because more suppliers are entering the market. “We secured supplies from Central Asia by pipeline last year, while more LNG supplies will be available from the US, Australia and even Africa. I believe future LNG prices in Asia will be much lower, with China playing a big role in making the price.” The sWIng faCTor

Khedery noted that the change in global demand patterns are applicable more to Europe, where energy prices have always been high, than to the US. Low gasoline prices, thanks to the shale revolution, have seen Americans splurge on fuel-guzzling 4x4s again, while countries relying on cheap labour and productivity are losing out to the US’ cheap energy. He continued: “In the US, West Texas Intermediate [WTI] has always been markedly lower than Brent crude, and this is especially the case for spot price of natural gas, which is below $3/BTU. In some parts of Asia, they are paying more than $15/BTU, which has created a fundamental tailwind for the American economy and fundamental headwind for its competitors.

paneL DIsCUssIon global fault Lines – outlook for energy security: Demand & supply? panelists: • HE Suhail Al Mazrouei, Minister of Energy, UAE • HE Fouad Siniora, Leader of Parliament Majority & Former PM, Lebanon • Lord Howell of Guildford, former Secretary of State for Energy, UK • Xu Xiaojie, Advisor to the National Energy Administration, China • Ali Khedery, Chairman & CEO, Dragoman Partners Moderator: • John Defterios, CNN Anchor

That’s why BMW is opening its largest factory in the world in the US. Even with relatively high labour prices, the company is paying only half of what it pays in Europe for energy, and probably a quarter of what it pays in Asia.” Pointing out that the Goldilocks price of $100 a barrel favoured by oil producers has given way to an investment scenario of $40-50 a barrel, Defterios asked Al Mazrouei for his take on the “right balance to keep investment in play and market share for different players”. While declining to put a number to the price, the UAE Energy Minister noted that shale oil’s growing prominence means a fair price for conventional producers is one which makes the shale industry continue to produce.. He continued: “If there is an issue, the national oil companies and OPEC will sit back while someone else will need to take a decision on what is the right price for us to produce. That new someone is going to be the shale oil industry.” Al Mazrouei was at pains to emphasise that the glut in the market wasn’t created by OPEC. He said: “Those who created it [the shale oil producers] need to learn and adapt to stabilising the market, as they are not small players anymore. By 2020, with eight million barrels, shale oil alone will be as big as Saudi Arabia. If they don’t behave rationally as a group, you can’t expect only one country to do it.” Prodded further by Defterios to comment on whether OPEC’s decision serves its collective good, given the “incredible pressure” that members like Iraq, Iran and Algeria who need high prices the most are experiencing, Al Mazrouei drew on OPEC’s past experience in reducing supply to prop up prices. “In 2008, we reduced production by 4.2m barrels, but the glut today is around two million barrels. So even if we reduce, someone will take advantage and produce, which will put us in problems again.” So is $70 a barrel the new normal? Deftly sidestepping Defterios’ question, Al Mazrouei pointed out the current era of open economies demands that oil producers work with the big economies as responsible producers. “No one from the region can dictate the price, nor are they interested in dictating it anymore,” he said. “The US shale gas industry will be the swing producer. They will produce when it is economically viable and shut off the wells when it doesn’t makes sense. In fact, the price is always going to be what is fair for those who are the most expensive producers.” February 2015

INFRASTRUCTURE MIDDLE EAST

9th Annual

IN PARTNERSHIP WITH

Under the honorary patronage of His Highness Sheikh Mansour Bin Zayed Al Nahyan Deputy Prime Minister, Minister of Presidential Affairs

17 – 18 MARCH 2015

Dubai International Convention and Exhibition Centre Dubai, UAE

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6000 ATTENDEES 600 DELEGATES 220 EXHIBITORS 200 VIPS BUILDING ICONIC RAILWAY NETWORKS ACROSS THE ARAB WORLD WHO ATTENDS… • Regional and international rail operators • Regional transport authorities and ministries • Major contractors

TO PURCHASE… • Service Integrators

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MIDDLE EAST INFRASTRUCTURE TENDERS

Infrastructure Tenders Our monthly analysis of new tenders and key projects across the region

gCC RAILwAy PRojECT

oLEFINS 3 PETRoCHEMICALS PLANT PRojECT

gAS TRAIN PRojECT - MINA AL-AHMADI REFINERy

UMM AL HAUL PowER & DESALINATIoN PLANT

BUDgET: $15,000,000,000

BUDgET: $10,000,000,000

BUDgET: $900,000,000

BUDgET: $800,000,000

Territory: GCC Client Name: GCC Secretariat Description: Construction of 2,170km-long railway transportation system to connect the Gulf Cooperation Council (GCC) countries Period: 2018 Status: New Tender

Territory: Kuwait Client Name: PIC Kuwait Description: Engineering Procurement and Construction (EPC) contract for the development of a petrochemicals plant Period: 2016 Status: New Tender

Territory: Kuwait Client Name: KNPC Description: EPC contract for a new gas train with capacity to process 805m cu.ft /day of gas and 106,000 barrels/day of condensates. Period: 2018 Status: New Tender

Territory: Qatar Client Name: QEWC Description: Construction of a power and desalination plant with a capacity of 2,400MW of power and 130MIGD of desalinated water. Period: 2015 Status: New Tender

February 2015

INFRASTRUCTURE MIDDLE EAST

MIDDLE EAST INFRASTRUCTURE TENDERS

Top Tenders UAE ETIHAD RAIL NETwoRK PHASE 2 - PACKAgE D CoNTRACT E0001 Project Number: WPR300-U Client Name: Etihad Rail Company, Abu Dhabi Phone: (+971-2) 499 9999 Fax: (+971-2) 499 9998 Email: contacts@etihadrail.ae Website: www.etihadrail.ae Description: Integration, testing and commissioning management that includes integration with civil works, tracks, rolling stock facilities, signalling and train control, centralised train control, comprehensive communications system including radio, fibre optic backbone, CCTV, public address, telephone, supervisory control and data acquisition (SCADA), asset protection, depot control and power supply system. Parsons International and AECOM are project managers for the scheme while Atkins & Partners are the design consultants. Five bids have been received, and the main contract award is expected in the first quarter of 2015. Period: 2017 Status: New Tender Tender Categories: Construction & Contracting, Public transportation

was awarded the FEED contract for the project. The EPC contract is divided into two packages –the first covers process units and the second covers utilities, off-sites and infrastructure. While the technical bids were submitted in July last year by the prequalified bidders, the client invited commercial bids for the process package in this month. An award is expected during the second quarter of 2015. Status: New Tender Tender Categories: Gas processing & distribution, oil fields & refineries

BAB INTEgRATED FACILITIES PRojECT Project Number: MPP2693-U Client Name: Abu Dhabi Company for Onshore Oil Operations (ADCO) Address: Corniche Road, Abu Dhabi Phone: (+971-2) 604 0000 Fax: (+971-2) 666 5523 Website: www.adco.ae Description: The project involves an EPC contract for the development of integrated facilities in the Thamama production zone of the Bab oil

field. Petrofac completed the FEED contract for the project, which aims to produce 450m barrels/day, in August 2014. Eight companies were prequalified for the EPC contract. The client has set the first quarter of 2015 as the deadline for the bids. Status: New Tender Tender Categories: Gas processing & distribution, Oil fields & refineries

KUWAIT oIL, gAS & PETRoCHEMICAL PRojECTS EPC PREqUALIFICATIoN Project Number: PQ-15/01-K Client Name: Kuwait Oil Company (KOC) Address: Supplier Relationship Management, Ahmadi 61008 Phone: (+965) 2398 9111 Fax: (+965) 2398 3661 Website: www.kockw.com Description: Client has invited specialised contractors with proven capabilities and experience related to EPC projects in the oil and gas and petrochemicals industries in Kuwait to participate in the prequalification exercise.

Prequalification is for project values as follows: a) EPC projects value over $1bn up to $2bn b) EPC projects value $600m and up to $1bn. Status: New Tender Tender Categories: Gas Processing & Distribution, Industrial & Special Projects Oilfields & Refineries

gAS TRAIN PRojECT - MINA AL-AHMADI REFINERy Project Number: CA/CSPD/0116-K Client Name: Kuwait National Petroleum Company (KNPC) Address: Imad Commercial Centre, Safat 13001 Phone: (+965) 2244 747 Fax: ( (+965) 2244 7492 Website: www.knpc.com.kw Description: EPC contract for the development of a new gas train at Mina Al-Ahmadi refinery with the capacity to process 805m cubic feet of gas a day and 106,000 barrels a day of condensates. The objective is to increase gas processing capacity to meet the upstream capacity increase in KOC and Kuwait Gulf Oil Company (KGOC). CTC has further extended the deadline to submit bids for the EPC contract from the previous deadline of January 25, 2014. AMEC (Kuwait) has been appointed as the project manager. Period: 2017 Status: New Tender Tender Categories: Gas Processing & Distribution

FUjAIRAH REFINERy PRojECT KUwAIT SCHooLS DEvELoPMENT PRogRAMME PUBLICPRIvATE PARTNERSHIP PRojECT

Project Number: MPP2956-U Client Name: IPIC Abu Dhabi Address: PO Box 7528, Abu Dhabi Phone: (+971-2) 633 6555 Fax: (+971-2) 633 0111 Website: www.ipic.ae Description: EPC contract to build a grass-roots refinery in Fujairah with capacity of 200,000 barrels a day (b/d). In 2012, France’s Technip

INFRASTRUCTURE MIDDLE EAST

Project Number: MPP2668-K Client Name: Partnerships Technical Bureau Address: Touristic Enterprises Co. Bldg., 2nd Floor, Al-

February 2015

MIDDLE EAST INFRASTRUCTURE TENDERS

Address: Riyadh 11691 Phone: (+966-1) 463 1111 Fax: (+966-1) 464 3235 Website: www.swcc.gov. sa Description: The project involves EPC contract to build PP14 combinedcycle gas turbine power plant with capacity of 1,650 MW. The client has issued a number of equipment packages for the project. The RFP for the main EPC contract is awaited. Status: New Tender Tender categories: Power & Alternative energy

Jahra Street, Shuwaikh Phone: (+965) 2496 5900 Fax: (+965) 2496 5901 Website: www.ptb.gov.kw Description: Development of nine schools, including five kindergartens, three elementary and one middle school, a residential building for female teachers and an Olympic-size swimming pool. Period: 2014 Status: New Tender Tender Categories: Water works

KSA NUCLEAR PLANT PRojECT Project Number: MPP2694-SA Client Name: King Abdullah Centre for Atomic & Renewable Energy Address: Riyadh 11691 Phone: (+966-1) 463 1111 Fax: (+966-1) 464 3235 Website: www.swcc.gov.sa Description: The project involves the construction of a 17GW capacity nuclear power plant. KAEC has announced that the project will take about eight years longer to complete than originally intended. Initially, it was planned to be completed in 2032, but has now been pushed back to 2040. A reason for this delay or when the first nuclear plant will be operational has not been disclosed. In September 2013, Saudi Arabia

signed MoUs with Japanâ&#x20AC;&#x2122;s Toshiba Corporation and Westinghouse Electric Company from the US for reactor expertise, and with USbased Exelon Nuclear Partners (ENP) to provide operations services. Period: 2032 Status: New Tender Tender Categories: Power & Alternative Energy

jEDDAH SwRo DESALINATIoN PLANT PRojECT

QATAR INDEPENDENT wATER PRojECT - RAS LAFFAN INDUSTRIAL CITy Project Number: MPP2596-B Client Name: Qatar General Electricity & Water Corporation Address: Corniche Street, Number 61, Dafna Area 41 Phone: (+974) 4484 5484 Fax: (+974) 4484 5496 Website: www.kahramaa.com.qa Description: The project involves the

construction of an Independent Water Project (IWP) using reverse osmosis (RO) technology, with a capacity of 42 MIGD to meet industrial needs. The project is planned to be developed under a 25-year build, own, operate and transfer (BOOT) agreement, with the successful bidder taking a 30% stake in the project company. The client has extended the deadline to submit bids for the main contract from the previous deadline of January 6, 2015. Bidders will submit bids for the proposed 42 MIGD initial capacity and also for the final capacity of 114 MIGD. Status: New Tender Tender Categories: Waterworks

PRodUcEd In ASSocIATIon WITh MIddlE EAST TEndERS

Project Number: ZPR1350-SA Client Name: Saline Water Conversion Corporation Address: Riyadh 11691 Phone: (+966-1) 463 1111 Fax: (+966-1) 464 3235 Website: www.swcc.gov. sa Description: EPC contract to build a Seawater Reverse Osmosis (SWRO) desalination plant with capacity of 400,000 m3/day. Black & Veatch has been awarded a contract to provide engineering and design consultancy services on the project. Status: New Tender Tender categories: Waterworks

PP14 PowER PLANT PRojECT Project Number: MPP2753-SA Client Name: Saline Water Conversion Corporation

February 2015

INFRASTRUCTURE MIDDLE EAST

TEN UAE iNfrAsTrUcTUrE PrOJEcTs

UAE infrastructurE PROJECTS While a prolonged slide in oil prices could lead to capex downsizing, the UAE is expected to remain one of the more stable markets for infrastructure projects in the MENA region

INFRASTRUCTURE MIDDLE EAST

February 2015

TACAMooL PETRoChEMICALS CoMPLEx DEvELoPMENT PRojECT

Owner: Abu Dhabi National Chemicals Company Budget: $10bn Progress: FEED study This project will be developed at Al Gharbia in the Western Region of Abu Dhabi, as part of the Chemicals Industrial City, and is the first phase of a much larger planned development. When completed, the development will be the worldâ&#x20AC;&#x2122;s largest fully integrated chemicals complex, producing olefin, aromatics and fertilisers. It will produce more than 7m tonnes a year of products, including basic commodity polymers such as polyethylene and polypropylene and advanced plastics such as polycarbonate and acetone. The project is still under FEED study, which is expected to be completed in the first quarter of this year. Bid announcement for the EPC is expected to be made in the second quarter.

TEN UAE iNfrAsTrUcTUrE PrOJEcTs

BAB SoUR GAS DEvELoPMENT PRojECT

hASSyAN CLEANCoAL PowER PLANT

Owner: Abu Dhabi National Oil Company Budget: $10bn Progress: preFEED

Owner: Dubai Electricity & Water Authority (DEWA) Budget: $4bn Progress: Invitation to Bid

The project involves an EPC contract for the development of Bab sour gas field, 150km southwest of Abu Dhabi city, with a capacity of about 1bn cubic feet a day (cf/d). It is being implemented as a joint venture with oil major Shell. EPC contracts are expected to be awarded in 2016. The client is aiming to start production at the field by 2020. The client has tendered the project’s FEED study and PMC contract to oversee the FEED phase. US engineering group Fluor has been awarded a contract to carry out the prefront-end engineering and design (preFEED) on this scheme, while Australia’s WorleyParsons has been appointed as the project management consultant (PMC) for the pre-FEED phase. ADNOC is managing the early tendering stages through GASCO.

The Hassyan project, which will produce electricity using clean coal, is being developed as an Independent Power Project (IPP). Under the IPP model, DEWA will not only buy the electricity produced by the station, but will also be the biggest partner in the project. The first phase of the project is expected to be operational by 2020. Last year, DEWA held a conference for the international developers participating in the Hassyan tender. Among the 17 qualification documents received, eight were qualified to submit their bids. In December 2014, DEWA extended the bid submission date to March 26, 2015 in response to bidders’ request for more time to make their bids fully-compliant with DEWA’s requirements.

ABU DhABI LIGhT RAIL NETwoRk PRojECT - PhASE 1

Owner: Department of Transport, Abu Dhabi Budget: $3bn Progress: Final design stage The project involves the construction of a 340-km light rail transit network with 34 stations, connecting Abu Dhabi City to Saadiyat and Yas Islands. The project has been divided into three lines. The first line will connect the Central Business District by linking Al Reem Island, Sowwah Island, downtown Abu Dhabi Island and the Marina Mall. The second line will link the Al Raha Beach Development, Yas Island, Masdar City and the Abu Dhabi International Airport, while the third line will connect Saadiyat Island and the Capital District. Design works for Phase 1C of this development have been completed. Invitation to bid for the main contract is expected to be announced by the end of February 2015. The project complements the proposed Abu Dhabi Metro.

February 2015

INFRASTRUCTURE MIDDLE EAST

TEN UAE iNfrAsTrUcTUrE PrOJEcTs

BLUE LINE DEvELoPMENT - DUBAI METRo

hAIL oFFShoRE oILFIELD DEvELoPMENT PRojECT

Owner: Roads & Transport Authority (RTA) Budget: $3bn Progress: Concept Planning stage

Owner: Abu Dhabi Oil Company (ADOC) Budget: $500m Progress: Detailed design stage

The Dubai Metro Blue Line was the third metro line to be approved together with the Red and Green lines. It was originally envisaged to start from Dubai International Airport and connect to Al Maktoum International Airport passing through Shaikh Mohammed bin Zayed Al Nahyan Road (the old Emirates Road). According to Middle East Tenders, the project, which was announced in 2006 and then postponed in August 2010 due to the global financial crisis – has been revived and is currently at the concept planning stage. Design works are expected to commence in 2016. Meanwhile, the Green Line of Dubai Metro will be extended from Jaddaf to Academic City with 11 new stations while the Red Line will be extended at two ends, with the southern end extended to Al Maktoum Airport and the northern end to Mirdif.

This project involves the development of the offshore Hail oilfield in Abu Dhabi. Scope of work covers both early production and full field development phases for the field, which is approximately 10km south of Mubarraz Island in the Gulf. The offshore field is adjacent to the client’s existing operating field and includes undeveloped reservoirs, with the maximum oil production from these reservoirs anticipated to be similar to the current production rate of the existing oil fields. UK’s Mott MacDonald has been appointed as the PMC for the project. The company will manage and administer Phase 1, which covers both FEED and EPC tendering. Technip was awarded the FEED contract in April 2014.

INFRASTRUCTURE MIDDLE EAST

February 2015

MohAMMAD BIN RAShID AL MAkToUM SoLAR PARk - PhASE 2

Owner: DEWA Budget: $327m Progress: Tender awarded Phase 2 of the Mohammed bin Rashid Al Maktoum Solar Park, which is being developed on the Independent Power Producer (IPP) model, was awarded to a consortium led by Saudi Arabia’s ACWA and Spain’s TSK. The production capacity of the plant, based on photovoltaic (PV) technology, has also been increased from 100MW to 200MW. The ACWA Power-TSK consortium submitted the lowest recorded Levelised Cost of Electricity (LCOE) for a solar PV IPP project at $0.0598/kWh. The project, which will occupy 4.5 sq km, will help Dubai eliminate 250,000 tonnes of carbon emissions annually and increase solar energy projects in the emirate to 220MW. Capacity-wise, Phase 2 is one of the largest international projects of its kind and is expected to be operational by April 2017. The first phase, developed by First Solar, has a capacity of 13MW.

TEN UAE iNfrAsTrUcTUrE PrOJEcTs

AL ITTIhAD BRIDGE/ DUBAI SMILE PRojECT

jEBEL ALI REFINERy UPGRADE

Owner: RTA Budget: $220m Progress: Design stage

Owner: Emirates National Oil Company (ENOC) Budget: $100m Progress: FEED stage

This project is also known as Al Ittihad Bridge/Dubai Creek Seventh Crossing, as it involves construction of a seventh crossing across Dubai Creek. It is near Dubai Creek Park, Wonderland and Dubai Courts on the Bur Dubai side, and Deira City Centre and Dubai Golf Club on the Deira side. The crossing, which will replace the floating bridge, consists of 12 lanes (six lanes in each direction) and a footpath in each direction. The width of the bridge will be about 61.6m and the arch will rise to 100m. The bridge can accommodate around 24,000 vehicles per hour. It will rise five metres above the water level of the Creek. ACES (the Arab Centre For Engineering Studies) was awarded the contract to carry out site investigation services on this project. RTA has received expressions of interest for the construction contracts.

ETIhAD RAIL

Owner: Etihad Rail Company Budget: $800m Progress: Phase 2

This project involves an upgrade of ENOC’s existing Jebel Ali Refinery. The refinery currently has two trains of condensate and the client is planning to add two new processing trains – jet and diesel hydro-treaters, and an isomerisation unit – that will lead to the production of Euro 5-grade products such as high-octane gasoline, low-sulphur jet fuel and ultra-low-sulphur diesel. The client has started the pre-qualification process for the EPC contract. US-based KBR has been awarded the FEED contract on this scheme, which is yet to be completed. Established in 1999, ENOC’s Jebel Ali Refinery processes condensate to produce refined products such as naphtha, jet fuel, reformate, diesel oil, fuel oil and liquefied petroleum gas (LPG) for local and export markets.

Etihad Rail was established in June 2009 under a federal mandate to manage the development, construction and operation of the UAE’s national freight and passenger railway network. Being built in three stages, the railway network will link the principal centres of population and industry of the UAE, and forms a vital part of the GCC railway network across the six countries of the GCC. The 264-km Stage 1 from Shah and Habshan to Ruwais has been completed with trial services between Habshan and Ruwais operational since September 2013. The sleeper factory in Mirfa is fully functional. Last month, Etihad Rail awarded a design-build contract for employee residences in Mirfa to NTCC. Award of Phase 2 packages (A,B,C,D,E,F)has been posponed to the first quarter of this year.

February 2015

INFRASTRUCTURE MIDDLE EAST

COVER STORY

SpECIAL REpORT

REINVENTINg ThE gRID Putting the smarts into utility infrastructure

he traditional electricity grid was developed to handle the complexities and challenges of supplying electricity to large consumption centres. It was essentially a one-way street with the utility selling power to customers. The arrival of smart grids made it a two-way street. Utilities saw value in deploying Advanced Metering Infrastructure (AMI) to access metrics on customer energy usage, which was sent to a centralised location for analysis, giving utilities actionable data to drive behavioural change. The spread of distributed generation, mainly in the form of rooftop solar, went on to transform consumers into producers selling electricity to the utilities. Smart grid technologies and distributed generation are shaping the electricity grid of the future. In the Middle East, smart grids are making incremental progress with smart meters at the last mile and grid efficiency

and stability at the network level, the main driver being management of peak loads. As distributed generation through rooftop solar and microgrids make inroads into the region Dubai Electricity and Water Authority [DEWA] has released standards for installing and connecting rooftop solar PV systems to its grid), smart grid momentum is expected to grow. According to an IRENA report, ‘SMART GRIDS AND RENEWABLES: A Guide for Effective Deployment’, smart grid technologies enable utilities to get real-time information on how distributed generation systems are operating, and give them full control over these systems to maintain reliability and match loads. The next phase of smart grid roll-outs in the region is expected to be at the distribution automation level. According to the IRENA report, distribution automation is a core element of the smart grid, interacting with almost all other smart grid applications and making the grid more efficient and reliable. Distribution automation helps enable renewable energy by dynamically adjusting distribution

controls to accommodate variability, power ramping and bi-directional power flows. The need to make cities more liveable, sustainable and resilient in the face of urbanisation pressures has sparked strong interest in smart cities in the region. With every aspect of city life requiring reliable supply of electricity, smart grids could become the gateway to smart city implementation. In the following pages, Infrastructure Middle East presents a cross-section of views on the future of the electricity grid and its implications for the region. INTERVIEWS INSIDE 30 Michel Crochon, executive vice president, Strategy, Schneider Electric 32 Maxine Ghavi, group SVP, program director, Microgrids, ABB 34 Sitaram Chodimella, executive vice president – Energy Automation Middle East, Siemens 36 Rajiv Sawhney, managing director, Landis+Gyr Middle East

February 2015

INFRASTRUCTURE MIDDLE EAST

COVER STORY

ROAD TO MATURITY

“We are seeing the drivers described at the beginning of the smart grid story taking shape on the ground” Michel Crochon, executive vice president, Strategy, Schneider Electric, speaks to Infrastructure ME on the maturing of the smart grid concept

We have progressed in that we have more common understanding of what makes the smart grid. I think the concept is accelerating, and the industry is already talking about Utility 2.0. We are seeing the drivers described at the beginning of the smart grid story taking shape on the ground as renewable energy becomes an important part of the utility’s energy mix, solar PV panel costs continue to fall and the population of electric vehicles grows, to cite a few. More or less, this is what I see of the smart grid, but of course we need to push it out more. While we are seeing more and more pilots and projects, it would be incorrect to assume that smart grid is becoming ubiquitous.

operation, planning and optimisation of power distribution systems. Gartner has ranked us as the best ADMS in the market. Demand Side Management (DSM) is a smart grid technology that has acquitted itself well on the ground. DSM is about optimising assets and delaying next investment by making the best use of existing investments. When you implement a smart grid solution fully, you can reap full benefits in terms of reducing operating expenditure or postponing next capital expenditure. The smart meter is also a part of the smart grid success story. When it is connected, it starts delivering value. It has also raised questions about ownership of data and cyber-security, but we are making stepby-step progress in these areas as well.

In what areas of the grid have smart grid technologies made a difference?

To what extent are smart grids enabling renewable energy?

While smart grid technologies touch both transmission and distribution, as a company we focus more on the distribution side. Thanks to our positioning and history, we are able to connect what is happening in the grid with what is happening in the end-user segments, whether it is homes, infrastructure, industry or commercial buildings. We see a lot of development and potential for growth in terms of connecting demand and supply. We have implemented several pilots in France and the US with major utilities. Schneider Electric enjoys very strong positioning and references in Advanced Distribution Management Systems (ADMS) that assist utilities in the analysis,

Renewable energy is an important part of the smart grid story, and will become more so as prices of solar panels come down more and more. There are successful business cases involving production of renewable energy at the home or building and district levels. Distributed energy is part of the smart grid because they need to be integrated into the grid, often with storage and local microgrid. It is a revolution made possible by the connectivity afforded by sensors and convergence between operation technology (OT) and information technology (IT).

It’s been nearly a decade since the smart grid concept made its way into the industry lexicon. How far have things progressed on the ground?

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What will be the impact of smart grids on smart cities?

February 2015

Smart cities are a little bit of the same story as the smart grid, but behind in terms of maturity levels. As an umbrella concept, it includes smart grid, smart water, smart buildings, intelligent traffic and even smart security. Whether it is smart cities or smart grid, we can confidently claim that today all the technical solutions exist. More than technology, successful implementation boils down to vision, leadership and willingness, because smart city is a journey. Smart city is also about collaboration as it embraces all the organisations of the city, including utilities, industries and customers, to make the story happen. Not to forget, it is also about processes, regulations and standards. I am convinced the drivers for smart cities in terms of demographic pressures and rapid urbanisation are already in place. In fact, in the next 40 years, we are going to build as many cities as have been built since the dawn of civilisation. But on the maturity front, smart cities still need to be explained, people need to be aligned and collaboration needs to increase and improve. What are the factors driving successful smart grid/city implementations?

I would list the success factors in the order of clear definition of priorities, followed by strong vision and leadership, collaboration between stakeholders, convergence in standards for open architecture, and the capability to modify and connect the existing installed base.

COVER STORY

“I am convinced the drivers for smart cities in terms of demographic pressures and rapid urbanisation are already in place. In fact, in the next 40 years, we are going to build as many cities as have been built since the dawn of civilisation” MIChEL CROChON, ExECUTIVE VICE pRESIDENT, STRATEgY, SChNEIDER ELECTRIC

February 2015

INFRASTRUCTURE MIDDLE EAST

COVER STORY

“It is important to understand that the definition of microgrid is evolving, moving beyond the traditional bracket of isolated grids or rural electrification to include connected microgrids” MAxINE GhAVI, GROUp SVp, pROGRAM DIRECTOR, MICROGRIDS, ABB

INFRASTRUCTURE MIDDLE EAST

February 2015

COVER STORY

NEw OppORTUNITIES

“Microgrids and distributed generation are transforming the energy system as we know it” Maxine Ghavi, group SVP, program director, Microgrids, ABB, speaks to Infrastructure ME about the benefits of microgrids and why they are poised to take off What goes into a microgrid? What is ABB’s play in this area?

I would define a microgrid as a self-sufficient, integrated energy system with multiple loads and multiple generation sources – from traditional fossil fuels to renewables. A microgrid could either be connected to the main grid or be completely isolated. From ABB’s perspective, we have products and solutions in both traditional power generation and renewable energy, especially solar and wind. We also have a deep understanding of the electricity grid, where we are a global leader. A microgrid incorporates elements from both areas, which puts us in a unique position to bring all that knowledge, experience, technology, products and solutions together. A core component to making microgrids work efficiently is a sophisticated distributed control system, which optimises the microgrid by looking at the loads and the generation. At ABB, we have developed a control system specifically for microgrids. The other core component is a grid stabilisation system, which ensures grid-like quality when the microgrid has to alternate between renewables and fossil fuel power generation. ABB’s grid stabiliser system can also be used to stabilise microgrids that lack reliable sources. This will come into play with more and more distributed generation on the grid. What are the key drivers for microgrids today?

The drivers will vary depending on the application and the location. A key driver today would be improving the Levelised Cost of Electricity (LCOE) when integrating renewables. Another driver is bringing electricity to remote locations where microgrids can be more cost-effective than building power lines.

Even in cities, microgrids can help maintain power supply for critical services during blackouts or natural disasters. In fact, one of the growth areas for microgrid is the US, where the devastation caused by Hurricane Sandy raised awareness about the benefits of microgrids, followed by rollouts across different parts of the country. It is important to understand that the definition of microgrid is evolving, moving beyond the traditional bracket of isolated grids or rural electrification to include connected microgrids. However, the market is still in its infancy, which makes it exciting for us to be a part of it and enable it. The range we focus on is 100kW to 50MW. We can go higher, but the sweet spot depends on the application and objective. The size also varies depending on the load, but microgrids are actually scalable. After transition to a microgrid, if you want to add renewables to an existing system, you can do so in stages and continue to build on that. Who owns the microgrid? Are they subject to the same regulations as traditional grids?

The ownership can vary tremendously, from utilities, to communities and university campuses, to companies (in an industry like mining or oil and gas), and even owners of a building cluster. The ownership changes depending on the application and the objective. If your microgrid is connected to the main grid, you are subject to the regulations that govern the latter. Where the microgrid is self-contained, the regulations may vary. Whether the grid is governmentsupported or private can also be a factor when it comes to regulatory oversight.

Are microgrids seen as a long-term solution?

Microgrids and distributed generation are transforming the energy system as we know it. At ABB, we believe that microgrids is a long-term market. We put a stake on the ground with the acquisition of a leading player in this business, Powercorp, in 2011. In addition to some core technologies, they also had a strong installed base with roughly 80 references, from installations to consultancy services. The fact that ABB has created a specific microgrid role at the corporate level is a strong statement of our intentions. Do you think that energy-poor countries in the region can benefit more from microgrids?

I would place all the countries on the same level. For example, in Jordan, which lacks energy resources, energy security is the driver, whereas in Saudi Arabia, the drivers are preserving the oil for exports and supporting remote communities. For any of the countries in the region, if they have communities far away from the main grid, or if they want to establish a new community, they could start with microgrids. What about the market size?

Navigant Research has forecast that worldwide microgrid capacity will grow to more than 4,100MW by 2020. The microgrid market continues to evolve, and we are yet to see the full extent of applications. At ABB, we feel that we are best placed to enable this market, thanks to a high R&D spend ($1.5bn in 2013), a global footprint and the ability to bring the different components within ABB together to provide a solution. For new markets, bankability is key, and that’s another element that we bring to the table as a bankable company. February 2015

INFRASTRUCTURE MIDDLE EAST

COVER STORY

“If there is large-scale penetration of renewable energy, the utilities will have to set up their grids in order to manage the feed in from low and medium voltage grids” SITARAM ChODIMELLA, ExECUTIVE VICE pRESIDENT – ENERgY AUTOMATION MIDDLE EAST, SIEMENS

INFRASTRUCTURE MIDDLE EAST

February 2015

COVER STORY

VIAbLE gRID

“Our experience across the world is that it is essential to define the business strategy first” Sitaram Chodimella, executive vice president – Energy Automation Middle East, Siemens, speaks to Infrastructure ME about smart grid RoI How would you rate the maturity of smart grid as a concept in the Middle East?

I don’t think there is a single one-size-fits-all concept of a smart grid. It means different things in different environments. But there are certain core elements like smart metering covering the last mile, and at the next level, elements like distribution grid automation, distribution management systems and renewable integration. I think most of the utilities in the Middle East have now experimented and piloted smart metering, and they have gained valuable experience. This can be used as a basis for largerscale deployment of smart grids in the future. Which sub-segments have the most traction?

Again, this depends on the region and the regulatory environment within regions. If you look at the US and Scandinavia, there are strong requirements for distribution automation. In Europe, renewable energy integration is a strong topic. Different regions have different sub-segments that are progressing well. When it comes to the Middle East, there are two topics in the spotlight. In Abu Dhabi, water and electricity tariffs have been revised. This is paving the way for utilising the smart metering infrastructure and building smart applications on top of this infrastructure. I think Abu Dhabi and the UAE have taken a leap in this regard, in creating an environment for building on existing smart metering infrastructure. There are a lot of pilots involving renewable energy integration based on solar photovoltaic applications. We see tariff revision as a

positive step to create the necessary regulatory environment. If a leading country like the UAE takes the first step, this will encourage other countries in the region to go in the same direction. We therefore see this as a positive development in the market, because it helps to set up the necessary regulatory environment. Countries have to gain experience in this implementation and see how the consumers react, and see what sort of applications they can build on this infrastructure. Are smart grid projects delivering the promised Return on Investment (RoI)?

In some countries, smart grid projects have led to improved cost per customer position for the utilities, which has been the case, for example, in Italy. In the US, utilities have benefited from reduced penalty payments because they have been able to improve the performance of their networks by implementing distribution automation. These are two examples where there is a clear demonstration of RoI. If you take the UAE, the smart metering infrastructure is already in place in Abu Dhabi; in the case of Dubai, the same is expected to be completed over the next couple of years. They have to use this infrastructure to create applications on top, and then you get the perception of what the RoI is, with greater visibility. It is not the investment per se in smart metering alone that delivers RoI, but the applications you build onto it, and how you use the infrastructure to deliver value to the customers. What has been the impact of smart cities and the integration of renewables on smart grids?

Smart grids act as enablers for smart cities,

because part of your city infrastructure for supply of electricity is already smart. In that sense, a smart grid has a positive impact on smart cities. On the other hand, renewable integration and smart grid is an important topic in Europe. In Germany, for example, because of the high penetration of renewable energy, they are seeing feedback into the transmission networks. Utility-scale solar power plants don’t have so much of an impact because the integration happens at the grid level. The impact is felt most with deployments at the low and medium voltage levels, where the distribution grids are not set up for renewable integration, which involves reverse flow. Currently, you have only unidirectional flow. We have the experience in Europe regarding the integration of renewable energy at low and medium voltage grid. Our advanced distribution management systems and other applications are already geared up to handle the integration challenges. Currently, we are positioning our solutions with various utilities, as we expect integration of renewables to be a key driver in the next 10 years. What fundamental lesson can be drawn from successful implementations?

Our experience working with different utilities across the world is that it is essential to define the business strategy first. They have to define what they would like to achieve as a business in the next five or 10 or 15 years, as the case may be. They have to review their existing infrastructure and the technologies they have, as of today, and they have to review what technologies can be used as enablers to meet their long-term goals and provide RoI across different applications. February 2015

INFRASTRUCTURE MIDDLE EAST

COVER STORY

INFRASTRUCTURE MIDDLE EAST

February 2015

COVER STORY

ANALYTICS FUTURE

“We are going to play a very important role in services related to interpretation of smart grid data” Rajiv Sawhney, managing director, Landis+Gyr Middle East, speaks to Infrastructure ME about the future trends in smart metering What will be the next level of evolution when it comes to smart meters?

Last year, we acquired GRIDiant Corporation, a data analytics company focused on the electric distribution grid, and Powersense, a leader in smart grid sensor and monitoring technologies. I believe that these acquisitions indicate the future direction of smart metering. PowerSense’s product line helps digitise existing power distribution infrastructure by retrofitting sensors onto existing medium and low voltage power cables, transformers and switch gear and also integrate existing devices located at the substation level. Smart meters and other grid devices provide in-depth information about their distribution networks. How a utility is going to find all this data useful is where a data analytics company like GRIDiant falls into place. Landis+Gyr is going to play a very important role in the future in services related to the interpretation of smart grid data. How can data analytics help utilities extract value from data?

One area could be determination of new tariffs, like time-of-use. The management of energy consumption can lead to major capital expenditure savings on power plants that are operated seasonally. Grid software can also be used to simulate networks. You can virtually add a city to an existing grid and simulate its requirements and impacts. Insights gained from analytic tools can promote operational efficiency throughout the distribution grid. I believe that smart meter data analysis

is going to be an entirely different business. Today, most of the utilities supplying energy for industrial and residential consumers are quite monopolistic. They may lack the amount of in-depth expertise required to interpret the data, which makes it useful for managing energy demand or makes it more understandable. If you look at it, the smart grid reaches all the way into homes. But the elements at the residential level are completely different from those at the generation and transmission levels. Though you have to look at each area separately, the big challenge is the level of integration that needs to take place. Today, a lot of the development that is going on is basically in terms of openness and compatibility of protocols so that unified data, irrespective of where it is collected from, can be interpreted. How open are the region’s utilities towards new technologies and trends in smart metering/grids?

Being monopolistic and knowing there is competition, utilities tend to have the customer role. We agree that every utility has its own network, which requires us to customise. However, successful technology implementations are based on partnerships, and I personally feel that utilities in the region, at the moment, are not taking ownership of the partnership model. Despite having the edge, you can be classified as supplier and made to stand up with everyone else. A transactional approach can actually hamper technology adoption.

As is the case in this region, when utilities are keen on something, they tend to reinvent it rather than adopt existing technologies. And when you are dealing with electronics or any other equipment, the more you redesign, the less reliable it will tend to be. The requirements for metering are relatively very simple, like reliable communications, for example. Here, a technology which works in one area may not work in another. So smart metering can never be about a single technology. How have you tackled this reticence?

As a consultative company, we always respect our customers. Among other things, we have sat down with them and held workshops to try to understand what they wanted and what are the additional benefits that could be given to them. If you are a consultant in the smart grid scenario, you tend to offer a solution which is more future compatible. The objection we often encounter from utilities is: ‘we don’t need it now.’ It is interesting to see what they didn’t need three years ago is what they need today. A big onus lies on actual person who puts it together. I think town planners are the biggest visionaries. They need to see what is going to be the growth of a city, plan the infrastructure accordingly and have pathways for more investment that fits in. At Landis+Gyr, when we develop our products, we clearly see the future today. In fact, when you are entering the smart grid business, you have to think much more than what is there on the table today. February 2015

INFRASTRUCTURE MIDDLE EAST

OIL & GAS

NEXT WAVE

Poised for consolidation

Cost pressures and competition to encourage mergers and acquisitions in the energy industry, says AT Kearney

s falling oil prices force oil companies to cut capital expenditure or focus on smallticket projects, the oil industry could be headed for consolidation, says a new AT Kearney study. The study, ‘Mergers and Acquisitions in Oil and Gas’, notes that Brent prices dropped below $50 per barrel in January this year, falling by more than 50% from their stable range of $100-110 per barrel for the three years leading to June 2014. M&A in oil and gas showed a strong recovery in 2014 after a slow 2013, and with OPEC’s decision not to cut output, 2015 is set to witness even further M&A activity across the value chain. These strategic deals will be key to growing value and aiding companies to navigate market turbulence. “Strategic approaches to M&A are critical to address the intense cost and cashflow pressures experienced by oil and gas

INFRASTRUCTURE MIDDLE EAST

players. Our analysis and discussions with industry executives revealed the likely onset of a new wave of mergers and acquisitions across the value chain in the next six to 12 months,” says Richard Forrest, global lead partner for Energy Practice and co-author of the oil & gas M&A study, AT Kearney. He adds: “The window of opportunity may be shorter than expected and will be driven by oil price expectations. Those companies with strong cash flow and healthy balance sheets will be able to leverage opportunities, while others will need to define strategies just to survive.” All players in the industry can benefit from a strategic approach to mergers and acquisitions, including International Oil Companies (IOCs), National Oil Companies (NOCs), independent oil companies, service sector businesses and financial investors. Jose Alberich, partner, AT Kearney Middle East, says: “For Middle East players, in particular NOCs but also IOCs and oil majors operating in the region, there may be opportunities to strengthen their positions

February 2015

with strategic M&A deals. Attractive assets might struggle with the lower oil prices, and as they become distressed may turn into viable targets for larger players. “However, lower oil prices may well mean less cash available to potential buyers, so any moves made will be very selective. All activity will be carefully considered, with NOCs reassessing strategies to ensure proactive moves fit their mandate and government objectives.” M&A activity for NOCs will be aligned with the national agenda of their host government, which is often strongly influenced by near-term domestic needs and government agendas as much as by economic and business strategies. According to the study, while IOCs have retreated from the M&A market since 2010, NOC activities have increased, among the most notable being the Rosneft-TNK deal in 2013. While Chinese NOCs were active before 2013, in the current scenario they are expected to exercise greater caution when it comes to acquisitions. If prices remain low, they may get

OIL & GAS

opportunities to come in as potential investors or partners to alleviate distressed situations. In the case of the Middle East, the study finds that the region’s NOCs have preferred to buy and grow their capabilities in sectors other than upstream, thanks to their own strong resource base. If low oil prices persist, cash-rich NOCs may venture out to take international positions, as Mubadala, Kufpec and Kuwait Energy Company have done in the past. For IOCs, optimising portfolios will continue to be the focus. Divestment of downstream and non-core assets could accelerate to enable funding of targeted upstream activity and meeting cash flow needs throughout 2015. Mega deals for scale synergy are not out of the question, but will be limited. While most of them have their M&A strategy mapped out, the focus on cost reduction, divestments and meeting nearterm expectations of shareholders will make it more challenging for IOC acquisitions. The study determines IOCs will favour selective acquisitions to build in their chosen areas. It also finds that independent oil companies’ success in M&A will be determined by balancesheet strength and varying levels of exposure to assets with higher breakeven oil prices. The more adventurous financial investors may take the opportunity to enter the market; however, the current margin squeeze, low oil prices and sluggish demand could suppress some investors’ appetites. Financial investors are likely to acquire in the oil-field services sector, downstream divestments by IOCs and – for those with confidence – some upstream assets beyond the traditional mature production.

“attractive assets might struggle with the lower oil prices, and as they become distressed may turn into viable targets for larger players. however, lower oil prices may well mean less cash available to potential buyers, so any moves made will be very selective” JOSe aLBeRiCh, PaRTneR, aT keaRneY MiDDLe eaST Taking The hiT

According to the report, oil field service companies will continue to be hit hard as operator margins are squeezed. With lower oil prices creating intense cost and cash flow pressures, oil companies are pressing for lower rates from service companies facing lower utilisation of rigs, vessels and crews. Recent rig count data released by global oil field services player Baker Hughes shows that the US oil rig count had dropped to a three-year low of 1,223 as of January 30, 2015. As projects are delayed or cancelled, oil field service companies are having to deal with lower asset utilisation, which has an impact on cost efficiency. The oil field services sector is highly diverse and segmented, with small firms accounting

for 60% of the market while the top three companies account for the rest. The top three will become the top two once the merger between Baker Hughes and Halliburton, announced last year, goes through. The AT Kearney report suggests that oil field services firms with cash flow or funding difficulties will be the main acquisition targets. Non-traditional industry players like private equity firms are already active in the M&A market, where they accounted for 21% of the $72bn worth of deals sealed in 2014. In fact, a key deal in 2014 had Middle Eastern origins, as Qatar-based Al Mirqab Capital acquired FTSE 250-listed Heritage Oil for $1.5bn. These financial investors are expected to be joined by non-traditional service companies, mainly in the equipment engineering services segment, who are looking to expand their technology portfolios. The larger oil field services players are also expected to enter the M&A fray as they seek to grow market share or become fuller service providers, in order to deal with cost pressures and improve negotiation positions with operators. However, regional oil service providers like AlMansoori Engineering prefer a more cautious approach. As the firm’s deputy CEO Ibrahim AlAlawi pointed out in a recent interview with Infrastructure ME: “For us, an acquisition is always a strategic decision, not a commercial one. Being a private company with limited resources, we have to think twice before we spend money. When we acquire companies, it is to gain technology or some other value add.” February 2015

INFRASTRUCTURE MIDDLE EAST

BEST PRACTICES

MAXIMUM UPTIME

Maintenance as an asset Manufacturers can transform maintenance from an expense into a strategic, competitive asset. Here’s how…

ocusing on an assetmanagement strategy can positively affect a wide range of operational metrics, such as overall equipment effectiveness (OEE) and return on net assets (RONA). In turn, these metrics contribute to aggressive productivity targets, including various forms of risk mitigation, data-driven decision making, workforce empowerment and predictable expenditures. Among the benefits of comprehensive asset management are: • OEE: Driving uptime is key to a smart asset-management strategy because it is focused on assuring the people, parts and processes are optimised to support the equipment. It also provides trend data visibility into asset performance by both machine and shift, which helps drive continuous improvement priorities. • RONA: Reducing inventory, maintenance costs and the number of downtime events

INFRASTRUCTURE MIDDLE EAST

raises productivity, while driving financial performance and predictability. • Empowered and engaged employees: With a dwindling number of maintenance workers, those who remain need the right tools to make good decisions about driving plant performance GettinG started

Evolving asset management into a proactive, strategic component of bettermanaged manufacturing facilities can be done in phases, following these steps: step 1: evaluate needs, set Goals

The first step in any asset-management strategy is examining your current situation while keeping in mind your business priorities, such as process validation over uptime or environmental impact over rate. To establish a baseline for improvement, first, understand your operation’s process hierarchy to determine equipment priority and thus risk. Second, understand your equipment’s

February 2015

serviceable components and their lifecycle status. For example, are the components new, available, repairable, replaceable or obsolete? Finally, understand your storeroom content and identify all other locations holding spare parts in support of your operations. This data will inform future decisions and allow immediate inventory optimisation. It also will enable risk mitigation on the most critical equipment, and provide the basis for all future management of your plant assets, including preventive maintenance program optimisation, storeroom optimisation, machine-builder changes and warranty capture. This data collection and intelligencegathering step can be accomplished by those within your organisation, or by involving your spare-part equipment manufacturer. Once you have completed data collection, assess critical areas of concern, outline needs for improvement, and define your objectives so you can build an attainable asset management plan. Often, engaging a strategic maintenance consultant is the easiest way to get going

BEST PRACTICES

step 2: desiGn an assetmanaGement strateGy

Your goal-setting activities will yield the building blocks for your asset-management strategy design, which likely will include these elements: • Storeroom management redesign • MRO process management redesign • Reporting and dashboard creation • Excess spare parts burn, selloff, and/ or vendor-managed agreement • Preventive maintenance activity changes Storeroom management redesign: Start by examining your existing storeroom layout and parts-management tools, including existing software, labelling and tracking solutions. Determine a layout that gives workers quick and easy access to those parts frequently required in the facility. Consider implementing a stock keeping unit (SKU) rationalisation assessment, defined by AMR Research as, “An analytical process used to determine the merits of adding, retaining or deleting items from a company’s inventory.” Don’t fall victim to the costly “stock-up syndrome” by purchasing parts for your system, regardless of their importance to maintaining uptime. A SKU rationalisation process can help create a successful part numbering scheme – allowing for easier tracking and less inventory. MRO process management redesign: Once your inventory is optimised, the next critical step in a comprehensive assetmanagement strategy is establishing best practices for part repair or replacement. Minimising your stock, optimising your repair process and building an actionable reporting structure is the most sustainable way to maximise your automation investment. Reliability improvement uses a process risk assessment to track and understand the consequences of process and equipment failures, and recommend priority actions. Optimising your repair process involves keeping track of where each individual component is in its lifecycle. When a component on the line fails, you document where, when and why it failed, and determine if it is under warranty. To keep track of warranty detail and ease the process, the labelling system in your storeroom should include warranty information for each part to track its eligibility. Effectively managing your organisation’s warranty recovery can significantly contribute to the operation’s bottom line. Parts also should be tracked when sent for repair. One of your existing vendors may be able to provide an on-site specialist to manage your

repair process and provide a clear, concise usage and failure analysis. This analysis is critical to drive continuous improvement and to make informative, important decisions. For example, if one part continually requires repair or an obsolete part fails, it is a prime candidate for migration or perhaps a machine adjustment. Typical savings categories for effectively managing MRO repair include: repair price vs. new, warranty recovery, inventory and carrying cost reduction, administration, new purchase and repair reduction, and increased production uptime. Having a person electronically track this data can help identify opportunities for system and process simplification or improvement.

“the most successful asset-management strategies evolve as equipment, process and people change” Jane Barr, Business manaGer, services & support, rockwell automation Reporting and dashboard creation: This phase can come in many forms and be accomplished in many ways. You may decide during the evaluation and goal-setting stages that an OEE information system is a necessary investment to create dashboards showing uptime, production rate and quality. The MRO process management redesign mentioned earlier also can provide significant information to be built into a usable and actionable reporting tool. Excess spare-parts burn, selloff, and/ or vendor managed agreement: Inventory reduction is a popular productivity target because it frees up budget for other assets. Remove or burn-off excess or inactive inventory while filling in critical gaps you’ve found during the assessment. Remember that you may have resources to help with your storeroom goal. For example, your local distributor may be able to help supply half of your needed parts from its available stock, leaving you to identify a plan for the remaining half. Additionally, your equipment vendor could implement an onsite parts management agreement, allowing you to avoid purchasing the remainder of the spare parts until they are needed. Preventive maintenance activity change: The more aware you become of your facility’s

needs and challenges, the more fine-tuned and efficient your preventive maintenance (PM) activities will become. You may choose to use vendor specialists with the resources to develop and sustain a PM program through scheduled service visits, fully warranted replacement parts, and 24/7 remote troubleshooting – thus freeing up your personnel to operate the equipment and manufacture products. step 3: implement your unique solution

After establishing the right baseline of your facility and designing a plan that supports your business needs and mitigates your risk priorities, your asset-management investment will be pointed, graduated and impactful. The structure of your plan determines the implementation path. For example, you may be able to use your existing staff and processes to implement simple, immediate point solutions such as inventory disposition or burn-off. But when it comes to more complicated process implementations or redesigns, such as a storeroom or MRO process redesign, seeking an external specialist to design and execute the right implementation plan and assist with the organisational changemanagement process can help save time and effort. Asset-management specialists can recommend tools and processes that make the most sense for your organisation and are setup for continuous improvement in order to drive the most value from your investment. step 4: measure and continuously optimise the process

The most successful asset-management strategies evolve as equipment, process and people change. Therefore, be sure to keep a working document listing critical plant assets and equipment changes. Before the equipment is purchased or the retrofit done, make every effort to use components you already stock, reducing your need to purchase additional inventory and reducing the technology variability on your floor. After equipment purchases or retrofits, update the master list and adjust inventory accordingly. This effort provides measurable data you can turn into actionable information to help inform future decisions to achieve continuous productivity gain (Extracted from ‘Treating Maintenance as an Asset, not an Expense: Devising a Comprehensive Asset-Management Strategy to Boost Your Bottom Line’ by Jane Barr, business manager, Services & Support, Rockwell Automation)

February 2015

INFRASTRUCTURE MIDDLE EAST

bEST pRACTICES

bEyoND TooLS

Five-level strategy Ian Fleming, Managing Director, IFS Middle East, Africa and South Asia outlines the five levels of asset-management development sset-management programmes and software get a fair amount of attention. Maintenance engineers and their site managers have their own ideas about the value of asset management to a company’s bottom line. There are measuring tools and concepts galore, all intended to provide an instantly successful maintenance process. Much of this makes achieving reliability-centred maintenance (RCM) and condition-based maintenance (CBM) sound relatively easy and commonplace. This fosters a misguided concept that RCM and CBM are commodities that can be purchased and implemented in short order. In order to explain how to gauge where a company’s maintenance programme stands and where its goals need to ultimately

INFRASTRUCTURE MIDDLE EAST

lie, we (at IFS) have developed the term ‘Quintessential Asset Management’ (QAM). QAM is the culture, processes and tools required to efficiently maintain a company’s equipment for optimum production. In this article, I’ll outline the five levels of asset-management development a company usually passes through leading to more advanced processes such as CBM and RCM to eventually achieve QAM. It’s wonderful to have real-time data and dashboards at your fingertips when you want to make a decision, but achieving this level of technological sophistication requires discipline over a period of time despite business trends that ebb and rise. Maintenance is not unlike a safety or quality programme that might get put on hold or abandoned during periods of slow business. In embarking on your QAM journey, the first thing to ask yourself is: Where is your

February 2015

company’s maintenance programme, and where do you want to take it? An enterprise needs to establish a valid benchmark of where it stands, set realistic goals, and then evaluate progress honestly and openly at predetermined intervals. The development and maturity of a maintenance programme is not unlike that of a human being. In infancy, everything is reactive. The machinery breaks, and the production people scream for attention. Without a maintenance history to draw knowledge from, repairs are more challenging. As a programme advances and the technicians learn the equipment and start figuring out preventative measures, it moves toward adolescence and needs more structure. Then, as technology and information systems for maintenance and asset management develop around automated communication processes and historical data, the challenge becomes the

best practices

move toward proactivity and productivity. LeveL 1 – Disruptive/reactive

Everything has to start somewhere, and maintenance is no exception. There is no equipment history to fall back on, and all maintenance is reactive. Some enterprises start manufacturing or servicing products without acknowledging maintenance – until it bites them in the balance sheet. A welder or machinist will do minor repairs on failed equipment, and service representatives will be called in for major issues. As time goes by, the failures start creating real production problems and can actually cause a viable business to fail. LeveL 2 – FoLDers anD spreaD sheets

At level two, companies start hiring maintenance mechanics, maybe even allowing one to sit behind a desk a certain percentage of the time in order to plan maintenance and keep records. At this stage, calendar and operational time-based PMs are put in place and technicians start keeping an equipment history. Many companies only move to this level to meet a quality standard for their industry, such as QS or ISO. Many companies stay at this level indefinitely, perhaps with the prevailing notion that if a technician isn’t turning tools on a broken machine, he’s wasting time. More proactive planning and management are not seen as adding value. LeveL 3 – Basic cMMs

At last, a computerised maintenancemanagement system (CMMS) has been approved, and a team has been assigned to investigate the costs and approaches required to follow through on that commitment. There is support from management for the project, and a few champions have stepped up to take the lead on software selection and implementation. Many companies make the mistake of paying good money for a CMMS but then cutting corners on implementation. This is an example of stepping over a dollar to pick up a dime. They consider the time required to collect and input pertinent data as time the technicians could be spending on the equipment, instead of realising that you have to put good data in to get good data out. On the other hand, other well-meaning implementation teams try to do too much right out of the gate. They want to use every available field on a fault report or work order before they even understand many of the key performance indicators (KPIs) they ultimately want to monitor. Letting a system evolve to

“Many companies make the mistake of paying good money for a cMMs but cut corners on implementation. this is an example of stepping over a dollar to pick up a dime” ian FLeMing, Managing Director, iFs MiDDLe east, aFrica anD south asia

some extent always makes the best sense. Time is money, and it requires time to enter data in the system. Having a technician fill out an unnecessary field is a waste of time. As the maintenance system develops, using a particular field may make more sense, but it may not be available – perhaps because it’s already being used and full of irrelevant information. Poor implementation also results in equipment being set up incorrectly, or information entered into the system based on guesswork. It makes sense in many instances to be patient and wait for work history to identify needs. A well-designed maintenance programme will become optimised with age. You need a plan of where you want to go with the system before you set up implementation. Lay out phases and goals with timelines. Benchmark where you’re at, and schedule intervals of honest evaluation. Hire the right consultants to help you (they may or may not be the software vendor). Be sure to have your best maintenance people on the core team, and make sure they get input from the technicians and in-house experts. LeveL 4 – integrateD cMMs

At level four, a maintenance organisation begins to seriously consider how its CMMS interfaces with other systems in the company, including enterprise resource planning (ERP), equipment monitoring and project-management software. If a maintenance team is cutting purchase orders and doing material requisitions in an ERP while doing double entry by manually recording the costs or actually duplicating them in the CMMS, it’s time to consider investing in an integrated package or direct interfaces. If a company has been planning ahead in earlier phases of development and already has a software package with both ERP and CMMS functionality (called enterprise asset

management (EAM)), it can more gracefully, cost-effectively and efficiently move toward greater integration without bringing in armies of high-priced consultants and systems integrators. If a plant has a supervisory control and data acquisition (SCADA) system, it’s time to start considering a direct interface of data (hours, strokes, alarms). Pretty much all monitoring programmes and some CMMSs are compatible through OLE process control (OPC) interfacing. It makes sense to have remote sampling and real-time monitoring feed directly into the CMMS in order to cut back on the man-hours necessary to collect and enter data, and to avoid misreading that leads to junk data in the CMMS. During the integrated CMMS phase, a maintenance organisation can also look at integrating its maintenance-software tools with project-management software that delivers equipment directly into its CMMS. This is a huge step toward greater efficiency and the ability to manage assets over the entire lifecycle from engineering, installation, commissioning, operations and maintenance through to the decision to refit or replace. Machine installation, plant expansion and relocation all have asset-management relevance. True asset lifecycle management (ALM), described as ‘cradle-to-grave’ tracking, begins at the design and installation level. LeveL 5 – QuintessentiaL asset ManageMent

Now you’re at the QAM pinnacle. You have all the tools in place to actually implement RCM. You can decide what is truly critical equipment instead of what seems like it must be according to tribal knowledge, but really isn’t. You have real-time dashboards and key performance indicators at your fingertips. You can make repair/replace decisions quickly and easily. You can make run-to-failure decisions with accurate data. QAM is a model of how an asset-management programme develops. While the right technology is important, it is your organisational culture that will really separate the wheat from the chaff and determine if you get to RCM or not. A company needs a vision of where it’s going and how to get there – something more than a few rows and columns on a spreadsheet. It’s people, processes, dedication and discipline that make a maintenance programme successful. Software, monitoring equipment, reliability premises and performance indicators are just tools that automate, guide and measure your success.

February 2015

INFRASTRUCTURE MIDDLE EAST

UTILITIES

TEMPORARY POWER

Bringing power to the unconnected

Robert Bagatsing, marketing manager, Altaaqa Global, discusses the advantages of temporary solutions for remote area electrification

ccess to affordable, reliable and sustainable energy is a fundamental driver of economic development, environmental stewardship and social progress. Without electricity, factories can’t manufacture goods, oil & gas facilities can’t produce enough petroleum products to satiate global demand, cellular and internet communication are impossible, financial transactions halt, hospital equipment can’t keep patients alive and healthy, and schools can’t educate children. Living in industrialised and highly urban cities, these scenarios seem appalling. We are so used to the ubiquity of electricity that life without it is unimaginable. Yet the truth is, almost 1.4 billion people around the world still have no access to electricity. These people rely on candles, kerosene and diesel, firewood and animal and human dung to produce energy in their homes or small businesses. These people go home to dark houses, have never seen a TV

INFRASTRUCTURE MIDDLE EAST

show, have never heard music from a radio, have never had an ice-cold drink from the fridge, have never researched online, and maybe have never studied under sufficient light. The consequences

Generally speaking, the “unconnected”, as an economic sector, are seen as the “bottom of the pyramid” – a low-income market whose members’ annual earnings do not exceed $1,500. It is in this sector that we find the estimated 1.4bn people around the world without access to electricity, and the almost 2.7bn people that

“Governments in emerging economies are waking to the potential of private energy services in low-income markets” RoBeRT BAGATsInG, MARKeTInG MAnAGeR, ALTAAqA GLoBAL

February 2015

still cook with traditional biomass. Of the 1.4bn, the International Energy Agency (IEA) reports that 587 million are in Africa, 404m in India, 31m in Latin America, 8m in China and 387m in other Asian countries. Of the 2.7bn that still use biomass for cooking, 855m are in India, 657m in Africa, 423m in China, 85m in Latin America and 659m in other Asian countries. Owing to the lack of access to a viable and consistent supply of electrical energy, these people resort to biomass and petroleumbased fuels for lighting, cooking and powering small household devices. But burning these substances inside or close to their houses has negative consequences on their health, the environment and their household economy. For instance, fumes from indoor fires cause serious health problems and death. The World Health Organisation reports that every year an estimated 2m people, mainly women and children, die from diseases related to indoor smoke. Additionally, unsustainable gathering of wood and other biomass hastens deforestation,

UTILITIES

â&#x20AC;&#x153;Rental power plants have proven to be economical compared to other sources of energy. The power they supply is dependable, predictable and viable; they take very little time to installâ&#x20AC;? RoBeRT BAGATsInG, MARKeTInG MAnAGeR, ALTAAqA GLoBAL Endeva, a social enterprise working towards the global eradication of poverty, reports that the Indian government established a national goal for universal access to energy through its Rural Electrification Policy in 2006. In order to achieve the goal, India created a number of new financing schemes, including subsidies for building renewable energy plants. Small and large companies are responding to the demand, but recent research shows that most business-driven energy projects geared towards the bottom of the pyramid have yet to gain traction. TowARds unIveRsAL eLecTRIfIcATIon

causing a dip in biodiversity and the absorptive capacity of CO2. Owing to this, the black carbon resulting from the incomplete combustion of fossil fuels or biomass, which directly contributes to climate change, is not absorbed. The high cost of energy in low-income markets further hinders economic productivity. Is TheRe hope?

The global population continues to increase quickly. From the present seven billion, the UN estimates that it will rise to nine billion in 2050, with much of the growth in emerging and developing countries. This is supported by the International Energy Agency, which notes that 1.2bn people will still lack access to electricity in 2030, despite increasing global electrification rates. Therefore, in order to sustainably bring power to low-income markets, innovative approaches to generation, transmission and distribution of electricity are required. Governments in emerging economies are waking to the potential of private energy services in low-income markets. For example,

Based on geographical, market and cost-benefit studies conducted by competent entities, three connection types are the most practical. For homes and local businesses close to existing transmission and distribution lines, connecting to the grid is the most logical and cost-effective solution. In remote villages, small power plants can be set up to provide electricity for household and productive energy demands. In areas with very few households or other facilities, or with significant geographical constraints, solar home systems can be installed, or solar lamps and improved cook stoves can be provided. All these methods share the objective of bringing power to those who have none, of creating social and economic opportunities in places that lack them, and of introducing new ways of being productive. They are all focused towards ameliorating the standard of living in low-income markets and making people active participants in the global economy. However, they all require significant time and investment, thorough planning and design, years of construction and commissioning, and manifold approvals and endorsements. The complexity and magnitude of these electrification

projects make them ideal for permanent, longterm solutions, as opposed to immediate, facile perceived solutions to the plight of the poor. While these initiatives take shape, there are technologies available today to support the intended beneficiaries. Temporary power plants are a fast, scalable, sustainable, viable and cost-effective solution to rural and remote area electrification. Contemporary interim power plants are equipped with the latest industry technologies, allowing them to be set up in containers for fast and easy shipping and deployment anywhere in the world. Once they arrive, they can rapidly be connected to the power infrastructure, commissioned and powered up, due to their plug-and-play configuration. They can be configured to produce the precise amount of power needed by a community, so the electricity supplied is always consistent. They can run on either new-generation diesel, gas or dual-fuel. Rental power plants have proven to be economical compared to other sources of energy. The power they supply is dependable, predictable and viable; they take very little time to install; they are easy to decommission and ship; and most importantly, they arrive when needed and where needed. In addition, there are intangible, at times unappreciated benefits of rental power plants that clearly transcend the purchase price. Imagine: For how many more days, months, years or decades will low-income communities remain unconnected? How many children would have been lawyers, doctors, engineers, teachers or scientists had they been offered a decent education and a conducive environment for learning? How many patients in hospitals would have recovered and become productive again had they had working life support systems? How many businesses would have flourished had they had electricity? Rural and remote communities donâ&#x20AC;&#x2122;t need to wait for permanent power solutions to be up and running. While these are being optimised for the long term, temporary power plants can start supplying power. Universal electrification is an enormous challenge for energy markets around the world. In order to bring electricity to as many people as possible, industry stakeholders including government, the private sector, academia and financing institutions must come together and work towards a common goal. With all the available technologies, whether permanent or temporary, and with the advancements in the energy industry, now is the time to bring power to the unconnected.

February 2015

INFRASTRUCTURE MIDDLE EAST

EXECUTIVE INSIGHT

Khalid A Al-Falih

“We ought to have thousands of small and mid-size chemicals companies in the Gulf”

A vision for the value chain Khalid A Al-Falih, president & CEO of Saudi Aramco, outlines four major opportunities for the Middle East petrochemical industry irst, supplies of ethane are becoming tighter in our region – but supplies of alternative feedstocks such as naphtha and other liquids are plentiful. I believe that we shouldn’t think of these feedstocks as mutually exclusive choices, but rather view them as a mixed pool of feedstock that can be used to leverage each other. Liquids are more versatile than pure ethane, and when used in mixed feed crackers, offer a broader product slate, including opportunities to produce specialty chemicals, which in turn can help spawn new industries and consequently many new jobs. Collectively, we need to keep in mind that demand for chemicals is growing at a faster rate than nominal economic growth (GDP), and that not all that new demand can be met with gas light feedstocks. Longer term, I foresee the creation of new, groundbreaking technologies to enhance the competitive position of liquids, such as the direct conversion of oil to chemicals. This brings me to the second opportunity: enhancing our region’s existing chemicals facilities, since applying the mixed feedstock cracker strategy and other enhancements only

INFRASTRUCTURE MIDDLE EAST

to future projects will certainly limit their full impact and potential. Considering the massive scale of the region’s petrochemical asset base built in the 1970s and ‘80s, it would generate enormous additional value if we pursued opportunities to restructure and upgrade these legacy assets, some of which are fully depreciated and offer limited added value to local economic development and profitability of companies in the future. This retrofit would include changes to the feedstock mix, deployment of more energyefficient technologies and the addition of high-value specialty products. But to succeed in specialties, we will need to leapfrog in knowledge intensity and accelerate our innovation engines. The third opportunity is to multiply the number of industry participants and jobs. Many of our past efforts have focused on large-scale commodity petrochemical projects, which offered the benefits of scale economies, allowed meaningful penetration into export markets and gained for us a prominent position on the global industrial landscape. But there are tremendous advantages in combining the scale of mega-facilities with the high value addition and job creation potential of

February 2015

small and medium-sized enterprises, including the strengthening of an entrepreneurial ecosystem here in the region. So, rather than being content with just a handful of major players, we ought to have thousands of small and mid-size chemicals companies in the Gulf, just like we find in the US, Europe, Japan or South Korea. For example, in Europe alone the chemical industry directly employs more than a million people in about 30,000 companies, more than 95% of which are classified as SMEs. All of this will be more easily accomplished if we can grab our fourth opportunity: greater regional integration. As I argued back in 2010, we should think of the entire Gulf as a unified whole rather than as a collection of individual chemical industries walled off from one another. The picture I have in mind of the future GCC is of a booming, cross-connected region buzzing with chemicals-related activity, and while we need to maintain a healthy dose of competition, we should also creatively collaborate at the regional level to create potential synergy and the essential qualitative edge in terms of innovation, education and technical excellence. (Excerpted from the keynote at the 9th Annual GPCA Forum 2014)

EvENTS

Mark your diary... MIDDLE EAST RAIL 17 – 18 MARCh, 2015 DubAI The biggest rail event in the region, Middle East Rail is held under the patronage of HH Sheikh Mansour Bin Zayed Al Nahyan, Deputy Prime Minister, Minister of Presidential Affairs, and in partnership with the Ministry of Public Works, UAE. Contact: Chloe higman Tel: +971 4 440 2500 Email: chloe.higman@ terrapinn.com www.terrapinn.com wETEx

HAPPENING IN MARCH

21 – 23 APRIL, 2015

MIDDLE EAST ELECTRICITY 2-4 March 2015, Dubai iddle East Electricity, the world’s largest power exhibition, taking place on 2-4 March at the Dubai World Trade Centre, is preparing for its 40th edition in 2015. The show has not only witnessed a 40% increase in visitor attendance over the past two years, but has also acquired 21% extra floor space to cater for the growing MENA power industry, which is forecast to expand by $70.7bn per year leading up to 2018. “When Middle East Electricity launched back in 1975, it was held in a tent on the banks of Dubai Creek. The show now boasts over 54,000sqm of exhibition space, and received a total attendance of 50,629 last year, the highest number of visitors we have ever received at the show. In the event industry 40 years is no mean feat, and we are one of the longest standing exhibitions in the history of the UAE’s event calendar,” says Anita Mathews, director – Informa Energy Group. Middle East Electricity 2015 will offer an extended educational programme with three

DubAI Organised by the Dubai Electricity and Water Authority (DEWA), WETEX 2015 presents the latest technologies in the field of water

informative conferences, once again supported by Dubai Municipality, the event’s strategic government partner. The show will welcome back the Green Energy and Solar Middle East conferences and will introduce a conference dedicated to lighting to coincide with the expanded show vertical. The Green Energy Conference will highlight the urgency and vision in creating sustainable energy solutions, with a focus on combining traditional and alternative energy sources (creating hybrid systems) to minimise the risks inherent with both, and incorporate sustainable energy means. The Solar Middle East Conference, which takes place on day two of the show, will provide a holistic view of the regional solar industry with a country focus on Saudi Arabia, Kuwait and Jordan. Day three will feature the first ever conference agenda dedicated to commercial lighting at Middle East Electricity.

and electricity conservation. Contact: Organisers Tel: +971 4 515 1460 Email: sales_general@wetex.ae www.wetex.ae wORLD STADIuM COngRESS 18 – 21 MAY, 2015 DOhA World Stadium Congress sets out to promote best practice in design, development, management and usage of sporting infrastructure. Over 350 industry professionals will gather at the St Regis Doha for the region’s largest event for stadia professionals. Contact: IQPC Tel: +971 4 364 2975

Contact: Rahul Rawat Tel: 971 4 407 2470 Email: rahul.rawat@informa.com www.middleeastelectricity.com

Email: enquiry@iqpc.ae www.worldstadiumcongress.com

February 2015

INFRASTRUCTURE MIDDLE EAST

INFRASTRUCTURE MILESToNES

#012 UAE’s nuclear energy plan On-time milestones have become a habit on the UAE’s (and the GCC’s) first nuclear energy project ast month, the Emirates Nuclear Energy Corporation (ENEC) announced the completion of construction of the concrete dome for the Unit 1 Reactor Containment Building. The RCB is a critical structure in the nuclear plant’s defence-indepth barriers, designed to confine and contain radiation even in the most extreme circumstances. Rewind to 2008, when the UAE government announced that it was evaluating nuclear energy as an additional source to meet the country’s growing energy demand. The question on everyone’s mind was: with the seventh largest proven oil reserves in the world, does the UAE really need nuclear power? The UAE leadership’s strategic

INFRASTRUCTURE MIDDLE EAST

perspective on nuclear energy was outlined in a policy paper released in April 2008. The paper forecast that the country’s electricity demand would escalate from 15.5GWe in 2008 to over 40GWe in 2020. It noted that supplies of natural gas, which powers 98% of the UAE’s power plants, were sufficient for only half of this demand, while renewables would be able to supply only 6-7% of the needed power by 2020.. The policy principles and commitments became law when the UAE issued the UAE Nuclear Law in October 2009. The same year saw the establishment of the Federal Authority for Nuclear Regulation (FANR) as an independent nuclear safety regulator, and ENEC as the commercial entity responsible for operation of the plants. In December 2009, Korea Electric Power Corp (KEPCO) was awarded the contract to build each of the four 1,400MW nuclear reactors at

February 2015

Fast facts Safety concrete for Unit 3: July 18, 2012 Arrival of the first Reactor Vessel: May 2014 Reactor type: APR-1400 Safety concrete for Unit 3: September 2014 Main contractor: KEPCO

Barakah in the Western Region of Abu Dhabi. Construction work on the first unit is 61% complete, and the second is nearing 50% completion. ENEC is planning for one reactor to come online every year from 2017, with the fourth and final reactor scheduled for 2020. The $20bn nuclear project has benefited over 1,000 local companies and has achieved 62% emiratisation. Lady Barbara Judge, former chairman of the UK’s Atomic Energy Authority, has described the UAE’s nuclear energy programme as a “gold standard” and “one of the best new nuclear power plants to be built in the century”. Once the project, designed to have ultimate capacity of 5,600MW, goes online in 2020, it will meet 25% of the UAE’s electricity needs while saving the country up to 12m tonnes of CO2 emissions annually.

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