Reduced Demand Will Not Dampen Investor Interest In Water Sector
BMI View: Growing demand for water in Oman is seeing the usual players winning contracts for new projects. ACWA Power and Malakoff International, two of the biggest names in the GCC independent water and power space , are developing desalination plants in the country. Despite repeated downgrades to the country ' s water demand outlook, the regulatory framework in Oman will protect investors, as long-term water purchase agreements are signed to support projects. Consequently, we continue to see Oman's Independent Water Project segment as an attractive sector for developers.
A number of projects in Oman's water sector are underway or in the pipeline to support growing demand. Oman Power And Water Procurement Company (OPWP) is planning two new projects - in Quarayyat and Suwayq - which will expand capacity by 405,000 cubic metres per day (m 3/d) by 2018. Further along in the pipeline are the Barka and Ghubra projects, which will have a notable impact on capacity from late 2013.
Groundbreaking was held in early November 2012 on ACWA Power's Barka expansion. The Saudi Arabian company made its first international investment in Oman in the Barka I Independent Water and Power Project (IWPP). The company is now expanding the desalination unit of the plant, increasing capacity from 10 million gallons per day (Mgal/d) to 30 Mgal/d, equal to 45,000 m 3/d of additional capacity. The IWP is being developed on a build - own - operate (B) basis and has signed a water purchase agreement with OPWP. The expansion is due to be completed in Q413.
The EPC contract for the Ghubra IWP was awarded in November 2012, following the award of the build - operate - transfer (BOT) contract to a consortium comprising Malaysia's Malakoff International, Sumitomo and Cadagua (a unit of Spain's Ferrovial). The engineering, procurement and construction ( EPC ) contract was awarded to a joint venture of Cadagua, Oman's Galfar Engineering and India's VA Tech Wabag. Construction on the US$377mn project is expected to be completed in September 2014. The IWP will have the capacity to produce 191m 3/d. The project is expected to be financed by Japanese financial institutions, and therefore we see little threat to the successful raising of capital. The IWP has a 20-year water purchase agreement with OPWP.
|Reduced, But Still Strong|
|OPWP Water Demand Forecast|
Both projects are part of OPWP's plans to expand water production in Oman, which is needed to meet growing demand. The company anticipates strong growth in the demand for water, in the region of 4% per year. However, this is a substantial reduction compared to the higher growth rates anticipated by the company in 2011. In OPWP's previous seven-year statement, it forecasted annual average growth of 7% between 2013 and 2017. This notable decline does raise some concerns over the growth outlook for the country; however, with projects secured through water purchase agreements, the demand risk is incurred by the purchaser, rather than the project developer.