GCC banks eye a brighter future28 July 2023
Against a backdrop of booming profits, robust liquidity and healthy loan books, GCC banks remain in generally strong fettle in 2023.
Even if performance levels this year are unlikely to match the surging metrics witnessed last year, when the post-pandemic revival drove exceptional growth stats, most regional lenders have little to fear and much to gain from regional and global conditions.
The global interest rate climate remains a source of valuable support for Gulf banks. Even if this year does not see the fat net interest margins (NIMs) that led to much of the profit generated in 2022, the first-quarter 2023 results for listed Gulf banks still show healthy earnings.
Banks in the largest markets, such as Saudi Arabia, the UAE and Kuwait, have been riding the yield curve and, while the cost of funds has increased, asset yields have widened further. Analysts say the growth in loan portfolios and asset volumes has continued this year.
“We are seeing profitability metrics improving, and that’s due to the higher rates following the dollar,” says Redmond Ramsdale, head of Middle East Bank Ratings at Fitch Ratings.
“And we’ve seen loan impairment charges coming down as banks have been building up their provisions and dealing with the pandemic. Certainly on profitability, we’re back to pre-pandemic levels, if not slightly above them.”
Bank performances reflect a confluence of factors. In the UAE, according to analysis from CI Ratings, profit growth is largely due to higher margins and net interest income, but also because provisioning expenses have come down significantly as banks see lower levels of new non-performing loan (NPL) classification and good recoveries. This is also related to the improving real estate environment.
Kamco Invest research shows net profit for listed banks in the GCC in the first quarter of this year benefitted from a steep quarterly increase in non-interest income that more than offset a sequential decline in interest income in Qatar and Kuwait.
In addition, lower provisions booked by banks in the region also supported bottom-line performance. As a result, aggregate net profits saw the biggest quarterly growth since the pandemic at 17 per cent to reach $13.4bn. The sequential increase in net profit was broad-based across the GCC.
There are some causes for concern. For one thing, GCC banks now have to grapple with an increased cost of funds. According to the Kamco figures, these have gone from 1.9 per cent in the previous quarter to a multi-quarter high of 2.5 per cent during the first three months of 2023.
But overall, GCC banks have enjoyed success in containing costs, as reflected in total operating expenses registering a decline of 3.1 per cent to $11.2bn during the first quarter of 2023, after consistent growth during the three previous quarters, according to Kamco figures.
The downturn in loan loss provisions – which increased in the 2020-22 period, driven by the pandemic impact – has proved a boon. Figures show these provisions stood at $3.1bn in the first quarter of this year, down from $3.3bn in the previous quarter.
Analysts see the macroeconomic environment as playing a decisive role in supporting GCC bank performances.
“Reasonable oil prices are supporting liquidity in the system and the level of government and government-related deposits,” says Ramsdale.
“Government and government-related entity (GRE) deposits make up about 25 to 30 per cent of sector deposits, and with the increase in oil prices, we’ve seen a slight increase in these levels.”
According to CI Ratings, the largest banks in the region have distinct competitive advantages in terms of franchise, margins, cost efficiency, generally well-performing loan books and diversified earnings.
GCC banks were well placed for rising interest rates because they have quite a high base of current account and savings accounts (CASA) and a high proportion of short-term loans, says Ramsdale.
“The asset side has been repricing quickly. We have seen some migration from these low-cost CASA to term, but there is still a big proportion that’s very low cost, and that supports profitability metrics,” he says.
There has been no sign of significant deterioration in asset quality. “The end of forbearance didn’t really impact ratios too much, but interest rates have gone up a lot, and we expect some pressure on affordability. We, therefore, do expect stage three loans to start ticking up,” says Ramsdale.
Lending has risen overall, although not as strongly as customer deposits, which resulted in a loan-to-deposit ratio for the GCC banking sector of 78.5 per cent in the first quarter of 2023.
Saudi Arabia stands out here, with more sector liquidity tightening reflecting stronger loan growth. Last year it was 15 per cent, significantly outpacing deposit growth of 9 per cent, says Fitch.
“The Saudi loan-to-deposit ratio of around 100 per cent is the highest it’s been in about 15 years, and it’s the opposite of what we’ve seen in other GCC markets,” says Ramsdale. “The UAE loan-to-deposit ratio hasn’t been this low for 10 years, reflecting the ample liquidity going into the UAE.”
In the kingdom, the government has been supplying additional liquidity from oil revenues that has gone into government agencies, such as the Public Investment Fund. That represented a change from the past, when that liquidity was largely channelled through the banking system.
Fitch is expecting the kingdom’s explosive recent loan growth to come down to about 12 per cent this year with a tightening of state subsidies putting pressure on housing affordability.
In Qatar, the big story is the composition of the funding base. Although there has been an improving trend in 2022 and the first quarter of 2023, CI Ratings notes that there is still a heavy dependence on wholesale funding, particularly offshore wholesale funding.
Ratings agency S&P says Qatari banks have the highest recourse to external funding among the GCC, with the system’s loan-to-deposit ratio reaching 124 per cent at the end of March 2023.
This resulted in an overall funding gap (total domestic loans minus total resident deposits) of $112bn, equivalent to almost two times the public sector deposits.
The high reliance on external funding is still a credit weakness for Qatari banks, says Amin Sakhr, director of financial institutions at Fitch Ratings.
“There’s some positivity that’s been observed since last year on the back of higher hydrocarbon revenues, which means domestic liquidity is improving, so banks are becoming less and less reliant on external funding. In the UAE and Saudi Arabia, this has traditionally been about 5-10 per cent of system deposits.”
The GCC will experience solid operating environment conditions, given that healthy oil prices will underwrite government spending
In the UAE, credit demand will drive loan growth, but margins will moderate in line with interest rates. For some banks, their continuing strong NPL recovery will boost earnings performance.
The UAE’s largest banks, such as Fab and Emirates NBD, also entertain growth ambitions beyond the country's borders that will help them grow their balance sheets.
According to S&P, UAE banks are in a comfortable net external asset position and their loan-to-deposit ratios are among the strongest in the region. Banks have accumulated local deposits over the past 15 months amid muted lending growth. The ratings agency does not expect an acceleration of lending, so UAE banks’ funding profiles should continue to strengthen.
In Oman, customer deposits grew to $67bn in the first quarter of 2023, compared to $63.4bn in the same quarter of 2022.
While Omani banks are benefitting from rising interest rates, higher competition for deposits could translate into a higher cost of funds, which could impact margins. Analysts say that the benefits to banks of a rise in interest rates may be lower in Oman than in the other markets.
In Bahrain, banks will likely continue benefiting from the prevailing high-interest rate environment for the remainder of 2023.
The country’s retail banks’ loan-to-deposit ratios have been consistently below 80 per cent for the past five years, suggesting that local deposits and a significant portion of external liabilities are being recycled into government and local central bank exposures.
In contrast, Kuwait has a funding profile dominated by customer deposits, which have proved stable. Only 20 per cent of Kuwait’s deposits are from the government or GREs.
Like their Saudi counterparts, Kuwaiti banks have room to attract foreign funding. Moreover, notes S&P, the Saudi riyal’s peg to the dollar and the relative stability of the Kuwaiti dinar exchange rate – thanks to its peg to a basket of currencies – mean that even if this flow is recycled locally, foreign currency risks are likely to remain in check.
Looking ahead, the GCC will experience solid operating environment conditions, given that healthy oil prices will underwrite government spending. This should underpin lending growth and maintain the region’s top lenders’ buoyant state into 2024.
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Abu Dhabi to quit gas-fired generation by 2050
23 February 2024
Abu Dhabi-based state utility Emirates Water & Electricity Company (Ewec) expects to progressively reduce gas-fired generation with the aim of eliminating its use in 2050.
However, the company added that it continues to see a crucial role in the short- and medium-term for gas generation.
The summary of Ewec’s latest Statement of Future Capacity Requirements (SFCR) covering the years 2024 to 2037 was issued earlier this week.
The annual SFCR provides recommendations for future power generation and water desalination capacities in Abu Dhabi based on a modelling approach that considers Ewec’s sustainability targets as well as various macroeconomic inputs.
“Gas will increasingly be used as a transition fuel that will enable the integration of large amounts of renewable energy into the system,” the annual SFCR said.
The base case forecast indicates that an approximately equal share of new combined cycle gas turbine (CCGT) and open cycle gas turbine (OCGT), totalling a recommended 5.1GW, delivers the least cost to the Abu Dhabi electricity system, it added.
The Abu Dhabi government has set a target to achieve 60 per cent clean energy, from renewables and nuclear, by 2035.
It also expects demand for both power and water to increase by an average of 5 per cent annually until the end of the forecast period, due to underlying economic growth and electrification of other sectors such as transportation and industry to support decarbonisation.
The latest SFCR’s recommendations include:
- Development of 1.5GW of solar capacity by 2027 following the completion of the Al Ajban solar independent power project (IPP) in 2026
- Development of 400MW of battery energy storage with a one-hour depth of storage for the provision of grid stability by 2026
- 5.1GW of thermal capacity is required to support the integration of renewable energy projects into the system. This will comprise 2.6GW of low-cost OCGT to be available by 2027 and 2.5GW of CCGT to be available by 2028.
- Procurement of at least 380,000 cubic metres a day or 62MIGD of reverse osmosis capacity by 2029
The recommendations and demand growth forecast are understood to have considered the capacities that are currently under construction.
“The planning recommendation to proceed with the immediate development in 2023 of each of these battery, solar PV and gas generation projects reflects the varying times to implement and achieve commercial operation for these different technologies,” the SFCR stated.https://image.digitalinsightresearch.in/uploads/NewsArticle/11544303/main.jpg
Mergers soar in global mining sector
23 February 2024
This month's Agenda also includes: Saudi Arabia transforms mining sector
There was a surge in mergers and acquisition (M&A) activity in the global mining sector in 2023, extending a period of consolidation in the industry that began in the previous decade.
The total value of M&A deals in the industry increased by 75% compared to the previous year, to reach $121bn, according to a report by GlobalData. The number of M&A transactions grew 5% year-on-year to 1,526, while the number of mega deals – which are defined as deals with a transaction value of $1bn or more – stood at 16.
The Asia-Pacific region, excluding China, recorded the highest M&A deal value, surpassing North America as the leading region. Despite this, North America maintained its leadership position in terms of deal volume.
GlobalData attributes the increase in M&A activity to companies seeking to position themselves favourably amid disruptive threats in the industry.
The year’s biggest mining M&A deal was recorded in December, when Japanese steelmaker Nippon Steel announced its $14.98bn takeover of Pittsburgh-based United States Steel.
In November, Swiss commodities giant Glencore announced it will acquire a majority 77% stake in Elk Valley Resources, the steelmaking coal business of Canadian miner Teck Resources. The transaction is valued at $6.93bn, making it the second-biggest deal of 2023.
Nippon Steel Corporation will acquire a 20% stake in Elk Valley Resources, while South Korea’s Posco will take 3%.
Within months of being established, Saudi Arabia’s Manara Minerals entered into a transaction in July with Brazilian mining major Vale to become a 10% shareholder in its $26bn subsidiary, Vale Base Metals.
Manara Minerals teamed up with investment firm Engine No 1, which took a 3% stake in Vale Base Metals. The $3.4bn transaction was the third-biggest M&A deal in 2023.
Manara Minerals was formed in January 2023, when Saudi Arabian Mining Company (Maaden) signed a joint-venture agreement with the kingdom’s Public Investment Fund (PIF) to establish a firm that would invest in mining assets globally. Maaden owns a 51% stake and the PIF holds the other 49% in the company.
Manara Minerals aims to invest in iron ore, copper, nickel and lithium projects as a non-operating partner, taking minority equity positions.
In another key deal, Australia’s MMG entered into a share purchase agreement to acquire the parent company of Botswana’s Khoemacau copper mine, with a deal value of $1.8bn.
Among all mining commodities, gold continued to account for the largest share of M&A activity in 2023, in line with the trend observed in 2022, according to the GlobalData report. Last year, there were 375 gold asset-related deals, with a combined value of $49bn.
The report identified energy transition as the most prominent theme driving M&A deal value in 2023.
The industry is facing headwinds from stricter regulatory, social and environmental requirements when it comes to obtaining licences to develop and operate mining operations. In response, the sector is embracing the shift to a green economy and net-zero emissions.
Most mining companies recognise the need to develop more environmentally friendly mineral exploration technologies to improve relations with local communities and advance mine development.
The estimated $17bn-worth of energy transition-themed M&A transactions last year demonstrates this commitment to a cleaner, greener future by mining companies globally.
The positive momentum of M&A activity is expected to continue into 2024. This year will likely once again see mergers of equals; major mining producers acquiring small producers to strengthen their near-term production profiles; and the strategic acquisition of high-quality, long-life development projects to bolster producers’ development pipelines.
It is also expected that mining companies will continue to prioritise projects that can increase their exposure to critical minerals, including copper, nickel, cobalt and lithium deposits – all of which are an integral part of the global electrification transition that is under way.https://image.digitalinsightresearch.in/uploads/NewsArticle/11502734/main.gif
Saudi Arabia transforms mining sector
23 February 2024
This month's Agenda also includes: Mergers soar in global mining sector
Saudi Arabia’s metals and mining industry is playing a pivotal role in the country’s non-oil growth trajectory.
Commercial exploitation of the kingdom’s massive mineral resource base, most of which lies untapped, is a key component of Riyadh’s Vision 2030 socioeconomic transformation strategy.
The kingdom took the first step towards realising the commercial potential of its mineral resources when it enacted a new mining investment law in 2021. Since the law came into effect, the Ministry of Industry & Mineral Resources (MIMR) has awarded more than 2,000 mining permits to local and foreign firms under its accelerated exploration initiative.
Addressing the Future Minerals Forum (FMF) in Riyadh in early January, Bandar Alkhorayef, the kingdom’s industry and mineral resources minister, said Saudi Arabia’s natural resources are worth $2.5tn – an increase of more than 90% compared with the 2016 estimated level of mineral reserves.
This near-doubling of its deposits of natural resources – which excludes fossil fuels and includes phosphate, gold and rare earths – is set to act as a stimulus to the kingdom’s nascent mining industry.
Mineral exploration drive
The MIMR is leading efforts to boost investments in the Saudi metals and mining sector, and Riyadh is providing impetus to the mineral exploration incentive programme with a cash injection of $182m.
“This programme will de-risk investments in our exploration, to enable new commodities, greenfield projects and junior miners,” Alkhorayef told the FMF.
To tap into overseas mining experience, the ministry signed four memorandums of understanding at the FMF.
Deals involving cooperation in the field of mineral wealth were signed with Egypt’s Petroleum & Mineral Resources Ministry, Morocco’s Energy Transition & Sustainable Development Ministry and Congo’s Mines of the Democratic Republic Ministry. A separate agreement inked with Russia involves geology.
Alkhorayef also announced the MIMR’s fifth and sixth mining concession licensing rounds at the conference in Riyadh. The rounds will offer local and international miners access to 33 exploration sites this year.
The ministry launched its last concession licensing round in August 2023, offering eight mining sites in the kingdom. Six of the sites are located in the Eastern Province – in Ghounan, Al Misnah, Al Samman, Ras Al Qaryah and the eastern and western zones of Salwa – and are understood to contain limestone ore, sand and other minerals.
The other two sites are in Riyadh Province, in Al Armah and Hofayrat Nesaah. These sites are estimated to hold gravel and sand deposits, among other minerals.
Prior to the August licensing round, the ministry announced in April that it had shortlisted 13 local and international companies for the exploration phase at the Muhaddad and Al Ridaniyah mining sites.
The Muhaddad exploration site, located in Bisha within the Asir geological terrane, covers 139 square kilometres and includes copper, zinc and lead ore deposits. The Al Ridaniyah exploration site is in the Riyadh region within the Al Dawadmi geological terrane. It covers more than 75 sq km and includes deposits of zinc and silver ore.
In January, the MIMR announced preferred bidders for another licensing round that it launched last April.
A consortium of local firm Ajlan & Bros Mining Company and Hong Kong-based Norin Mining Company is the preferred bidder for the Bir Umq exploration site. The site is located in the city of Mahd Ad Dhahab, in western Saudi Arabia. Covering about 187 sq km, the site contains deposits of copper and zinc.
As part of the licence awarded for this site, the winning consortium will invest over $29m in exploration activities. The consortium has also committed $4m for local community initiatives, including training and development programmes.
A consortium of UK-headquartered Royal Road and local entity MSB Holding Company has been picked as the preferred bidder for the Jabal Sahabiyah exploration site.
The site is located in the Tathleeth region, in the south of the kingdom, and covers an area of 283 sq km. Jabal Sahabiyah holds mineral deposits of zinc, lead and copper. The selected consortium will invest more than $5m in exploration work and another $120,000 in community development.
A consortium of Saudi Arabia-based Sumou Holding and Canada’s Kuya Silver has been selected for the Umm Hadid site and will invest more than $22m in exploration activities and about $800,000 in community development. Umm Hadid is located in the Afif region in central Saudi Arabia. Covering an area of 246 sq km, the site contains mineral deposits of silver, lead, copper and zinc.
The near-doubling of its deposits of natural resources is set to act as a stimulus to the nascent mining industry
Maaden steps up
Saudi Arabian Mining Company (Maaden) is at the forefront of Riyadh’s campaign to develop and expand the kingdom’s metals and mining sector. By 2040, the company, which is majority owned by the Public Investment Fund (PIF), aims to build its upstream mining capabilities, gain exposure to future minerals and form partnerships with global mining companies.
Last January, Maaden signed a joint-venture agreement with the PIF to establish a new company to invest in mining assets globally. Maaden owns a 51% stake and the PIF holds the other 49% in the company, known as Manara Minerals, which will have a capital allocation of $50m.
Manara Minerals aims to invest in iron ore, copper, nickel and lithium projects as a non-operating partner, taking minority equity positions. The firm’s first overseas investment was a deal in July to become a 10% shareholder in Brazilian mining major Vale’s $26bn subsidiary, Vale Base Metals.
In terms of metals production, Maaden announced in mid-January that its subsidiary Maaden Gold & Base Metals Company (MGBM) had started commercial production of gold from the first phase of the Mansourah-Massarah gold project.
MGBM operates six gold mines, with the Mansourah-Massarah mine being one of its concession areas. In June 2021, the Maaden subsidiary awarded an estimated $880m contract for the first phase of the Mansourah-Massarah gold mine to a consortium of India’s Larsen & Toubro and Finland-based Metso Outotec. The award of that engineering, procurement and construction (EPC) contract represents the biggest investment in gold mining in Saudi Arabia to date.
In August last year, MGBM also awarded an EPC contract for the second phase of the Mansourah-Massarah gold mine project, worth $28m, to a consortium of Riyadh-based Darkstone and Australia-headquartered ATC Williams. The contract involves installing tailings storage facilities and wastewater management systems.
Maaden exploration push
On the mineral exploration front, Maaden signed an agreement with US-based Ivanhoe Electric in July 2023 to undertake exploration for high-demand minerals in the Arabian Shield zone in Saudi Arabia. As part of the $130m deal, the partners are to survey an area of 48,500 sq km in the Arabian Shield, starting in September.
About the size of Switzerland, the Arabian Shield region is understood to be rich in reserves of minerals such as copper, nickel, gold, silver and possibly lithium.
Maaden has had success in its exploration drive. In late December, it announced the discovery of significant gold resource potential extending along a 100km strike from its Mansourah-Massarah gold mine. This is the first find from the company’s exploration programme, which was launched in 2022 with the aim of building Maaden’s production pipeline.
Exploration around Mansourah-Massarah has focused on identifying potential deposits of a similar scale and with similar geology. Encouraging drill results from several sites on Uruq South, along a 100km stretch south of Mansourah-Massarah, uncovered similar geological characteristics and chemistry to the gold deposit. These results include high-grade drill intercepts found 400 metres away from and under Mansourah-Massarah, with several high-grade intercepts.
In addition, Maaden has continued the expansion of its exploration footprint at the Jabal Ghadarah and Bir Tawilah prospects located 25km north of Mansourah-Massarah, where the company is converting an inferred resource of 1.5 million ounces to indicated and measured status.
In combination, these positive drilling results have identified a 125km strike with significant potential to become a major gold belt in Saudi Arabia. The near-mine drilling results around Mansourah-Massarah indicate that the resource is open both at depth and along the strike, offering significant potential to expand resources at the mine and possibly to extend the mine life with underground development.
Mansourah-Massarah had stated gold resources of almost 7 million ounces as of the end of 2023, and a nameplate production capacity of 250,000 ounces a year.
Positive drilling results have identified a 125km strike with the potential to become a major gold belt in Saudi Arabia
Maaden technology investments
To extend the role of technology in Saudi Arabia’s mining sector, Maaden signed a master agreement with Germany’s Thyssenkrupp Uhde at the FMF. The deal covers the development of engineering and licensing of a calcination plant for phosphogypsum processing.
The purpose of the proposed plant, which is to be located at Maaden’s Ras Al Khair site, is to recycle phosphogypsum and enable the capture of carbon dioxide (CO2) emissions. The joint research and development will be carried out together with Thyssenkrupp Polysius and Metso Outotec.
Also at the FMF, Maaden and US firm GlassPoint announced plans to develop a solar steam technology. The first stage of project development will have the capacity to supply 9 tonnes of steam an hour to begin the decarbonisation of Maaden’s aluminium supply chain, in what is expected to be the world’s largest industrial solar thermal project.
The technology will combine the direct generation of heat and storage to provide a continuous base load of steam to Maaden’s alumina refinery at Ras Al Khair. The initial capacity will be about 1% of the larger project, which is slated to save more than 12 million British thermal units of energy annually and reduce CO2 emissions by 600,000 tonnes a year.
Maaden and digital reality firm Hexagon also partnered at the FMF to launch a "digital mine".
“Hexagon’s life-of-mine technology solutions are being successfully deployed at the Mansourah-Massarah mine, combining sensor, software and autonomous technologies to enhance efficiency, productivity, quality and safety across the mine’s operations,” the companies said.
MEED's October 2023 special report on Saudi Arabia includes:
> COMMENT: Riyadh reshapes its global role
> POLITICS: Saudi Arabia looks both east and west
> SPORT: Saudi Arabia’s football vision goes global
> ECONOMY: Riyadh prioritises stability over headline growth
> BANKS: Saudi banks track more modest growth path
> UPSTREAM: Aramco focuses on upstream capacity building
> DOWNSTREAM: Saudi chemical and downstream projects in motion
> POWER: Riyadh rides power projects surge
> WATER: Saudi water projects momentum holds steady
> GIGAPROJECTS: Gigaproject activity enters full swing
> TRANSPORT: Infrastructure projects support Riyadh’s logistics ambitions
> JEDDAH TOWER: Jeddah developer restarts world’s tallest towerhttps://image.digitalinsightresearch.in/uploads/NewsArticle/11456699/main.jpg
Data centre activity soars in Saudi Arabia
23 February 2024
Saudi Arabia is experiencing a major uptick in the construction of data centre assets across the country.
Despite the preference for data centres to be inconspicuous due to security concerns, it is not uncommon to see certain construction sites or completed facilities marked clearly as such when one navigates the capital city, Riyadh.
Data sovereignty regulations as well as the widespread use of electronic commerce and social media particularly by young Saudis are driving the data centre construction boom, notes a Riyadh-based expert.
Government agencies, banks, and family-owned conglomerates, in addition to local and international data centre developers and operators, have either started constructing or are planning to start the construction of data centre facilities across Saudi Arabia.
The value of known data centre projects pipeline in the kingdom falls under $1bn, according to regional projects tracking service MEED Projects. While this value corresponds to just one utility-scale renewable energy plant or a minor upgrade of an oil production facility in Saudi Arabia, future plans point to a major expansion of such facilities, which underpin the kingdom's digital hub and artificial intelligence (AI) strategies.
For instance, the government announced in 2021 a plan to build a network of large-scale data centres that will require investments of up to $18bn by 2030. At the time, the kingdom's Communications & Information Technology Ministry (MCIT) tapped local firms Gulf Data Hub, Al-Moammar Information Systems and Saudi FAS Holding as its initial partners for the scheme.
The following year, Saudi-headquartered Quantum Switch Tamasuk (QST) unveiled plans to design and operate data centre projects with a cumulative total capacity of 300MW for the MCIT by 2026. The project will comprise six locations across Riyadh, Dammam, Jeddah and Neom, with a reported budget of at least $2bn.
Foreign investments have started pouring in to accommodate the rising capacity demand as well as the kingdom's ambition to become a digital hub.
Dubai developer Damac Properties-owned Edgnex is constructing a data centre, which will have a minimum capacity of 20MW, at Industrial City 2.
In October last year, South Korea’s second-largest telecoms company, KT, in collaboration with Hyundai Engineering & Construction (Hyundai E&C) and the local telecoms group STC, signed a memorandum of understanding (MoU) to construct internet data centres (IDC) and smart cities in the kingdom.
Similarly, the UAE-based cloud and data service provider Khazna Data Centres also plans to build data centres in Saudi Arabia as it executes its overseas expansion plans.
In May last year, sovereign vehicle, the Public Investment Fund (PIF), teamed up with US-based infrastructure investor and asset manager DigitalBridge to develop data centres and related digital infrastructure in Saudi Arabia and across the GCC states.
Telecoms service provider Zain is also expected to build a new data centre with some support from the kingdom's SR5tn ($1.35tn) Shareek private sector investment programme.
Crucially, US-headquartered IT and cloud services giants Microsoft and Oracle pledged at the annual Riyadh tech conference, Leap, last year, to invest a total of $9bn in the kingdom. This will go into the construction of multiple data centres to form a so-called cloud region catering to Saudi Arabia and the wider Middle East region.
Similarly, Chinese tech firm Huawei has pledged to invest $400m to build cloud services in the kingdom.
"The demand is there that's why we are focusing on these projects," said the Riyadh-based construction expert, who also acknowledges that the depreciation rate for data centres is higher compared to real estate assets due to the high obsolescence of technology and the need to replace data centre components frequently.
A growth in the number of subsea cable landing sites in the kingdom is occurring in parallel with the substantial growth in data centre facilities and capacity.
A 45,000-kilometre subsea cable network connecting Africa, Asia and Europe, 2Africa, reached two of its four landing sites in Saudi Arabia in May 2023. The landing sites are in Jeddah and Yanbu. The cable is expected to reach the third landing site in Duba late last year and the fourth site in Al-Khobar in 2024.
Once completed, 2Africa will connect Saudi Arabia to 33 countries, bringing the kingdom closer to its goal of becoming a digital hub.
The stakes are high for the kingdom, which has simultaneously launched plans to industrialise its economy, decarbonise its industries, increase localisation and reach net-zero carbon emissions by 2060.
While constructing energy-intensive data centres – which globally account for 1% of energy-related greenhouse gas emissions – may seem counter-intuitive to these objectives, the rapid advancements in cooling and other data centre components, as well as the potential deployment of clean energy to power them, are expected to ease these assets' environmental impact.https://image.digitalinsightresearch.in/uploads/NewsArticle/11543521/main.jpg
US firm wins Al Kahfah solar tracker package
23 February 2024
Riyadh-headquartered Acwa Power and India's Larsen & Toubro (L&T) have selected the US-headquartered Nextracker to provide solar trackers for the Al Kahfah solar photovoltaic (PV) power plant in Saudi Arabia.
The project is one of three utility-scale solar projects being jointly developed by Acwa Power and its partner, Water & Electricity Holding Company (Badeel). as part of the kingdom's National Renewable Energy Programme (NREP).
The US solar tracking manufacturer will supply its all-terrain NX Horizon-XTR product for the project located in the kingdom's Central Province.
The area the solar plant will occupy underpinned the choice to deploy Nextracker's smart solar tracker systems for the Al Kahfah project.
The location is dominated by a hilly, hard-soil land surface that would otherwise typically require a combination of explosives and grading machines to flatten.
Nextracker’s all-terrain solar tracker system can conform to the natural terrain to reduce the need for costly land grading while significantly reducing environmental impact, Acwa Power and L&T said.
The project is understood to be the largest deployment of Nextracker's NX Horizon-XTR solar tracking technology in a single order.
Nextracker founder and chief executive Dan Shugar said the project bolsters the Saudi government's leadership in energy transition and the dominance of solar technology in driving the transition to renewables in the region.
L&T is understood to be the project's engineering, procurement and construction contractor.
PIF solar projects
Acwa Power and Badeel signed the power-purchase agreements with Saudi Power Procurement Company to develop and operate the three projects in May last year.
In addition to the Al Kahfah solar project, the developer team will also develop the 2,000MW Al Rass and 1,125MMW Saad 2 solar PV projects.
The projects are estimated to cost a combined SR12.8bn ($3.4bn).
The projects are expected to reach financial close after they have satisfied the conditions precedent for senior loans drawdown, as a recent Acwa Power bourse filing has indicated.
The banks that agreed to provide senior debt financing of SR8.6bn ($2.3bn) for the three projects include:
- Banque Saudi Fransi (local)
- HSBC (UK)
- Mizuho Bank (Japan)
- Riyad Bank (local)
- Saudi Awwal Bank (local)
- Saudi National Bank (local)
- Standard Chartered Bank (UK)
The financing duration is 27.75 years. The project debt financing amount is non-recourse to Acwa Power, which owns a 50.1% equity in the three projects.
Its partner, the Public Investment Fund (PIF) subsidiary Badeel, owns the remaining 49.9% equity in the projects.
The three projects take the number of solar PV contracts awarded by the PIF under the kingdom’s NREP to five.
It awarded contracts for the development of the 1,500MW Sudair solar PV in 2021 and the 2,060MW Shuaibah 2 solar PV in 2022.
Badeel is a wholly owned subsidiary of the PIF, which is mandated to develop 70% of the NREP’s target capacity through the kingdom's Price Discovery Scheme.
The PIF also owns a 44% stake in Acwa Power.
Neither SPPC nor Acwa Power has disclosed the levelised electricity cost for the latest three schemes.https://image.digitalinsightresearch.in/uploads/NewsArticle/11540147/main.jpg