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  Cooperation strengthens Gulf markets

  21 November 2024

  

   

  The message was loud and clear at the second Gateway Gulf investment forum hosted by the Bahrain Economic Development Board (Bahrain EDB) in Manama in early November. Regional integration will be crucial to the GCC’s ongoing economic success story.

  The comments by ministerial speakers and business leaders at the event underscored how the GCC has grown closer both politically and economically since the signing of the Al-Ula declaration in 2021, which effectively ended the Qatar diplomatic dispute that began in 2017, and kickstarted a new era of regional cooperation. 

  The drive to bind the GCC as a more integrated economic bloc contrasts sharply with the political backdrop of the first Gateway Gulf. That event in May 2018 started the day President Donald Trump withdrew the US from the Joint Cooperative Plan of Action, better known as the Iran nuclear deal, and was set amid the GCC’s diplomatic dispute with Qatar.

  Closer ties

  The political backdrop is very different in 2024; the six GCC states enjoy warm relations, and tensions with Iran have cooled following a series of diplomatic rapprochements involving Tehran, Riyadh and Abu Dhabi. 

  These diplomatic efforts have resulted in a more stable business environment that has produced robust economic growth, record levels of inward investment and record spending on projects. 

  “As with every great moment in history, our region’s progress depends on continued unity and collaboration with current geopolitical complexities. A unified GCC can serve as a stabilising force shaping not only our own future but influencing the future,” said Bahrain’s Finance & National Economy Minister, Sheikh Salman Bin Khalifa Al-Khalifa, during his opening address at Gateway Gulf. 

  The stability that the Gulf offers has enhanced its appeal to investors at a time of war and instability in other areas. 

  “We have become one of the most promising destinations, not only for those looking to raise capital, but also for those looking to deploy it,” said Sheikh Salman. “Dynamic transformation is sweeping across the region.”

  Saudi Arabia’s Investment Minister Khalid Al-Falih also highlighted how the GCC has managed to prosper while other regions struggle with challenges. “GCC countries come out of these tensions stronger. We know how to navigate unfortunate difficulties. We’ve seen it over many, many decades … and if you look at the numbers, our credit ratings are going up, our stock markets are strong, unemployment is coming down across the region,” he said.

  Regional integration will be crucial to the GCC’s ongoing economic success story

  Attracting investment

  Investment funds also play a key role in the region’s success. “The GCC also has [Saudi Arabia’s Public Investment Fund] the PIF and the Emirati, Qatari and Kuwaiti funds that are all well-capitalised sovereign funds that can co-invest with global investors,” said Al-Falih. 

  Over the past year, some of the world’s leading investment companies have formed joint ventures with the GCC’s sovereign wealth funds. 

  In November, US-based Apollo and Abu Dhabi’s Mubadala Investment Company extended their multibillion-dollar partnership, initially formed in 2022, to capitalise on global private debt and equity opportunities. This extension enhances Apollo’s Capital Solutions division, supporting large-scale investment origination to meet rising demand for private financing. 

  The partnership aligns with Apollo’s goal to reach $275bn in annual originations, with a focus on sectors like clean energy and digital infrastructure.

  In April 2024, BlackRock and the PIF agreed to establish BlackRock Riyadh Investment Management, a multi-asset investment firm based in Riyadh. The venture began with an anchor investment of up to $5bn from the PIF, aiming to accelerate the growth of Saudi Arabia’s capital markets by supporting foreign institutional investment.

  Al-Falih also highlighted changes in how sovereign wealth funds that traditionally used to invest overseas to offset volatility in the oil markets are increasingly looking to domestic investment within the GCC. 

  “We are investing globally, but quite frankly, when we look around the world, we can’t find a better location to invest than within the region and in our own economies, which are transitioning,” he said. 

  Sheikh Salman echoed Al-Falih’s comments. “I chair Mumtalakat, [Bahrain’s] sovereign wealth fund, and we look at where we deploy capital. What we have found is that the most compelling investment opportunities, with the highest return on equity, are increasingly at home or in the region. 

  “Mumtalakat has in effect turned itself into the joint venture partner of choice for inward investment because it provides a higher return on equity versus other investments in other places,” he said.

  Many of those investments have involved infrastructure, with notable transactions in oil infrastructure, the power and water sector and real estate. 

  An example came in September, when Bahrain’s state-owned Bapco Energies sold a stake in the Saudi Bahrain Pipeline Company (SBPC) to a fund managed by BlackRock. SBPC owns a portion of the 112-kilometre pipeline supplying crude oil from Saudi Aramco to Bahrain’s Sitra refinery.

  
  Sheikh Salman and Saudi Investment Minister Khalid Al-Falih met at Gateway Gulf 2024. Credit: Bahrain News Agency

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  Another emerging trend could be cross-border mergers and acquisitions across the GCC. Over the past decade, there has been a steady stream of consolidation as companies combine their operations. This has remained within national borders and typically involved government or government-related entities. 

  Abu Dhabi, in particular, has been a hotbed for consolidation involving companies in a variety of sectors, including banking, hydrocarbons, industry, real estate and construction. 

  The new trend is for companies to merge with other players outside their national boundaries, but within the GCC. Also at Gateway Gulf, Aluminium Bahrain (Alba) chairman Khalid Al-Rumaihi provided an update and insight into the proposed merger of Alba with the aluminium business of Saudi Arabian Mining Company (Maaden). 

  The pioneering transaction could pave the way for further consolidation across the region. Al-Rumaihi emphasised that private sector deals need to make business sense when asked about the impact of the deal on future transactions. 

  “When we talk about integration in the GCC, the private sector should lead, and we hope that others will look at this [transaction] and explore opportunities. It could happen in banking, it could happen in other industries, but I think it could accelerate, and it needs the transaction to make sense,” he said.

  The GCC’s projected growth will provide plenty of opportunities for everyone

  Promoting collaboration

  As cooperation across the GCC intensifies, seasoned Gulf watchers will be reminded that the region has been through periods of accelerated integration, only to have those efforts dashed due to internal disputes and greater protectionism introduced during economic downturns. The most cited historical example is the single currency project pursued in the early 2000s, which was reportedly aborted after governments could not decide where to locate the GCC Central Bank.

  At the same time, other regional projects, such as the GCC rail scheme, had failed to make substantial progress.   

  Speaking at Gateway Gulf, Bahrain’s Industry & Commerce Minister Abdulla Bin Adel Fakhro said that the GCC has evolved. He explained that in the past, the GCC countries produced oil and exported it out of the region, which gave little economic incentive for cooperation. Today, economies are more diversified and trade with one another enhances cross-border collaboration.  

  Collaboration is already visible in the projects market. There are schemes to connect the electricity grids of the UAE with Saudi Arabia and Oman, and the once dormant GCC rail project is advancing, with progress being made on rail projects in all six GCC states. 

  Growth also supports integration. Sheikh Salman said that the GCC’s projected growth will provide plenty of opportunities for everyone. 

  “The GDP of the Gulf countries is approximately $2.3tn. Over 50% of that is in Saudi Arabia and over 25% is in the UAE. That $2.3tn is conservatively going to reach $3tn of GDP by 2030 and $6tn of GDP by 2050,” said Sheikh Salman. 

  “That in and of itself is the single biggest opportunity for any other GCC country – to ensure that they are providing the services, providing the growth engine, providing any sort of services to [support] that growth.”

  On a similar note, Al-Falih explained that what is good for one GCC country will ultimately benefit all. “If it is good for Bahrain, it is good for Saudi Arabia, and what is good for Saudi Arabia is good for the rest of the GCC. It is the old adage that a rising tide lifts all boats.” 

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  Colin Foreman
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  Bahrain’s projects sector drags on economy

  21 November 2024

  Analysis
  John Bambridge
  Analysis editor

  Despite posting relatively robust growth compared to its Gulf neighbours, Bahrain’s economic trajectory reveals a mixed bag of promising developments and noticeable areas of weakness. In the second quarter of 2024, Bahrain’s growth slowed to 1.3% as higher non-oil growth struggled to compensate for a 6.7% contraction in the country’s relatively modest but still significant oil sector.

  As with the rest of the GCC, Bahrain’s oil sector is liable to wax and wane quite intensely with the oil price, the policies of oil producers’ group Opec and – given the industry’s modest size – the fluctuating nature of exports. However, as a country with a far more sizeable non-oil sector, it is the hovering of non-oil sector growth around 3-3.5% that merits additional scrutiny – especially when it is compared to the more buoyant non-oil performances of Riyadh and Abu Dhabi.

  Comparing like for like, one of the apparent causes of Manama’s somewhat underwhelming non-oil performance is its sluggish projects sector. In contrast to the boom sweeping much of the GCC, Bahrain’s projects market is stuck in a slow-motion decline, having witnessed the value of project completions exceed the value of awards for the past seven years running.

  This weakness is evident in the construction and transport sectors, where average contract award values have dwindled in the past four years; in power and water, where growth has been muted since the 2021 completion of the Al-Dur 2 independent power project; and in the oil and gas sector, which has not seen a multibillion-dollar contract since 2017.

  In all of these sectors, there remain projects in the pipeline that could pave the way for a revival. There are $5bn-worth of pending construction schemes, including plans for work on five reclaimed islands, as well as the refloated plans for a $3.5bn second causeway to Saudi Arabia. In power and water, meanwhile, there are plans for several major utilities plants, including the $1.3bn Sitra independent water and power project. In oil and gas, there is a $4bn carbon capture and storage scheme that is understood to be in the front-end engineering and design phase.

  The key concern for Bahrain’s contracting sector in all instances, however, will be the speed of delivery of such schemes. As Saudi Arabia has found to its cost in recent years, a period of contracting sector contraction can have long-term implications for future capacity. After seven years of sluggish project activity, much of Bahrain’s local capacity may have been downsized or headed overseas. If Manama wishes to reawaken its project sector, and the non-oil growth that it would support, time is of the essence.

  

   

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  This month's special report on Bahrain includes: 

  > GOVERNMENT & ECONOMY: Bahrain’s economic growth momentum falters
  > BANKING: Bahrain banking works to scale up
  > OIL & GAS: Bapco Energies sets sights on clean energy goals
  > POWER & WATER: Manama jumpstarts utility sector
  > CONSTRUCTION: Bahrain construction struggles to keep pace
  > INDUSTRY: Alba positions for the future

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  John Bambridge
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  Mitsubishi Power to supply Rumah 1 and Nairiyah 1 turbines

  21 November 2024

  The developer and engineering, procurement and construction (EPC) teams that will develop and build the Rumah 1 and Nairiyah 1 combined-cycle gas turbine (CCGT) schemes in Saudi Arabia are understood to have partnered with Tokyo-headquartered Mitsubishi Power for the gas turbines to power the plants.

  The Rumah 1 and Nairiyah 1 independent power projects (IPPs) will each have a capacity of 1,800MW.

  The principal buyer, Saudi Power Procurement Company (SPPC), previously indicated that the power plants would operate using natural gas combined-cycle technology with a carbon-capture unit readiness provision.

  A consortium comprising Saudi Electricity Company (SEC), Riyadh-based utility developer Acwa Power and South Korea’s Korea Electric Power Corporation (Kepco) won the contract to develop the two CCGT independent power projects (IPP).

  The consortium signed the power-purchase agreements (PPAs) for the two projects with the SPPC on 18 November.

  China’s Sepco 3 and South Korea’s Doosan Enerbility will undertake the EPC contract for the projects, as MEED reported.

  The SEC, Acwa Power and Kepco team offered a levelised electricity cost (LCOE) of $cents 4.5859 a kilowatt-hour (kWh) for Rumah 1, and $cents 4.6114/kWh for Nairiyah 1.

  Acwa Power said that the two IPPs will require a combined investment of approximately SR15bn ($4bn). The IPPs are expected to reach commercial operations in Q2 2008. 

  Rumah 1 is located in the Central Region in Riyadh and is part of the previously planned Riyadh Power Plant 15 (PP15). Nairiyah 1 is located in the Eastern Region.

  SPPC received bids for the contracts for four thermal IPPs – the other two being the similarly configured Rumah 2 and Nairiyah 2 – on 21 August.

  The four power generation facilities will be developed using a build-own-operate (BOO) model over 25 years. 

  SPPC’s transaction advisory team for the Rumah 1 and 2 and Al-Nairiyah 1 and 2 IPP projects comprises US/India-based Synergy Consulting, Germany’s Fichtner and US-headquartered Baker McKenzie. 

  Najm and Mitsubishi Power

  The Rumah and Nairiyah 2 orders will be the second one this year for Mitsubishi Power, which in August confirmed receiving an order from South Korea's Samsung C&T Corporation to provide its M501JAC hydrogen-ready CCGT for the Najim industrial steam and electricity cogeneration plant in Jubail in the Eastern Province of Saudi Arabia.

  The M501JAC gas turbine will enable the new cogeneration plant to generate up to 475MW of power and approximately 452 tonnes an hour of steam.

  Samsung C&T is the engineering, procurement and construction (EPC) contractor for the project, which is being developed by a team comprising Abu Dhabi National Energy Company (Taqa) and Japanese power generation company Jera, the same team that won the contract to develop and operate the Rumah 2 and Nairiyah 2 CCGT contracts.

  Photo credit: Mitsubishi Power (for illustrative purposes only)

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  Jennifer Aguinaldo
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  Shanghai Electric to build 2GW Al-Sadawi solar project

  21 November 2024

  A developer team that includes Abu Dhabi Future Energy Company (Masdar), South Korea's Korea Electric Power Corporation (Kepco) and China's GD Power Development has tapped a Chinese firm to undertake the engineering, procurement and construction (EPC) contract for a 2GW solar project in Saudi Arabia.

  According to an industry source, Shanghai Electric will undertake the EPC work for the 2,000MW Al-Sadawi solar independent power project (IPP).

  The winning developer consortium signed the power-purchase agreement (PPA) with the principal buyer, Saudi Power Procurement Company (SPPC), for the project on 18 November.

  It offered a levelised cost of electricity of hals 4.847 ($c1.29) a kilowatt-hour (kWh) for the contract to develop the scheme, which is located in the Eastern Province.

  The second-lowest bidder is a team that includes China's SPIC Huanghe Hydropower Development and France's EDF Renewables, which offered to develop the project for $c1.31/kWh.

  SPPC received six proposals from companies for the contracts to develop and operate four solar photovoltaic (PV) IPP projects under the fifth procurement round of the kingdom's National Renewable Energy Programme (NREP) in August.

  According to SPPC, the lowest and second-lowest bidders in the remaining schemes under round five of the NREP are:

  Al-Masaa solar IPP (Hail): 1,000MW

  • L1: SPIC/EDF Renewables (France): $c1.36/kWh
  • L2: AlJomaih Energy & Water (local) / TotalEnergies Renewables (France): $c1.40/kWh

  Al-Hinakiyah 2 solar IPP (Medina): 400MW

  • L1: SPIC/EDF: $c1.51/kWh
  • L2: Masdar/Kepco/Nesma:  $c1.57/kWh

  Rabigh 2 solar IPP (Mecca): 300MW

  • L1: AlJomaih Energy & Water / TotalEnergies Renewables: $c1.78/kWh
  • L2: Masdar/Kepco/Nesma: $c1.89/kWh

  Saudi utility developer Acwa Power is not among the 23 companies that were prequalified to bid for the fifth round of NREP projects.

  US/India-based Synergy Consulting is providing financial advisory services to SPPC for the NREP fifth-round tender. Germany's Fichtner Consulting is providing technical consultancy services.

  The round five solar PV IPPs take the total capacity of publicly tendered renewable energy projects in Saudi Arabia to over 10,300MW. Solar PV IPPs account for 79%, or about 8,100MW, of the total capacity.

  Four wind IPPs, one of which has yet to be awarded, account for the remaining capacity.

  SPPC is procuring 30% of the kingdom's target renewable energy by 2030. Saudi sovereign wealth vehicle the Public Investment Fund (PIF) is procuring the rest through the Price Discovery Scheme. The PIF has appointed Acwa Power, which it partly owns, as principal partner for these projects.

  The Saudi Energy Ministry recently said that the kingdom plans to procure 20,000MW of renewable energy capacity annually, starting this year and until 2030.

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  Jennifer Aguinaldo
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  Chinese firm wins 2.6GW Saudi inverter deals

  21 November 2024

  The engineering, procurement and construction (EPC) contractors implementing two of Saudi Arabia Public Investment Fund's (PIF) cluster-four solar photovoltaic (PV) projects have awarded contracts for the supply of inverters to China's Sineng Electric.

  The Jiangsu-headquartered company secured an order for 1GW of inverters from China Energy Engineering Group Consortium for the Haden solar PV project and 1GW from Indian contracting firm Larsen & Toubro for the Al-Khushaybi solar PV project.

  Sineng will provide its 8.8MW MV turnkey stations, each comprising 2 units of 4.4MW central inverter, a transformer and a ring main unit (RMU) for the solar projects.

  Designed to "withstand extreme temperatures [of] up to 51ºC… and strong sand-laden winds", the 8.8MW MV turnkey stations are expected to deliver consistent and reliable performance throughout the solar PV plants' operational lifespan.

  The PIF awarded the contracts to develop three cluster-four solar PV projects to a consortium led by Saudi utility developer Acwa Power earlier this year.

  The developer consortium, which includes PIF-backed Water & Electricity Holding Company (Badeel) and Saudi Aramco Power Company (Sapco), reached financial close for the three projects, which have a total combined capacity of  5,500MW, in September.

  The solar PV projects and their capacities are:

  • Haden solar PV (Mecca): 2,000MW
  • Muwayh (Mecca): 2,000MW
  • Al-Khushaybi (Qassim): 1,500MW

  The respective project companies that have been formed for the three projects are Buraiq Renewable Energy Company, Moya Renewable Energy Company and Nabah Renewable Energy Company.

  Acwa Power’s effective shareholding in each of the three projects is 35.1%. Badeel owns 34.9% and Sapco, a subsidiary of state majority-owned oil giant Saudi Aramco, owns the remaining shares.

  The project companies signed financing documents amounting to SR9.7bn ($2.6bn), Acwa Power previously announced. The financing duration is 27.3 years.

  The three projects are being procured under the National Renewable Energy Programme's (NREP) Price Discovery Scheme, which is being implemented by the PIF.

  Under this scheme, the projects are directly negotiated with Acwa Power and its selected partners.

  The three new solar PV facilities have a combined value of SR12.3bn ($3.3bn) and are expected to become operational in the first half of 2027.

  The PIF and its partners are currently developing several solar PV projects with a total capacity of 13.6GW, involving over $9bn in investments. These joint projects – including Sudair, Shuaibah 2, Ar Rass 2, Al-Kahfah and Saad 2 – are intended to enable and support the local private sector through domestic supply-chain participation.

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  Jennifer Aguinaldo