Application of Build Operate Transfer BOT in Electricity Sector CEM 525: PROJECT DELIVERY SYSTEMS Mo

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Application of Build Operate Transfer (BOT) in
Electricity Sector CEM 525PROJECT DELIVERY
SYSTEMSMohammed JalaluddinKing Fahd Univ of
Pet Min (KFUPM)
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Introduction

• Restructuring Electricity Sector
• Electricity Sector in Saudi Arabia
• Demand
• Tariff
• Single Buyer Model

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Potential Sectors For Application Of BOT

• RESTRUCTURING ELECTRICITY SECTOR
• Unbundling of vertically integrated monopoly
  into separate generation, transmission and
  distribution entities .
• Increased competition through open access.
• What are the goals of Restructuring?
• Reduce energy charges through competition.
• Customer choice of providers by creating open
  access.

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Potential Sectors For Application Of BOT
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Potential Sectors For Application Of BOT

• ELECTRICITY SECTOR
• As a part of the restructuring program, Saudi
  Electricity Company (SEC) was formed by
  consolidating four major electricity companies
  (SCECO East, West, Central and South) and other
  regional power companies.
• SEC has the sole operational responsibility of
  power generation, transmission and distribution
  in the Kingdom.
• It generates electricity form the regional power
  plants and provides electricity to the citizens
• According to Ministry of Industry and Electricity
  the objectives of the merger of regional
  electricity companies into SEC was to prepare for
  greater privatization of the electricity utility
  in the kingdom

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Potential Sectors For Application Of BOT

• Electricity
• Demand for Electricity
• In order to meet, the growing demand the the
  power generation government aims to expand the
  capacity should by 50,000 MW over next two
  decades . Estimated investment needed through
  2020 around 117 billion

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Electricity Sector

• Obviously the demand for construction and
  expansion of power projects is huge.
• Rapid population growth, industrialization and
  low tariff rate in Saudi Arabia have necessitated
  increasing the power generation capacity.
• There is a need for dealing for legislation
  dealing with the implementation of BOT projects.
• Establish a independent regulatory authority to
  implement tariff structure and reform

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Tariff Structure

• The pre-2000 tariff rates were among the lowest
  in the world
• Hence the financial performance of the
  electricity companies was very low running into
  losses amounting to billion of riyals every year.
  
• Soon the government realized the need of private
  capital in the construction, O M of power
  plants in the kingdom and consequently ordered
  the restructuring of Saudi electricity sector,
  which is expected to boost the development of
  power industry under BOT basis.
•  Earlier in 1996,SCECO-West invited bids for
  construction of Shuaiba power plant on BOT basis.
  US/Canadian consortium prepared a feasibility
  study and recommended modification on tariff
  structure so that it would allow private
  investors to operate in the power sector (NCB,
  1996).
•  The present tariff are at least double the
  pre-2000 level and are sufficient to enable SEC
  to cover its costs (MEED, 2001)

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Privatization activities of power sector in Saudi
Arabia

• Another significant development in electricity
  sector was opening up foreign investment in power
  generation.
• However the negative list prepared by SAGIA in
  conjunction with SEC prohibits foreign investment
  in distribution and transmission. .
•  Taking in to consideration of treads in private
  participation in electricity world wide Saudi
  Arabia is moving in the right direction by
  letting investment in power generation only.
  Private participation in power generation is more
  common than transmission and distribution..
• A striking characteristic of private
  participation in electricity has been the
  concentration of investments and projects in
  generation compared with transmission and
  distribution.

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Investments in Private Electricity Projects
in Developing Countries, by Segment, 1990-1997
Source Izaguirre, 1998
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Single Buyer Model

• The single buyer model entitles the independent
  power producers to generate electricity and sell
  it to SEC. The single buyer model has been
  adopted by the Abu Dhabi and Oman
•  

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Conclusion

• It is becoming clear that the investment
  requirements are huge and immense and Government
  alone cannot bear the burden
• In the current environment, BOT is found to be
  most attractive and desirable option for the
  development and expansion of power generation,
  water desalination, roads, ports, airports and
  railways.
• The assessment and evaluation of the factors,
  conducted in Saudi Arabia proved positive for
  application of BOT .The major positive factors
  for application of BOT in Saudi Arabia are
• Strong government commitment
• Demand for projects such electricity generation,
  water desalination, etc.
• New foreign investment law.

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Conclusion

• The major obstacles in Saudi Arabia for the
  application of BOT are identified as
• Lack of adequate awareness among owners and
  contractors regarding BOT concept
• Low Service Fees (insufficient cost recovery)
• The study indicated that across all the types of
  infrastructure projects, power generation and
  water desalination appear at present to leading
  the push for application of BOT delivery method.
• The power generation in particular represents one
  of the attractive market with in a estimated
  investment of SR 438,000 million (117 billion)
  required over the next decades.
• There are considerable opportunities for the
  private sector to be involved in BOT type
  infrastructure projects across railways, roads,
  and airports.