The Business Year

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Paddy Padmanathan

SAUDI ARABIA - Green Economy

Power Line



Paddy Padmanathan, a professional Civil Engineer with over 35 years of experience, has served ACWA Power since 2005. A graduate of the University of Manchester, UK, he started his career as a consulting engineer delivering infrastructure projects financed by the national treasuries and multilateral financial agencies and moved on to develop privately financed power, water and wastewater projects in over a dozen countries. A substantial period of his career before ACWA Power was with Black & Veatch, a US headquartered multinational engineer & constructor where he served as a Vice President and Corporate officer. He also serves on the board of directors of several companies all operating in the water and power sectors.

“Here in the Kingdom we have a 2,000MW gas-fired power plant that will come online this year.“

The Saudi power generation market has seen rapid change this year, and looks set for a serious shift in terms of renewable energy, billing, distribution, and pretty much everything else. Where do you stand as arguably the Kingdom’s best-established power developer?

Half of our investments are in Saudi Arabia and the other half are abroad; the revenues also match this 50-50 split. Over the last four to five years, the level of private-sector participation in the Kingdom in power generation and desalinated water production sectors did not grow as compared to previous years. We thus ended up pursuing more opportunities outside the Kingdom and have built up our external capacity. But yes of course a big change is now expected in the Kingdom. In 2016, we saw a clear vision being set out in the form of Vision 2030 and this then quickly followed through by a 2020 transition plan, and what is exciting is that this is a well thought through detailed plan with a lot definition of key deliverables. Here in the Kingdom we have at least identified the problems, the issues we need to address, set out clear and measurable targets, which then allows the government to monitor progress, keep reviewing the plan itself and refine and reset the path as required. In 2016 not only all that hard work was done, but also the government then went on to reorganize itself, realign the ministries, departments and agencies and brought in many new people all focused at creating the supportive enabling environment and culture to efficiently deliver that vision.

What is the Sukuk coming this month, and will it help power these opportunities in Saudi Arabia?

From the day we were founded we have been working to a plan on how we should steadily grow and how we optimally finance that growth. At this stage of our evolution, we are investing typically USD600-700 million of new capital every year. Given that we lead all projects we pursue and thus take a meaningful level of the equity share, typically at a 40% share in each project and thus with co-investors we bring along an additional USD1.2 billion and with these projects financed on a 25% equity and 75% debt, we are developing USD8 billion of new projects. What all this means is that we need to ensure that our capital structure and funding capacity is in a position to fund USD800 million of new equity every year. We were founded by a group of very strong shareholders. Thereafter we have then carefully grown our shareholder platform with very capable new shareholders joining us increasing our capital base. With this increasing level of capitalization and having had the supportive shareholders to retain earnings that we have been generating from our investments, many of which are now reliably delivering electricity and desalinated water, we have been able generate more equity funding by leveraging our balance sheet with five to seven year revolvers and the next logical step is for us to be looking at some bonds or Sukuks from of financing. So, what we expect to do in this quarter in terms of the Sukuk offering is part and parcel of that program. Our expectation is to go out during the second quarter of this year for a bond and Sukuk offering with a target of raising USD 1 Billion. Given the level of activity we foresee in in the Kingdom in 2017, 2018, and 2019 we would expect to deploy all of this and more in Saudi Arabia.

When you look at the future tenders for solar, will the prices continue to be as low as you have been providing in other countries?

Comparing the published tariff of tenders is frankly meaningless. The press goes crazy but it of course does not have the details. Yes it is X US Cents/kWh but on what contract terms? This is before even considering that the tariff will be dependent on the level of renewable energy resource, the cost of construction at two different locations, the taxation cost burden, the credit quality of the different parties involved, making the list of what impacts each tariff endless. For example the famously low tariff in Abu Dhabi id simply not comparable with the tariff of Dubai contract as the Abu Dhabi contract commits to make a higher payment than the contracted tariff during summer months. So that meant the published kWh tariff appears low, but was in fact not as low as in other places if you equalize the multiple variables. What I can say is that Saudi Arabia has fantastic solar resources, land is going to be given at a notional cost, the credit worthiness of the Kingdom is superior to many other countries, and there is a lot of funding capacity here and so the cost of financing for Saudi will most likely be lower than for Abu Dhabi. It is going to be a big program that will attract a lot of competitiveness. Putting all this together you will end up with a tariff that for sure is going to be lower than that which you have seen anywhere else, of course may not be the published number, as it will need to be evaluated on a like-for-like basis.

What are your goals and expectations for 2017?

Our principal goal remains unchanged; focus on reliably delivering desalinated water and electricity at the lowest possible price and continue to serve the markets where we operate. Specific targets for us are to complete the many plants under construction and bring them on line on time such as the two CSP plants at Morocco on which when construction is completed these two together with the one phase that is already dispatching green electrons day and night will then become the largest CSP complex in the world; fantastic. Another exciting finish will be the DEWA 200MW photovoltaic plant IPP coming online in early second quarter of this year well on track. Here in the Kingdom we have a 2,000MW gas-fired power plant that will come online this year. In terms of new tenders we expect to see the first few tenders in a major programme of new big renewables here in the Kingdom. Here in the Kingdom, we can also expect a big gas-fired IPP, a few large privately financed Desalination plants and the start of the SEC Genco privatization, at least with the commencement of the prequalification process. There is a lot going on and it is an exciting period, especially in Saudi Arabia.



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