INDEPENDENT POWER PLANTS (IPP) PROGRAM
INVESTMENT OPPORTUNITIES IN IPP PROJECTS

BY DR AMER M. AL-SWAHA HEAD OF IPP PROGRAM JUNE 2007

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CONTENTS

1. INTRODUCTION 2. HISTORICAL SUMMARY OF SEC POWER DEMAND 3. WHY IPP (INDEPENDENT POWER PLANT)? 4. INVESTMENT ENVIRONMENT 5. IPP IMPLEMENTATION 6. INITIAL PROJECTS OF THE IPP PROGRAM 7. DETAILS OF SEC IPPs 8. IPP PROGRAM SCHEDULE 9. PROJECT CONTRACTUAL RELATIONSHIPS 10. DEVELOPMENT STAGES 11. OPPORTUNITIES 12. CONCLUSION

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INTRODUCTION

SAUDI ELECTRICITY COMPANY WAS ESTABLISHED IN 2000, BY MERGING ALL SAUDI REGIONAL ELECTRICITY COMPANIES TOGETHER WITH PROJECTS OF THE ELECTRICITY CORPORATION INTO A SINGLE ENTITY THE SAUDI GOVERNMENT OWNS 81% OF SEC SHARES IN 2006 , SEC POWER GENERATION WAS 31 GW COMPARED TO 1.4 GW IN 1976. NUMBER OF PRESENT POWER PLANTS IS 70 , IN 2006 SEC HAS PURCHASED 4 GW FROM SWCC AND LARGE CUSTOMERS, IN 2006 , THIS WILL RAISE TO 21 GW DUE TO FUTURE IPP/IWPP PROJECTS CURRENT SEC POWER TRANSMISSION INCLUDES 132/230/380 KV VOLTAGES WITH 380 KV INTERCONNECTIONS BETWEEN CENTRAL & EASTERN REGIONS AND FUTURE LINK TO GCC NETWORKS (UNDER CONSTRUCTION) ESTIMATED CAPITAL EXPENDITURE OF SEC FOR THE NEXT 10 YEARS IS SR 190 BILLION
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HISTORICAL SUMMARY OF SEC POWER DEMAND
THE HIGH GROWTH IN POPULATION AND ELECTRICITY POWER DEMANDS IS SHOWN BELOW FOR: YEAR 1976 POPULATION – 7.7 MILLION POWER DEMAND – 0.9 GW YEAR 2006 POPULATION – 23.7 MILLION POWER DEMAND – 29.9 GW YEAR 2024 POPULATION – 50 MILLION POWER DEMAND – 70 GW

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WHY IPP?
MASSIVE INVESTMENTS TO MEET HIGH GROWTH RATE IN BOTH RESIDENTIAL AND INDUSTRIAL DEMANDS ATTRACT PRIVATE SECTOR INVESTMENTS (FOREIGN & LOCAL) IN POWER INDUSTRY EXPAND CITIZENS OWNERSHIP THROUGH FUTURE INITIAL PUBLIC OFFERINGS INCREASE SAUDI EMPLOYMENT OPPORTUNITIES PROVIDE A FINANCIAL OPTION TO RE-DIRECT AVAILABLE SEC FUNDS TO TRANSMISSION AND DISTRIBUTION AVOID MISMATCH BETWEEN LONG POWER PLANTS LIFE AND SHORT TO MEDIUM FINANCING TERMS MATCH BETWEEN THE PAY BACK OF CAPITAL INVESTMENT AND ITS RETURN THROUGH THE TARIFF CHARGED TO CUSTOMERS WITH THE PRICE PAID TO INDEPENDENT POWER PRODUCERS THROUGH THE LONG TERM POWER PURCHASE AGREEMENTS

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INVESTMENT ENVIRONMENT
ENABLING RULES AND REGULATIONS HAVE BEEN FORMULATED TO ENCOURAGE PRIVATE SECTOR PARTICIPATION IN POWER SECTOR INVESTMENTS ESTABLISHMENT OF ELECTRICITY & CO-GENERATION REGULATORY AUTHORITY (ECRA) THROUGH: - COUNCIL OF MINISTERS RESOLUTION # 169 (MERGER & RESTRUCTURING) - THE ESTABLISHMENT OF SAGIA (INVESTMENT ENVIRONMENT) - PRIVATIZATION STRATEGY (POLICY SETTING) - INVESTMENT LAWS (REGULATIONS) - ELECTRICITY LAW (ROLE OF ECRA AND MOWE AND PROTECTION OF RETURN ON INVESTMENT IN POWER INDUSTRY).

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IPP IMPLEMENTATION

THERE IS TREMENDOUS OPPORTUNITY FOR PRIVATE SECTOR TO PARTICIPATE IN IPP PROJECTS WITH A GOOD RETURN ON INVESTMENT SEC ASSURED PRIVATE INVESTMENT OF TOTAL COMMITMENT SEC WILL BE THE SINGLE OFFTAKER OF POWER CAPACITY AND OUTPUT FROM THE IPPs SUPPLY THE PROJECTS WITH FUEL REQUIREMENTS SEC WILL MONITOR POWER AND EFFIECIENCY OF FUEL CONVERSION SEC WILL BE RESPONSIBLE FOR THE BUILDING OF TRANSMISSION LINE TO THE IPPs

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INITIAL PROJECTS OF THE IPP PROGRAM
THREE PROJECTS WERE INITIALLY SELECTED AND THE PROGRAM CONTEMPLATES ADDITIONAL PROJECTS OWNERSHIP IN THE PROJECT COMPANIES: 1. SAUDI ELECTRICITY COMPANY (SEC) 10% 2. DEVELOPERS 60% 3. THIRD PARTY (IF ANY, OR ADDITIONAL SEC OR DEVELOPERS STAKE) 30% THE PROJECTS TO BE IMPLEMENTED ON A BUILD, OWN AND OPERATE (BOO) BASIS UTILIZE THE ENERGY CONVERSION AGREEMENT (ECA) MODEL TO PROVIDE FUEL TO THE PROJECTS COMPANIES SEC SHALL ALLOCATE THE LAND SITES FOR THESE PROJECTS THROUGH A LAND LEASE AGREEMENT (LLA) FOR EACH OF THE PROJECT COMPANY LIFE TIME (CONTRACTUAL PERIOD)

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INITIAL PROJECTS OF THE IPP PROGRAM - CONTD
THE FIRST GROUP OF PROJECTS THAT WERE SELECTED ARE: 1. RABIGH (A NEW POWER PLANT AS AN EXPANSION IN RABIGH TO THE PRESENT SEC POWER PLANT CAPACITY) 2. RIYADH PP11 (A NEW POWER PLANT SITE) 3. QURAYAH (A NEW POWER PLANT AS AN EXPANSION IN QURAYAH TO THE PRESENT SEC POWER PLANT CAPACITY) WITH INVESTEMENT POTENTIAL OF ABOUT SAUDI RIYAL 21,000 MILLIONS LOCATIONS: 1. RABIGH – 140 KM NORTH OF JEDDAH CITY, WESTERN PROVINCE, SAUDI ARABIA 2. RIYADH PP11 - RIYADH CITY, SAUDI ARABIA 3. QURAYAH – EASTERN PROVINCE, SAUDI ARABIA

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DETAILS OF SEC IPPs

1. RABIGH POWER PLANT POWER : 1200 MW FUEL : HFO (HEAVY FUEL OIL) Estimated Capital Cost : SR 5,000 MILLION RFP ISSUE : DECEMBER 2007 ICOD : APRIL 2012
(INITIAL COMMERCIAL OPERATION DATE FOR THE 1ST UNIT)

PCOD

: APRIL 2013

(ENTIRE PROJECT COMMERCIAL OPERATION DATE)

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DETAILS OF SEC IPPs

2. RIYADH POWER PLANT 11 POWER : 2000 MW FUEL : GAS Estimated Capital Cost : SR 8,000 MILLLION RFP ISSUE : AUGUST 2008 ICOD : APRIL 2013 PCOD : APRIL 2014

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DETAILS OF SEC IPPs

3. QURAYAH POWER PLANT POWER : 2000 MW FUEL : HAC (Heavy Arab Crude oil) Estimated Capital Cost : SR 8,000 Million RFP ISSUE : AUG 2009 ICOD : APRIL 2014 PCOD : APRIL 2015

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IPP PROGRAM

IMPLEMENTATION STAGGERED OVER 2007- 2010 TO MEET SUMMER DEMAND AS FOLLOWS:

2012 2013 2014 2015 TOTAL

600 MW 1600 MW 2000 MW 1000 MW 5200 MW

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PROJECT CONTRACTUAL RELATIONSHIPS

IPP Developers

SEC

Other Investors

Shareholders Agreement Construction Contractor EPC contract Project Company
Land Lease Agreement

Financing Institutions

Financing Agreement Land Owner (or Provided by SEC)

Operator

O&M contract Fuel Supplier

Implementation Agreement (if any)

Power Purchase Agreement Fuel Supply Agreement Off-taker

Government

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DEVELOPMENT STAGES

PUBLIC REQUEST FOR EOI – EXPRESSION OF INTEREST FROM DEVELOPERS THROUGH ISSUE OF EOI FORM ISSUE RFQ – REQUEST FOR QUALIFICATIONS FORMS TO INTERESTED DEVELOPERS TO STATE THEIR SOQ-STATEMENT OF QUALIFICATIONS FOR THOSE WHO EXPRESSED THEIR INTEREST BY FILLING EOI FORMS SUBMITTAL OF SOQ FROM DEVELOPERS EVALUATION OF SOQ ISSUE LIST OF QUALIFIED DEVELOPERS (BOTH FULL ACCEPTANCE AND CONDITIONAL ACCEPTANCE) ISSUE RFP – REQUEST FOR PORPOSAL PACKAGE TO QUALIFIED DEVELOPERS

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DEVELOPMENT STAGES - CONTD

PREPARATION OF BID PROPOSALS BY DEVELOPERS SUBMITAL OF BIDS EVALUATION OF BIDS SHORT LISTING OF BIDS NEGOTIATION WITH LOWEST BID SIGN PPA FINANCIAL CLOSE AND PROCEED WITH PROJECT ICOD PCOD

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OPPORTUNITIES

OPPORTUNITIES IN POWER GENERATION FIELD FOR: DEVELOPERS FINANCIAL/INVESTMENT/BANKS CONSULTANTS DESIGN & ENGINEERING SERVICE PROVIDERS CONSTRUCTION, INCLUDING CIVIL WORKS, CONTRACTORS OPERATION AND MAINTENANCE CONTRACTORS MATERIAL & EQUIPMENT SUPPLIERS MAN POWER TRAINING SERVICE PROVIDERS

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OPPORTUNITIES - CONTD

THERE IS FURTHER UNIQUE AND VERY SIGNIFICANT INCENTIVE FOR THE DEVELOPERS IN THESE IPPs. THE DEVELOPERS ARE NOT BOUND BY THE DETAILED TENDER SPECIFICATION OF EPC CONTRACTS, BUT GENERAL REQUIREMENTS. THESE IPPs HAVE PERFORMANCE BASED FUNCTIONAL SPECIFICATION AND THE DEVELOPER IS FREE TO ADOPT TECHNOLOGICAL INNOVATION/IMPROVEMENT (I.E. IMPROVEMENT IN PERFORMANCE RATIO, AMALGAMATION OF DIFFERENT TECHNOLOGIES ETC.)

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OPPORTUNITIES - CONTD

THIS APPROACH OFFERED TO DEVELOPERS WILL YIELD SUSBTANTIAL IMPROVEMENT IN PLANT CAPITAL COST, PERFORMANCE AND EFFICIENCY TO YIELD VERY COMPETITIVE PRICES. SEC SHALL BUILD THE REQUIRED OVERHEAD TRANSMISSION LINES (OHTL) TO INTERCONNECT IPP PLANTS WITH THE SEC GRID. SEC WILL BEAR ALL THE COSTS OF INTERCONNECTION WORKS TO THE GRID. SEC HAS ALREADY STARTED CONSTRUCTION OF INTERCONNECTION TO THE TRANSMISSION GRID FOR IWPP WEC PROJECTS FOR THOSE UNDER CONSTRUCTION.

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CONCLUSION

THESE THREE IPPs WILL BRING NEW PPORTUNITIES IN THE ELECTRIC POWER INDUSTRY IN THE KINGDOM OF SAUDI ARABIA THAT WILL GENERATE SUSTAINED YIELDS FOR INVESTORS AND PUBLIC.

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CONTACT DETAILS

FOR FURTHER INFORMATION PLEASE CONTACT: DR AMER M. AL-SWAHA HEAD OF IPP PROGRAM TEL: +9661 4619006 FAX: +9661 4619016 EMAIL: Swaha.am@se.com.sa or IPP@se.com.sa WEBSITE: WWW.SE.COM.SA

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THANK YOU

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