Power Pioneers: How One Firm Became a Leader in the Gulf's Energy Sector

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GDF Suez came to the Gulf region in the 1970s, as countries such as Oman were celebrating newfound independence. In time, it has become the major electricity producer in the Gulf marketplace. Last May, the Belgian-French energy company won two tenders to build power plants in Oman. Each plant is expected to produce 744 megawatts (MW), with the upcoming plant projects involving a total investment of US$1.7 billion.

The Sultanate of Oman was the first Gulf country in which GDF Suez invested, and the new plants continue a history of development there. Named Barka 3 and Sohar 2, the plants will become Oman's eighth and the ninth power generating facilities, while for GDF Suez, they will be their fourth and fifth power projects carried out in Oman.

Guy Richelle, GDF Suez Energy CEO and president for the Middle East, Asia, and Africa, arrived on his first mission to Oman in 1997, three years after the electricity producer company had won its first tender in the Gulf. The GDF Suez Oman power plant has now been in use since 1996.

Following the merger between GDF Suez International and British International Power, Richelle will move to London, where he will be director of operations at New International Power PLC. He met with Arabic Knowledge@Wharton in Oman to talk about his first experiences in the country, the latest double project, and doing business in the energy sector in the Gulf.

Arabic Knowledge@Wharton: Why did GDF Suez first go to Oman?

Guy Richelle: The Sultanate of Oman was the first Gulf country to liberalize its electricity production. We had to build a power plant of 90 MW and 180 km of high voltage lines to connect Al Manah and its neighbouring cities. It was the early beginning for Oman, after the country became independent in the 1970s. It wasn't easy to find financing. We had to convince banks about the investment. The Sultanate was the first one to initiate change and to try market liberalization. Its privatization model spread fast all around the Gulf countries. Kuwait, where we are still not present, is the last to open up to privatization in this field.

Arabic Knowledge@Wharton: For GDF Suez, a 90 MW power plant was both a pilot project and a first step into the Gulf.

Richelle: Indeed, we started with the Al Manah power plant in Oman and we extended its capacity to 290 MW. In 2000, it was our turn for a project in the United Arab Emirates (UAE). We bought the Al Taweelah power plant in Abu Dhabi and extended its power capacity up to 1,360 MW and its desalinization to 380,000m³ of water per day. In 2003, we opened a regional office in Dubai, and created the local subsidiary Kahrabel GDF Suez. We only had five people at the time, and we are more than 70 now. Since 2003, things have developed quickly. We are now in Oman, the UAE, Saudi Arabia and Bahrain since 2006; and in Qatar since 2008. Currently, we have eight operational power plants and six under construction, with three plants started this year.

Arabic Knowledge@Wharton: In some countries, is your growth limited to avoid a monopoly position?

Richelle: The GCC (Gulf Cooperation Council) countries impose limits to the size of international companies in liberalized markets, to maintain competition between actors. We reached this limit level in Bahrain and in Oman. To respond to the Omani regulators, we gave up the Al Manah power plant in 2008, but we still have the operational aspect. By winning the two last projects in Oman, Barka 3 and Sohar 2, we again reached the maximum concentration level in the Sultanate. However, those limits move with rising needs. With a 7% average demand growth per year in Oman, 2,000 MW of new capacities will be needed by 2015 (in addition to 3,600 MW produced in 2009).

In Saudi Arabia, during the next five years, this annual growth will be 8%. It is essentially as if a new power plant should be built every year. For the GCC, the current capacity is 75 gigawatts (GW) and the additional need will reach 60 GW by 2020. With this growing demand, we will again be able to answer to tenders while respecting the authorized limits.

Arabic Knowledge@Wharton: In the short term, won't the acquisition of British International Power force GDF Suez to sell off more of its activities?

Richelle: The acquisition of International Power will modify our figures because, in the Gulf, it was our first competitor with 9.5 GW gross capacities. But we largely remain the leading independent electricity producer in construction, operation and maintenance. We produce 17 GW of electricity and 2.8 million m³ of water per day, the equivalent of drinkable water for 15 million inhabitants.

Arabic Knowledge@Wharton: Does GDF Suez use its presence and its relationships with local authorities to win tenders?

Richelle: Yes and no. In the Gulf, local governments do a tender call for important projects such as the construction of power plants. The competition is tough. To win the tender, the most important factor is price

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