By Andy Sambidge
New report also says region's electricity and water regulations needs major overhaul
Substantial investment is needed in the Middle East to meet the anticipated increases in power and water demands, a new report by Deloitte said on Monday.
The report said substantial increases in wholesale and retail electricity and water demand are anticipated for every country in the Middle East.
Analysts said a major overhaul to the region's electricity and water regulatory system were "inevitable" in the long run to better meet the demands of the market.
It added that the challenge was all the more difficult as many of the countries in the region are among the world’s most water deficit nations.
In March, consultants Maplecroft said Kuwait, Jordan, Egypt, Iraq, Oman, the UAE and Syria were among the 10 nations with the “most extreme risk” of interruptions to water supply.
Kenneth McKellar, partner and Middle East energy & resources leader at Deloitte in the Middle East, said: “For Middle East governments, ensuring that their populations have sufficient electricity and water supplies in the coming years will require significant additional generating and desalination capacity.
"Meeting demands for electricity will necessitate substantial investment throughout the value chain,” he said.
Deloitte said most countries in the region still have just one company to operate electricity and water generation, transmission and production activities, adding that "significant inefficiencies still exist".
"There is increased upward pressure on tariffs due to rising fuel prices and gradual abolition of subsidies,” added McKellar.
The Deloitte report said greater efficiencies and more modern customer credit, collection and billing processes are required, to minimise the effect of higher fuel prices on the end users of electricity and water, and to service increasing numbers of customers.
In the longer term, Deloitte said electricity and water operations will need to be unbundled to promote operating and capital efficiency and competition.
McKellar said: “This will necessitate the overhaul of electricity and water regulatory regimes so that they are more reflective of changes in the market.
"Change for the electricity and water sectors across the Middle East is inevitable. How soon governments can initiate these changes will determine how well they will cope with the looming challenge of supply catching up with demand.”
Saudi Arabia said last month that it needs to invest SR330bn ($88bn) over the next 10 years as demand for electricity continues to grow 7-8 percent annually.
Although sitting on the world's biggest oil and fifth gas reserves, Saudi Arabia is struggling to keep pace with rapidly rising power demand, as petrodollars have fuelled a region-wide economic boom as well as rapid population growth.
In May, Oman’s electricity demand reached a record 3,900 megawatts and exceeded the country’s power-generating capacity.
Domestic power consumption in the Arab Peninsula nation was 10 percent greater than last year.
In April, the second phase of the AED5bn ($1.4bn) Gulf power grid became operational with the UAE joining the grid.
The electricity grid unifies those of six Gulf states with the first phase having become operational in early 2009 connecting Saudi Arabia, Kuwait, Bahrain and Qatar.