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Tue 30 Aug 2016 02:49 PM

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Saudi state utility firm set to delay Jeddah plant expansion

Sources say Saudi Electricity Co faces multiple challenges as it tries to keep up with rampant growth in power demand

Saudi state utility firm set to delay Jeddah plant expansion

Saudi Electricity Co (SEC) will likely delay the planned expansion of its Jeddah South power plant, but is still expected to start tendering for a plant near Riyadh by the end of the year, industry sources told Reuters.

The utility, the Gulf's largest, faces multiple challenges as it tries to keep up with rampant growth in power demand even as lower oil revenues constrain government spending on infrastructure projects.

The fuel to be used in any new plant is also an issue given Saudi Arabia wants to prioritise exports of crude oil by cutting domestic liquid burning and using natural gas instead.

Jeddah South's expansion had been due to be funded at state level, but the Riyadh scheme is earmarked as an independent power producer (IPP) project, meaning private sector developers would shoulder the financing burden.

State-controlled SEC did not respond to an emailed request for comment.

Jeddah South, for which the first phase started in May, would help meet growing electricity demand in the western region, particularly from the holy cities of Mecca and Medina.

SEC in April first invited companies to bid to build the extension to the plant, which aims to nearly double its capabilities by adding as much as 1,400 MW of capacity, but the date to submit technical bids has been extended twice.

The current bid deadline is Sept. 25, but this will likely be extended further, said the sources who declined to be identified as the information isn't public.

"Officially SEC did not put (the plan) on hold, it just keeps extending it," said one of the sources.

Many Gulf companies typically avoid formally suspending or cancelling a project due to a resultant loss of prestige. Instead, deadlines are repeatedly pushed back until interest wanes, or conditions change to make the scheme viable once more.

Two of the sources said the extension of the bidding was because fuel allocations had not yet been agreed. The first phase of the Jeddah South plant was oil fired.

The world's largest oil exporter burns a significant amount of crude in power generation, particularly during peak summer months, so the kingdom wants to substitute this for natural gas to ensure more oil can be exported - important when Saudi is facing another substantial budget shortfall in 2016.

However, despite prioritising gas for power generation, supplies in Saudi Arabia are stretched, constraining expansion.

A new plant in Riyadh is still expected to go ahead.

Known as PP15, it will be SEC's largest plant, with a capacity of more than 5,000 MW. The company is expected to invite expressions of interest from interested developers towards the end of this year, sources said.

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