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Wed 24 Oct 2007 01:23 AM

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UAE to court private power investors

Federal gov't to open up utilities sector to private investment as it seeks to meet rising energy demand.

The United Arab Emirates is now looking for power and water industry investors for its poorer regions after Abu Dhabi, the federation's biggest oil-producer, caused a scramble among foreign firms by opening its own utilities up to private investment.

Britain's International Power, France's Suez SA and Japan's Marubeni Corp are among international companies that have profited from investing in power and water facilities in Abu Dhabi, the largest UAE emirate, which opened its utilities to private investment in 1997.

Now the federal government, which operates plants in the UAE's five smallest emirates, including Sharjah, Ras al-Khaimah and Fujairah, is doing the same as it seeks to meet rising demand in the desert state where population and commerce are growing on a quadrupling of oil prices since 2002.

"The parameters have still to be put in place, but the government's tendency is to involve the private sector in the development of the country," said Abdul Rahman Sheikh, legal adviser at the Federal Electricity and Water Authority (Fewa). "I'm sure it will come much more under the auspices of Abu Dhabi."

The UAE cabinet said in a statement on Monday it would open Fewa assets to investors, without giving further details.

Fewa also supplies water and electricity in the emirates of Ajman, Umm al-Quwain and parts of Sharjah.

Earlier this month the International Monetary Fund urged the UAE to offer shares in state-controlled enterprises to the public to help strengthen local capital markets and attract more institutional investors.

Abu Dhabi has seven power and water projects with foreign partners and plans to include private investors in its sewerage industry.

International Power and Marubeni hold a 40% stake in Abu Dhabi's latest $2.8 billion power and water project in Fujairah on the UAE's Gulf of Oman coast.

Abu Dhabi is still looking to more than double its power generating capacity to at least 10,000 megawatts by 2012.

According to the Abu Dhabi Transmission & Dispatch Co's (Transco) five-year electricity demand forecast, the smaller northern emirates need 1,343 megawatts of extra capacity by 2012.

Although no official figures exist for capacity in the emirates, Transco estimates there is already a shortfall in supply.

"They could split up each power generation element and sell it as an individual company, but the crucial issue is generation capacity," said Douglas Caskie at London-based IPA Energy and Water Consulting. "They could amend the laws to attract private sector generation companies but keeping the existing structure unchanged."

The power shortage has hit Ras al-Khaimah the hardest, where rising demand for natural gas for electricity, industry and construction have forced many companies to use diesel to generate power or even shut down in the day during the summer.

Fewa sells power at less than 30% what it costs to produce, or 20 fils per kilowatt hour compared with 70 fils per kilowatt hour, according to a Ras al-Khaimah government official, who did not want to the identified.

"There is no incentive for Fewa to add capacity or for private companies to buy into it, unless the government allows it to increase its fees," said the official.

Ras al-Khaimah, the UAE's most northern emirate, plans to lure investment worth $15 billion by 2009 to develop its tourism and industrial sectors.

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