The Saudi Arabian government is to make a final decision before the middle of the year on the structure of a new utility to be established in the kingdom’s twin industrial cities of Jubail and Yanbu, Reuters reports. In spite of initial plans involving US investors, the company will not initially be open to foreign investment.
The concept of the utility company has already been agreed, in principle. However the equity structure and the future role of private investors has still to be determined.
The utility company is being established to provide an improved water and power infrastructure for the industrial city of Jubail on the Gulf and Yanbu on the Red Sea. Utility capacity in the cities is near the limit of its existing capacity.
Jubail and Yanbu require around $1.8 to $2.5 billion in infrastructure investment over the next three to five years to meet demand from more than 140 industries in the cities. Some companies have had to install their own generators because the existing utility cannot meet current demand.
The new utility company was initially expected to establish the principle of private sector funding in Saudi Arabia within the power sector. Under the plan originally envisaged, a limited liability company was to be set up, with Bechtel and Parsons Corp. each taking ten per cent.
At the end of last year, foreign equity stakes were ruled out, at least initially. Instead, Saudi state companies will be the owners of the company. Saudi Aramco and Saudi Basic Industries Corp. will hold 25 per cent each; the state Royal Commission for Jubail and Yanbu and the Public Investment Fund will each take 25 per cent too. According to the chairman of the new company, up to three quarters of the investment required will be raised from banking loans.
The bar on foreign investors is intended to ensure that tariffs do not rise immediately. Independent investors were expected to demand a higher return on equity.