Transmission Privatisation: Oman to lead the way for the Middle East [free access]
April 1, 2009
Infrastructure privatisation has been established in the Middle East and has dramatically changed the face of the region over the past decade. While governments were reluctant at first to open the door to private investors, the massive investments needed forced them to approach the private sector for developing many infrastructure projects, especially in the power and water sectors.
Cost considerations, unmet rising demand, need for technology transfer, reduction of subsidy and long due structural reform are some of the factors that are driving privatisation. The Middle East has been on a fast growth path over the past few years and international investor confidence in the region has increased.
Oman's privatisation programme is one of the most advanced in the Gulf region. The country has, in fact, become one of the role models for privatisation in the power sector. The country is following a "whole system" approach to reforms and privatisation. It has adopted a four-step model which comprises corporatisation and unbundling, regulation, commercialisation and privatisation.
Privatisation in the electricity generation sector in Oman started in 1996 with the Manah power project, which was developed on a build, operate, own, transfer (BOOT) basis for 20 years by the privately-owned United Power Company. The successful implementation of the Manah project gave an impetus to further privatisation in the sector.
In 2002, a concession was granted for private sector companies to invest in the Salalah Power System. The project involved construction and operation and maintenance of a gas-based power station as well as installation of power transmission and distribution cables. The project was also awarded on a BOOT basis for 20 years.
Following the success of these projects, a number of other power generation projects in Oman were selected for privatisation. It has been reported that more than 3,000 MW of generation capacity is now in private hands, representing over 85 per cent of the total generation capacity in the country. Private investment in the sector now exceeds USD2.4 billion, which includes around USD1.7 billion of foreign investment.
In addition to encouraging private sector participation in generation, the government began the process of preparing a new law to facilitate the restructuring and regulation of the sector in 2004. Until then, Oman's Ministry of Housing, Electricity and Water (MHEW) was responsible for power generation, transmission and distribution. Subsequently, in 2005, the Sector Law came into force that provided the framework for the industrial structure of electricity in Oman. The sector was led into a transition from the self-regulated vertically integrated arrangement to a new market structure with an independent regulator. This drove large-scale privatisation of the power sector. The responsibilities of the MHEW were then transferred to separate companies for generation, transmission and distribution.
The year 2006 marked a high point in the government's privatisation drive. For the first time, an operational power company - the Al-Rusail Power Company - was privatised through a 100 per cent share sale. The company owns natural gas-based 668 MW open cycle plant which is linked to the Main Interconnected System (MIS) via a 132 kV transmission line. This was in fact the first 100 per cent sale of an operational generation asset in the Middle East. The move set the pace for the privatisation of more power companies in Oman.
Oman's electricity sector comprises three separate market segments - the MIS in north Oman, the rural systems, and the Salalah Power System. The Oman Electricity Transmission Company (OETC) is the monopoly provider of transmission services to the MIS, which accounts for about 90 per cent of the total electricity supplied in the country. OETC owns and operates the 220 kV and 132 kV interconnected transmission system in the north of Oman. As a transmission system operator, it is responsible for the central despatch of generating and desalination facilities connected to the MIS.
The Rural Areas Electricity Company SAOC (RAEC) has the licence to generate, distribute and supply electricity to customers in its authorised area, where the transmission network of the MIS is not present. The electricity supplied to most of RAEC's 60 rural systems is generated at diesel-based facilities, though for some rural systems RAEC purchases electricity from Petroleum Development Oman (PDO).
Dhofar Power Company SAOG (DPC) is responsible for generation, transmission and distribution of electricity in the Salalah concession area. On the distribution front, MIS has three distribution companies - the Muscat Electricity Distribution Company, Majan Electricity Company and Mazoon Electricity Company. These three have a monopoly right to distribute and supply electricity within their licence areas.
Having successfully privatised power generation, Oman is now moving ahead with plans to privatise OETC. This would be the first time that a transmission company is privatised in the Middle East. The Omani government is also considering privatising the three distribution companies in the future.
According to the privatisation plans, private investors will have the right to secure 100 per cent equity in OETC. However, they will be required to subsequently offer at least 35 per cent of the equity to the public through the local capital markets.
The Omani government has appointed consulting firm KPMG to oversee the privatisation of OETC. The request for proposal, inviting potential international bidders to submit expressions of interest, was expected to be floated in the first quarter of 2009. But the global financial crisis seems to have delayed the plans. Nonetheless, the government is hoping to complete the privatisation in 2010.OETC system
OETC has the licence to undertake all regulated activities of electricity transmission and despatch at voltages of 132 kV and 220 kV. The existing transmission system extends across the whole of northern Oman and interconnects bulk consumers and power generators located in Muscat and in the regions of Batinah, Dhahirah, Dakhliyah and Sharquiya. The OETC system comprises about 600 circuit km of 220 kV and about 2,700 circuit km of 132 kV transmission lines.
The transmission system is supplied with electricity from generating stations located at Ghubrah, Rusail, Waddi Jizzi, Manah, Al Kamil, Barka and Sohar. The three distribution companies take the bulk of the power transmitted through the transmission system using 220/132/33 kV and 132/33 kV grid stations. In addition to the distribution companies, four large private customers are directly connected to the transmission system. Three of these (and two others that will soon be connected to the transmission system) are located in the Sohar Industrial Area, while the other private customer (OMIFCO) is connected at the other end of the system at Sur.
OETC's transmission system
Overhead transmission line length (ct. km)
Underground cable length (ct. km)
Transformer capacity (MVA)
Transmission substations (no)
Grid supply point substations (no.)
Source: OETC's Five-Year Annual Transmission Capability Statement (2008 - 2012)
OETC's transmission system is also interconnected with that of the PDO at 132 kV via a single circuit line that runs between Nizwa on the OETC system and Nahda on the PDO system. The energy transfer between OETC and PDO is managed so that the net annual energy transfer is around zero.
The OETC system is also interconnected at 220 kV from Al Waseet in Mahadah with the transmission system of the United Arab Emirates (UAE). Through this interconnection, it will form part of the Gulf Cooperation Council's (GCC) grid, phase one of which is under construction. Once complete, this regional grid will link the electricity supply systems of the six GCC countries - Kuwait, Saudi Arabia, Bahrain, Qatar, the UAE and Oman. The project is expected to provide better security of power supply and generate benefits to the member countries in terms of cost savings by sharing reserve capacity and energy resources. Oman will join the grid in the second phase and will have an interconnection capacity of 400 MW.
The demand for electricity in OETC's grid is estimated to increase at an average 10 per cent per annum over the period 2008-12. This projection is driving many grid reinforcement and expansion projects. Implementation of these system development projects is expected to increase the number of 220/132 kV grid stations from six to 11 before the summer of 2011, adding a substation capacity of 2,500 MVA. The number of 132/33 kV grid stations will increase from 31 in service at the end of 2007 to 45 by the summer of 2011. For the first time, OETC plans to install 220/33 kV and 132/11 kV substations at Blue City and Azaiba Coast. If a private owner is in place by 2010, it will be the new owner's responsibility to undertake these projects.
Privatisation is now Oman's official policy. But while opportunities abound in Oman's power sector, there are several apprehensions. Concerns have been expressed over the legislative and political environment in Oman and more so in the Middle East as a whole. But in Oman, there seems to be no absence of political will as demonstrated by the government's bold steps towards privatisation. Oman's adoption of a whole system approach in implementing comprehensive privatisation legislation is also believed to have raised confidence in the private sector.