Oman IPP Project
Sojitz to Become a Major Player in IPP Development - Power to Ensure Sustainable Growth of the Emerging Economies -
*Affiliations and titles are current as of the time of the posting of this article.
In May 2010, an international consortium that includes Sojitz Corporation, Shikoku Electric Power Co., Inc. (YONDEN), GDF Suez, Suhail Bahwan Group and Public Authority for Social Insurances successfully acquired investment rights to two IPP projects in Oman in the Middle East. This is the first time for Japanese companies to participate in IPP projects in Oman. The road to ultimate success involved many twists and difficulties.
Restoring Sojitz as an IPP Leader
IPP stands for Independent Power Producer. It refers to independent power projects where electric power is sold on a wholesale basis. The IPP market is expanding in conjunction with increasing demand around the world and a growing trend towards liberalization of the power sector. Many trading companies are reinforcing their efforts concerning power projects as a leading business segment in a nonnatural resource field.
Sojitz was involved in many IPP projects starting in the early 1990s, and played a pioneering role among Japanese general trading companies. In the late 1990s, however, Sojitz went through a difficult period of streamlining its assets and divested many power assets.
With a view to regaining its previous position as a major IPP player, activities were recommenced when Nissho Iwai and Nichimen merged in 2004 to create Sojitz. Later, however, Sojitz faced many difficulties. Sojitz bid on many projects but suffered setback after setback and was not successful with any of the bids. Sojitz was yet been prepared for those challenges in the new market, and subsequently faced the slowdown of the market after the Lehman Shock.
Bidding on IPPs requires substantial cost and time, but it all comes to nothing if the bidder cannot win the award. Losing bids could not be tolerated. Submitting a bid for the Oman IPP came at this critical moment.
Suitcase Used as "Envelope"
With the strong hope of bidding successfully, Sojitz approached GDF Suez, the France and Belgium based world’s most experienced developer, about establishing a consortium. The two have been in a competitive relationship on other projects several years earlier, but since then, a deepening relationship of trust had developed. A consortium with Sojitz and YONDEN from Japan was established to combine Suez’s development capabilities with Japan’s technologies.
The bid submission deadline was 10:00 a.m. on December 8, 2009. The project members, who spent several months at Suez’s office in Dubai, worked preparing through the night for many days to prepare the bid proposal. They stretched out in the office for brief periods of sleep and became extremely fatigued. The partners repeatedly debated how to submit a competitive bid while balancing the risks they had to take, and the proposal was finally completed at 3:00 a.m. on the due date. There were no more flights available, so the project members left to make the five-hour overland trip to Muscat in two cars, and just made the submission deadline. A set of the bid documents filled a large suitcase. The name of the addressee was written directly on the suitcase, which served as an envelope.
Later, fierce competition with other bidders and negotiations with the government of Oman, the off-taker of the electric power, were successfully overcome, and a notice of award was received six month later in May 2010. After six years of struggle, this marked a major step forward for Sojitz to come back as a major IPP player. This pleased the team members more than anything else.
The project consists of Barka 3, located 75 km to the west of Muscat, the capital, and Sohar 2, located 240 km to the west. Construction of two gas turbine combined cycle facilities with capacity of 744 MW each started at both sites in September 2010. Construction is currently ongoing, and commercial operations are scheduled in April 2013.
Growing GDP Pushes Demand for Power Up
Since the start of oil production in 1967, the Oman economy relied primarily on income from crude oil. However, the government has been encouraging domestic industries through foreign investment to eliminate this reliance in oil and has been actively promoting the privatization of state enterprises. The introduction of IPP projects by international consortiums is one aspect of these efforts, but the first participation in an IPP project in Oman by Japanese companies, namely Sojitz and YONDEN, is extremely significant for the following reasons.
The northern tip of Oman, which is located at the southeast end of the Arabian Peninsula, touches on the Straits of Hormuz, through which approximately 80% of oil imported by Japan passes through. Maintaining good relations between Japan and Oman is essential for Japan’s energy security. Because of this, Japan has been providing technical and economic cooperation to Oman. The introduction of Japan’s world-leading technology and expertise relating to the stable supply of electric power on a private basis will contribute to economic development in Oman and advance friendly relations between the two countries.
Currently, electric power demand in Oman peaks at approximately 3,500 MW during the summer. Oman is seeking to diversify its economy with the aim of reducing reliance on oil and gas, and power demand is expected to grow by nearly 10% annually. This means that one Barka 3 or Sohar 2 class power plant (generating capacity of 744 MW) will have to be built every two years.
“GDP growth and growth of electric power demand match perfectly in any country of the world.” A member of the project team pointed this out while explaining the importance of stable power supplies for economic development.
Building on a Foundation of Plant Business Experience
Takuji Asano, Manager
Section 3, Plant & Infrastructure Department 1, Sojitz Corporation
The section has two teams that work on IPP projects around the world and plant and EPC (engineering, procurement, and construction) projects in the Middle East. Specific projects include construction of plants for generating power, steel production, and aluminum smelting and delivery of facilities and equipment for various types of plants. To us, IPP businesses are not simply investments, but are positioned to make use of the expertise that we have accumulated on foundations built through many years of experience in the plant business as a trading company.
For Japan to expand its presence in the global economy, it will have to actively contribute to the sustainable growth of resource-producing countries and emerging market countries to create structures for the mutual return of the benefits generated in those countries. We believe that IPP projects are a business scheme that will contribute to long-term relationships between Japan and the host countries.