Oman Water Report Q1 2011

Report Summary

Oman’s limited water resources have led the country to focus on the development of desalinated water. It is undoubtedly the pioneer of independent power and water projects (IWPPs) in the region, with five major IWPPs on its books.

Agriculture accounts for 93% of water use in Oman, and there are no plans to divert water away from this relatively unproductive resource. Instead, the sultanate has focused on desalination of seawater to boost supplies to fast-growing urban areas.

According to state-owned Oman Power & Water Procurement Company (OPWP) demand for desalinated water will rise from 22.5bn gallons a year in 2008 to 53.5bn gallons a year in 2015. According to OPWP, Oman requires an extra 31mn gallons per day (g/d) of desalination capacity.

The efficient manner in which Oman has focused on boosting water supply should yield a steady dividend over the next five years. BMI anticipates a steady increase in water produced, with the Muscat governorate showing the strongest rise – boosting capacity from 22,547mn gallons in 2010 to 25,53mn gallons by 2015. There will also be a hike in the number of connections to the water supply system, another key strategic move by the Omani authorities, with Muscat gaining nearly 50,000 more connections over the 2010-2015 period.

The business climate in Oman has been favourable for foreign investors. Major developers of IWPPs include Suez Energy, International Power, AES, and Omani and Gulf Co-operation Council (GCC) investors, which have all been attracted to the country’s open, transparent and investor-friendly business environment.

The authorities have been rethinking large parts of their IWPP ambitions in 2010; while Duqm IWPP is no longer to have a coal-fired element, the planned Ghubrah IWPP looks set to lose its power plant, leaving it a water only project with expected capacity of 45mn g/d.

The government’s view is that the market is not yet ready for a sale of the state’s interest in the OPWP. Neither does it anticipate moves to fully deregulate the sector and remove OPWP’s monopoly on the sale of water. Though some customers would benefit from the implementation of this measure, the government argues it would imply a significant change to the risk allocation of existing contracts for power and water purchase agreements.

The eighth five-year plan, 2011-2015, will see investment directed towards the overhaul of ageing transmission lines and pumping infrastructure. New capital will be made available to meet the requirements of new urban areas. Around 20 projects worth US$780mn are in the tendering process. This will see resources focused on small-scale desalination plants to serve emergency water reservoirs in Muscat Governorate, as well as Duqm port city and other governorates.

Demand for desalinated water is projected to more than double over the next seven years from 132.9mn cubic metres (m3) a year in 2009 to 320.6mn m3 by 2016, according to a study released in June 2010 by OPWP. The projections, based on a seven-year (2010-2016) demand outlook forecast a 13% increase in annual average consumption growth over this period.

Muscat is also taking a strategic perspective over the management of its water sector, awarding a contract to France’s Veolia Water in Q410 to provide management services to the Public Authority for Electricity and Water (PAEW). The strategic relationship will assist PAEW to reduce the country’s overreliance on groundwater resources. The OMR 17mn contract aims to enhance distribution and supply efficiency and support aid supplies to underserved areas of the sultanate.