Interview with

Paddy Padmanathan

President and CEO of

ACWA Power

Saudi Arabia's power and water sectors have long been a government affair, closed to the private sector whose involvement remained limited to construction and providing equipment. By the early 2000s, says Paddy Padmanathan, President and CEO of ACWA Power, this situation had become untenable. “There was an enormous need to increase both power generation and water desalination capacity. The previous 15 years had seen little investment in the sector, so there was already a backlog. Moreover, a large increase in demand was projected due to the fast population growth as well as the increasing industrialization of the country.”

In 2003, then Saudi king Fahd took an initiative to transform the Saudi economy by increasing private participation through progressively opening up 24 sectors of the economy, starting with water and power. “The idea was that water and power should be treated like any other commodity and therefore be completely financed, owned and run by the private sector in the future,” says Padmanathan. “The role of the government was to be limited to regulating and providing a level playing field.”

Of course, achieving this goal will take some time, but in 2004 the process was kick started by Royal Decree 523 establishing a central buyer, the Water and Electricity Company (WEC) to buy bulk water and power from the private sector and sell it on to consumers. Periodically reviewing the progress made, the government started to realize that to prevent monopolization and guarantee a level playing field, some structural components of the sector should remain in the hands of the state. “Out of the three main components – production, transmission to distribution points, and distribution to end consumers – the government decided to retain control over the transmission component. The line connecting the production facility to the distribution point, shared by the various providers, will remain state-owned,” explains Padmanathan.

ACWA Power International itself was founded in 2005, “as a basic company intending to be a platform to build capacity and grow to be a full-fledged brand and company. Our main challenge from the start was human resources: attracting people with expertise and international renown in the sector, which was hard in the beginning. To start with, we ourselves were a new and unknown company, and secondly KSA is one of the least known and most misunderstood countries in the world.”

Yet the company – and thus the government's program of controlled privatization - has been extremely successful, contends Padmanathan. “The evidence is there – out of 43,000 megawatts (MW) of installed capacity in the kingdom, just fewer than 6,000 is in the hands of the private sector already, after only 6 years. That is 11.5%.” In fact, ACWA – who remains the sole private provider until now - has another plant under construction which will produce another 1,200 MW when it comes online. Additionally, the company's desalination plants produce 2.3 million m3 of water, – out of 6 million m3 available in KSA, or a solid 35%. Its combined portfolio reaches a value of SAR 45 bn. Says Padmanathan: “In fact, we make a significantly higher contribution than the mere percentages suggest, as all of this is new capacity catering to a pent-up demand which had been restraining economic growth earlier, and so has a much higher consequential impact.”

Investors take note: the company will be going public with its share too – and you might want to put your money there: “We need to expand from 43,000 megawatts to 75,000 in 2020 and 105,000 megawatts in 2030, so an enormous amount of capital needs to be injected in the sector, which is known as a low-risk sector delivering a dependable long-term stream of revenues.”