Sunday, August 27, 2006

Powering Up

To meet demand growth, Jordan will to require 100-150 megawatt annually. But how is Jordan managing it terms of electrification today Oula Al Farawati met with General Manager of the National Electric Power Company (NEPCO) for an overview of the power sector.

Ahmad Hiyasat of NEPCO has many reasons to feel proud. He says the country has reached 100% electricity coverage for populated areas, enjoys the minimum interruption rate and more importantly has managed to keep the prices of electricity stable despite a surge in fuel prices locally and internationally.

Thanks to a policy that depends on using alternative power resources such as natural gas, a system of importing electricity when buying it becomes more feasible and a continuously improving distribution grid, Dr. Hiyasat says Jordanians enjoy what many in industrialized countries don’t.

Dr. Hiyasat says that while fuel prices in Jordan are affected by international oil prices but explains that the effect is not linear. The fact that Jordan has moved from a total dependence on heavy fuel and diesel to generate electricity to using natural gas has helped stabilize the prices and ensure "cleaner" power generation.

"Now, only 20% of our power generators use heavy fuel or diesel. The other generators in Aqaba Thermal Power station (which generates 40% of Jordan's needs) plus Rihab and Samra plants use Egyptian natural gas. So together they make some 75% of our needs. The good news is that the increase in fuel prices will slightly affect electricity generation," Dr. Hiyasat told Jordan Business..

"We buy 7-10% from Syria and Egypt and the price of electricity in this case is calculated according to international oil price, but also not in a linear way and that is what is helping us keep the prices at reasonable rates," he notes.

The electricity sector in Jordan ranks first in primary energy consumption. Its consumption share stood at 34.1% of the total energy consumption in 2005.
The story of power generation in Jordan dates back to 1938, when a group of entrepreneurs established a small company to provide electrical energy to Amman. This company was converted in 1947 into a shareholding company called the Jordan power electricity company (JEPCO) and was granted a concession to generate and distribute electrical energy in Amman and its suburbs. JEPCO's concession was renewed in 1962 for fifty years and was extended to cover four governorates in the central part of Jordan including Amman. JEPCO is a private share-holding company with 57% of the shares held by private individuals. It supplies electricity to about 64% of the total electricity consumers. It buys all its bulk power from NEPCO (former JEA). In 1961, another privately owned electrical power company called Irbid District Electricity Company (IDECO) was established to generate and distribute electrical energy in the northern part of the country. IDECO is a share-holding company with 85% of the shares held by NEPCO and some municipalities. It supplies electricity to about 23% of consumers. In the southern part of the country, electrical energy was provided by several municipalities through small unreliable diesel engines.
In 1967, the government established the Jordan Electricity Authority to be responsible for electricity generation and distribution in areas not covered by the private distribution companies. In September 1996, JEA was converted to a public shareholding company wholly owned by the government called NEPCO.

Natural gas
With the completion of phase two of the pan-Arab Gas Pipeline Project, CEJCO decided to switch to natural gas instead of heavy fuel to fire its power generators. The use of natural gas, according to officials, has raised the efficiency of the two major power plants in the north Rihab and Samra by 50%. The Aqaba Thermal Power Station started operating using natural gas two years ago, when the first phase of the project was completed. According to the project conditions, Egypt will supply Jordan with natural gas at preferential prices for 15 years. (The price does not go above a ceiling no matter how much the price of natural gas rises internationally).

NEPCO also recently renewed a power purchasing agreement with Egypt that gave the company price cuts and an obligation to supply the Kingdom with electricity whenever needed. According to Dr. Hiyasat, the cost of importing power from Egypt can sometimes be cheaper than firing some of the turbines on diesel oil.

Dr. Hiyasat said the Egyptians have lowered their margin from 5% last year to 3% this year while another margin on the price of electricity during the morning and night tariff has also been cut.

Private sector power
Dr. Hiyasat said the year 2007 will witness Jordan's first privately owned power generating plant: "The policy of the government is that any new [power] generation should be carried out by private investment […] the electricity Regulatory Commission is considering the offers to choose the first independent power producer (IPP) to be operational by the year 2007," he said.

Industry sources said the government last month started negotiating with front-runner Mitsui AES, a Japanese American group, to build the country’s first power plant.

Dow-Jones Wire quoted a Mitsui spokesman as saying that the power plant will cost $280 million. He said that the 400,000-kilowatt power plant, to be constructed near Amman, will run on natural gas supplied via the Pan-Arab Gas Pipeline.

The two companies expect the power plant to start operation in June 2008 and supply electricity to Jordan state-run NEPCO for 25 years, he added.

AES will have a 60% stake in the project, with Mitsui holding the remaining 40% stake. Loans from the U.S. and Japanese state-backed financial institutions, as well as Japan's Sumitomo Mitsui Banking, will finance 75% of the project, the spokesman said. The World Bank will back Sumitomo Mitsui's loan.

"The need for private sector investment in this sector is a result of the increased need for electricity for domestic and industrial use... Our need for electricity grows by 100-150 megawatts every year. Also, recently the increase in our need for electricity has grown from 7% annually to 10%," he added.

He attributes the increase in consumption to economic growth and therise in standards of living.

"We have more and more factories and more tourism... Add to that that many people have increased their electrification... people are buying more and more electrical appliances. In order to meet this increase we have to plan more power generation [...] and networks in order to guarantee the quality of services," he said.

The demand for electricity has continued to rise. In 2005 the total peak load was 1751 megawatts compared 1555 megawatts in 2004, an average increase of 12.6%.

Dr. Hiyasat explained that Jordan has a unified power system meaning that any new company will not supply power to people directly but rather contribute to this system.

"According to the electricity law, NEPCO is the single buyer... NEPCO is the only party authorized to buy electricity from all available sources and sell it to large consumers who are the three distribution companies plus big industries including the cement, potash, and phosphate factories," he said.

The prices from the IPP should be reasonable and compatible with what is available here. This will be our first experience… We will see how things go."

As for how the future looks like for the power sector, demand will continue to rise, according to Hiyasat. The sector has not been able to export outside Jordan.

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