Saudi Electricity Company has awarded contracts for South Korea's Hyundai and Japan's Mitsubishi to build and supply equipment for a large power plant in Jeddah.
Hyundai Heavy Industries Co. Ltd has received a $3.2 billion order to build a power plant from state-owned Saudi Electricity Co., a person with direct knowledge of the matter said Tuesday, helping the world's No. 1 shipbuilder by sales further diversify its sources of revenue as its main business falters.
Hyundai Heavy Industries (HHI) will build the 2,650-megawatt power plant known as Jeddah South, while Mitsubishi Heavy Industries (MHI) will supply equipment for the oil-fired plant.
Hyundai Shipbuilders, which are suffering a slump in orders from Europe as the region's debt crisis takes a toll, are now focusing more on other businesses to help meet their order targets for the year.
The latest deal marks the biggest order Hyundai Heavy Industries-which has interests across seven business sectors, including building power plants and offshore facilities--has received so far this year.
"Hyundai Heavy will build a 2,640-megawatt thermal power plant near the Red Sea, 70 kilometers south of Jeddah, over the next 48 months for the Saudi Arabian state-run company," the person told Dow Jones Newswires by telephone. "The Saudi company will pay the order without any financing."
The order comes amid a 9.7% on-year decline in the value of orders received by South Korean companies for building power and petrochemical plants and oil-exploring offshore platforms to $37.4 billion in the three months ended Sept. 30, data by the Ministry of Knowledge Economy showed Tuesday.
For Hyundai, the deal is especially significant since it has achieved only 38% of its overall order target of $30.552 billion at the end of August as clients have run into financing problems due to the European debt crisis.
Analysts say Hyundai is not likely to achieve the overall order target but the company is on track to exceed its order target of $5 billion to build power and petrochemical plants, a sharp jump from the $1.01 billion of orders it received last year.
"In the fourth quarter, Hyundai is likely to win the Brass LNG terminal construction order worth more than $6 billion in Nigeria in the consortium with Hyundai Engineering & Construction," Hur Sung-duck, a shipbuilding analyst at HI Securities, said.
The construction of the plant means Saudi Arabia, the world's largest crude exporter, will continue to burn millions of barrels a week of oil for power generation for years to come.
But SEC expects the more efficient plant, to burn much less fuel oil per unit of electricity produced
"We are using for the first time in the kingdom super critical boilers which have a higher efficiency, reaching up to 40 percent efficiency in fuel consumption," SEC's chief executive Ali bin Saleh al-Barrak told Reuters in an interview.
SEC said in a bourse statement earlier on Monday that it had approved the award of an 11.96 billion-riyal ($3.12 billion) contract to build the plant but did not identify the winner.
The contracts for Jeddah are expected to be signed in the next few weeks, with contracts to build a similar-sized oil fired power plant at Shuqaiq awarded in late 2013, Barrak said.
Technical bids for the 2,600 MW Shuqaiq, a super critical fuel oil plant fitted with sulphur removing technology, are due in the first quarter of next year, Barrak said.
The state-run company also plans to spend around $35 billion on high voltage power lines, with another $25 billion spent on distribution networks over the next 10 years.
SEC has an installed capacity of 54,000 MW and will add around 4,000 MW over the next 12 months to help meet rising demand, with another 8,000 MW of capacity to be added in 2014.
Fox Business, Reuters