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Dubai Expo 2020 2020 Projects Projects Report A comprehensive comprehensive overvi overview ew of the the project opportunities in Dubai in the run-up to the 2020 Expo A MEED MEED Ins Insigh ightt repo report rt

Table of contents Table of contents ............................................................................................................................................. 2 List of tables .................................................................................................................................................... 4 List of figures ................................................................................................................................................... 5 1.

Preface .................................................................................................................................................... 6

2.

Executive summary ................................................................................................................................. 7

3.

The Political Context ............................................................................................................................... 9 3.1 History ..............................................................................................................................................9 3.2 Government....................................................................................................................................11 3.3 Foreign relations ............................................................................................................................13 3.4 Financial crisis ................................................................................................................................ 13 3.5 Dubai ..............................................................................................................................................15 3.5.1 The historical context ............................................................................................................ 15 3.5.2

4.

Expo 2020 ............................................................................................................................. 17

Economy ............................................................................................................................................... 19 4.1 Economic impact ............................................................................................................................19 4.1.1 Job creation ........................................................................................................................... 20 4.2 The UAE economy .........................................................................................................................20 4.2.1 UAE Federal budget .............................................................................................................. 22 4.3 Dubai economy ..............................................................................................................................23 4.3.1 Travel and tourism................................................................................................................. 23

5.

4.3.2

Dubai’s budget ...................................................................................................................... 24

4.3.3

Debt ....................................................................................................................................... 25

4.3.4

Banking ................................................................................................................................. 25

4.3.5

Post Expo 2020 risks ............................................................................................................ 26

Dubai Projects Market ........................................................................................................................... 28

5.1 The UAE and regional context .......................................................................................................28 5.2 Dubai ..............................................................................................................................................31 5.3 Sector analysis ...............................................................................................................................33 5.4 Top contractors ..............................................................................................................................35 5.5 Future projects ...............................................................................................................................36 5.6 Forecast .........................................................................................................................................39 6. Construction .......................................................................................................................................... 42 6.1 Expo 2020 Preparatory Committee ................................................................................................42 6.2 The Expo site .................................................................................................................................43 6.3 Leisure and tourism ........................................................................................................................45 6.3.1 Tourism ................................................................................................................................. 45 6.3.2

Leisure facilities ..................................................................................................................... 49

6.4 Transport infrastructure ..................................................................................................................51 6.4.1 Metro ..................................................................................................................................... 51 6.4.2

Rail ........................................................................................................................................ 53

The Dubai Expo 2020 Projects Report

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6.4.3

Ports ...................................................................................................................................... 56

6.4.4

Aviation .................................................................................................................................. 56

6.4.5

Roads .................................................................................................................................... 60

6.5 Real estate .....................................................................................................................................63 6.6 Preventing another bubble .............................................................................................................67 6.7 Funding .......................................................................................................................................... 67 6.8 Disputes .........................................................................................................................................68 6.9 Construction costs ..........................................................................................................................69 7. Power & desalination ............................................................................................................................ 71 7.1 Power .............................................................................................................................................71 7.1.1 Existing facilities .................................................................................................................... 73 7.1.2

Fuel and alternative energy ................................................................................................... 76

7.1.3

Renewable energy ................................................................................................................ 78

7.1.4

Transmission and distribution ............................................................................................... 79

7.2 Desalination....................................................................................................................................80 8. Wastewater ........................................................................................................................................... 83 8.1.1 9.

TSE ....................................................................................................................................... 84

Industry.................................................................................................................................................. 86

9.1 Aluminium....................................................................................................................................... 87 9.2 Cement ...........................................................................................................................................88 9.3 Other industrial projects ................................................................................................................. 89 10. Appendix A –Dubai’s transport links ................................................................................................. 90 ...................................................................................................................................................................... 90


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List of tables Table 1: The UAE government and cabinet .................................................................................................. 11 Table 2: UAE oil production .......................................................................................................................... 21 Table 3: UAE key economic data .................................................................................................................. 21 Table 4: Foreign Direct Investment ............................................................................................................... 22 Table 5: Dubai GDP growth (percentage) ..................................................................................................... 23 Table 6: Dubai GDP by sector, 2012 (percentage) ....................................................................................... 23 Table 7: Dubai budget 2013 core principles ................................................................................................. 25 Table 8: Total Dubai debt - maturing bonds and syndicated loans .............................................................. 25 Table 9: Annual change in credit (%) ............................................................................................................ 26 Table 10: Annual change in deposits (%) ..................................................................................................... 26 Table 11: Dubai top 20 largest projects under execution ............................................................................. 34 Table 12: Top 20 un-awarded projects in Dubai by net value ...................................................................... 38 Table 13: Top 30 Dubai projects due to be awarded in 2014 ....................................................................... 39 Table 14: Top 30 Dubai projects due to be awarded in 2015 ....................................................................... 40 Table 15: Dubai hotel sector performance .................................................................................................... 45 Table 16: Dubai room supply as of 5 January 2014 ..................................................................................... 46 Table 17: Abu Dhabi room supply as of October 2013 ................................................................................. 46 Table 18: Dubai hotel room supply ............................................................................................................... 47 Table 19: Dubai hotel projects planned and under way ................................................................................ 48 Table 20: Dubai theme parks planned and under way ................................................................................. 50 Table 21: Dubai Mall projects planned and under way ................................................................................. 51 Table 22: The existing Dubai Metro .............................................................................................................. 53 Table 23: Contracts won at Al-Maktoum International airport....................................................................... 57 Table 24: Dubai International airport timeline ............................................................................................... 58 Table 25: Dubai road and bridge projects planned and under way .............................................................. 63 Table 26: Dubai planned mixed-use and residential projects ....................................................................... 66 Table 27: Dubai power sector key facts, 2012 .............................................................................................. 71 Table 28: Dubai existing power plants .......................................................................................................... 74 Table 29: Selected major power projects, 2005-13 ...................................................................................... 74 Table 30: Dubai’s targeted sources of generation, 2030 (%) ....................................................................... 78 Table 31: Dubai’s key transmission and distribution infrastructure, 2011 -12 ............................................... 79 Table 32: Existing desalination capacity in Dubai ......................................................................................... 82 Table 33: Dubai Municipality STPs, 2012 ..................................................................................................... 84 Table 34: Selected cement plants and production capacities in Dubai ........................................................ 88 Table 35: Dubai current and future industrial projects .................................................................................. 89


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List of figures Figure 1: Map of the UAE and the seven emirates ....................................................................................... 10 Figure 2: GCC total contract awards 2007-13 .............................................................................................. 29 Figure 3: Value of GCC contract awards by country, 2007-13 ..................................................................... 29 Figure 4: Breakdown of GCC contracts awarded by sector, 2009-13 .......................................................... 30 Figure 5: GCC contracts awarded by sector, 2009-13 ($m) ......................................................................... 30 Figure 6: Value of projects put on hold on cancelled in Dubai 2004-13 ....................................................... 32 Figure 7: Dubai contract awards 2003-13 ..................................................................................................... 32 Figure 8: Dubai contract awards by sector, 2005-13 .................................................................................... 33 Figure 9: Dubai contract awards by subsector, 2005-13 ($m) ...................................................................... 34 Figure 10: Dubai top 15 contractors by value of work awarded 2011-13 ..................................................... 35 Figure 11: Dubai value of planned projects by sector ($m) .......................................................................... 36 Figure 12: Dubai breakdown of planned construction projects by subsector ($m) ....................................... 37 Figure 13: Dubai top 10 future clients based on announced projects .......................................................... 38 Figure 14: Dubai projects market forcast 2014-2020 .................................................................................... 41 Figure 15: Location of the Dubai 2020 Expo................................................................................................. 43 Figure 16: Breakdown of Dubai hotel rooms by star rating ........................................................................... 47 Figure 17: Dubai metro map ......................................................................................................................... 52 Figure 18: The planned Etihad Rail map ...................................................................................................... 54 Figure 19: Dubai airport passenger growth ................................................................................................... 59 Figure 20: Dubai Island Projects ................................................................................................................... 65 Figure 21: UAE contract cost index .............................................................................................................. 70 Figure 22: Dubai peak demand growth, 2005-12 ......................................................................................... 72 Figure 23: Dubai peak power demand and installed capacity, 2005-12 ....................................................... 73 Figure 24: Dewa’s fuel bill, 2004 -08.............................................................................................................. 77 Figure 25: Annual growth in Dubai water demand, 2005-12 ........................................................................ 80 Figure 26: Installed desalination capacity and peak desalination demand, 2005-12 ................................... 81 Figure 27: Demand outlook for desalinated water, 2011-20 ......................................................................... 85

Copyright 2013 MEED Media FZ LLC All rights reserved. No part of this publication may be reproduced, stored in any retrieval system, or transmitted in any form, by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior permission of the copyright owner. While every care has been taken in completing this report, no responsibility can be accepted for any errors or omissions that may occur.


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1.

Preface

Until 2008, Dubai was the dominant projects market in the region. However, the crash of its real estate sector and the subsequent drying up of activity saw an exodus of contractors as they sought opportunities in new markets. The effects of this sudden slowdown are still being felt today. Yet the award of the 2020 Expo to the emirate has provided a strong stimulus for projects market growth. Combined with rising property prices, new project announcements and the reactivation of on hold projects, there is a renewed sense of optimism in the market. As a result, tor the first time in half a decade contractors, suppliers and consultants alike are again looking seriously at Dubai as a growth market. It will not be easy. Competition is intense, and funding options remain fairly limited. At the same time, the government is keen to avoid a repeat of the boom-bust conditions that enveloped the market in 2008. Nonetheless, the outlook for the Dubai projects market following the Expo award is stronger than it has been at any point in the past half-decade. In this latest MEED Insight report, we assess the impact of the 2020 Expo and the commercial and project opportunities it will bring, directly and indirectly. The report is the latest by MEED Insight, the research and consultancy arm of MEED, and thanks go to everyone who contributed to it. Ed James, Head of MEED Insight Dubai, January 2014


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4. Economy The announcement on 27 November 2013 by Paris-based Bureau International des Expositions (BIE) that Dubai had been selected to host the World Expo 2020 provided an immediate confidence boost to an economy that was already recovering strongly following the late 2008 global financial crisis and subsequent real estate crash. Concern had been growing that another bubble was forming in the emirate’s real estate and construction sectors, as property sales prices climbed by more than 20 per cent in the second quarter of 2013. News of the win immediately allayed those fears, lifting confidence in the sustainability of Dubai’s recovery.

“The main

sectors that will directly benefit from staging the event are the construction and hospitality industries”

With a major international event to host in 2020, economic growth is now expected to be more sustained. The Expo builds on the core sectors of Dubai’s economy, namely trade, tourism and transport and hosting the event will draw further investment into these areas. It will not just be Dubai’s economy that will benefit, neighbouring emirates, particularly Sharjah and Abu Dhabi, will also likely see an increase in visitors during the event, which will be held between October 2020 and April 2021. The UAE will also be celebrating the 50th anniversary of its founding in 1971, making 2021 a focal year for the entire country.

4.1

Economic impact

The potential direct economic impact of Expo 2020 on Dubai’s economy was detailed in the bid documents, which estimated that over the six months of the event, 25 million people would visit, with more than 70 per cent coming from outside the UAE. The cost of constructing the Expo site and related infrastructure (including extensions to roads and the Dubai Metro) was put at €5.2bn ($6.9bn) and it was said that more than 277,000 jobs would be created in the run-up. The total economic impact of staging the event was estimated at € 28.8bn. But with building work on the Expo site only expected to begin towards the end of 2015, the real boost to the economy is only expected from 2016 onwards. The main sectors that will directly benefit from staging the event are the construction and hospitality industries. For the construction sector, there is firstly the building work on the Expo site itself. This will involve the development of a 4.4square-kilometre plot at Dubai World Central (DWC) next to the new Al-Maktoum International airport in Jebel Ali. The work will include building 700,000 sq metres of pavilions and other venue space, and 500,000 sq m of permanent structures. But the impact will be much broader than this. Winning the event will also spur the wider development of the property industry. It was already recovering strongly, with many projects that had been derailed by the financial crisis being revived and new ones being launched over the past year. Those schemes will have been given fresh impetus by the 27 November announcement, and analysts expect in particular to see a step-up in activity to complete projects in the “new Dubai” end of the emirate. The construction sector


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will also benefit from a massive expansion in Dubai’s hotel capacity that is now expected to follow in order to accommodate the hoped-for 25 million visitors. Translated into Dubai’s gross domestic product (GDP) growth, the US’ Merrill Lynch forecasts a modest increase of 0.5 percentage points in 2016-19 and a more substantial 2 percentage-point boost in 2020-21. It estimates that the total boost to the economy over the 2015-21 period will be $23bn or 24.4 per cent. The UK’s Barclays has forecast the Expo win could boost Dubai’s economic growth to average 6.4 per cent a year from 2014 to 2016 and potentially to 10.5 per cent by 2020. Many of the major investments that will support Expo 2020 were already planned as part of the emirate’s Vision 2020 for economic development and were due to go ahead regardless of the win, but the victory adds to the government’s confidence in the sustainability of economic growth and will spur it to fast-track certain schemes.

4.1.1 Job creation Dubai’s bid documents estimated that hosting the Expo would create 277,000 new jobs by 2021, with 40 per cent in the travel and tourism sector and 30 per cent in the construction sector. Ninety per cent of the employment opportunities would be generated between 2018 and 2021. The documents also said for every Expo employee a further 60 additional jobs would be sustained in the wider UAE and regional economy.

4.2

The UAE economy

Expo 2020 will provide a lift to the non-oil economy across the UAE, particularly the travel, tourism and transport sectors, and is projected to see the UAE’s economy growing by up to 10 per cent a year by the end of the decade. Blessed with substantial oil and gas wealth, the UAE economy has traditionally been highly dependent on income generated from its natural energy resources, largely concentrated in the emirate of Abu Dhabi, the seat of the federal government. The oil sector has been particularly vital to the UAE economy over the past three years, as non-oil GDP struggled to recover from the 2009 global recession and debt crisis. But with volatility in global oil prices and Abu Dhabi’s oil production set to slow, the government is accelerating its long-term drive to diversify the economy. Based on current oil production levels, Abu Dhabi’s oil reserves will continue to be productive for another 90 years. But weaning the UAE economy off its dependence on energy exports is also intended to help the country become selfsustainable by the time it runs out of oil.


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Table 2: UAE oil production, 2011-18 2011 Exports of oil, oil products and gas ($bn) Average crude oil export price ($ a barrel) Crude oil production (million barrels a day)

2012F

2013F

2014F

2015F

2016F

2017F

2018F

111.6

118.1

115.5

116.0

112.8

110.6

109.7

109.9

109.6

112.0

108.1

101.5

97.3

94.1

92.0

90.9

2.6

2.6

2.7

2.8

2.8

2.9

2.9

3.0

F=forecast Source: IMF

Abu Dhabi’s oil sector will continue to be the mainstay of the UAE’s growth, but the emirate is expanding new sectors in parallel, such as science and technology, renewable energy and petrochemicals. It is also promoting itself as a regional centre for culture in order to attract larger revenues from tourists. Dubai, which hosts the world’s second-busiest international airport, is focused on growing its services and tourism industries while strengthening its transport and trade businesses. Table 3: UAE key economic data, 2011-18 Nominal GDP ($m) Real GDP growth (%) Real hydrocarbon GDP growth (%) Real non-hydrocarbon GDP growth (%) CPI inflation (average)

2011 349 3.9

2012 377 4.3

2013 387 3.6

2014 398 3.7

2015 414 3.8

2016 431 3.5

2017 450 3.4

2018 474 3.5

6.6

5.2

2.1

2.6

3.1

2.1

1.8

1.8

2.6 0.9

3.8 0.7

4.3 2.0

4.2 2.4

4.2 2.5

4.2 2.7

4.2 2.9

4.2 3.0

GDP=gross domestic product Source: IMF

The UAE’s GDP was about $377bn in 2012, slightly higher than in 2011, when it stood at $349bn. In 2013, GDP is forecast to rise further, to about $387bn, according to the US-based International Monetary Fund (IMF). In October 2013, both the IMF and UAE Economy Minister Sultan al-Mansouri projected GDP growth of about 4 per cent in 2013, a similar level to the previous year, with the oil sector growing by 2.1 per cent and the non-oil economy by 4.3 per cent. A slight increase in overall GDP growth was projected for 2014. But following Dubai’s Expo 2020 win in late November 2013, several leading economists revised up their GDP growth forecasts for 2014, with the main drivers being Dubai’s resurgence and the expansion of the non -oil sector. After the announcement, Egypt-based investment bank EFG-Hermes upgraded its 2014 forecast for real GDP growth in the UAE to 5.4 per cent from 4.5 per cent with the country projected to have the second-strongest real non-oil GDP growth in the region after Qatar. The bank estimates real non-oil GDP growth for the UAE at about 5-6.5 per cent until around 2015, increasing to about 6.5-8 per cent in 2016-18 and 8-10 per cent in 2019-20.


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5. Dubai projects market 5.1 The UAE and regional context The UAE projects market has experienced a momentous few years since the collapse of its real estate sector in 2008/09. Saudi Arabia overtook the UAE as the largest projects market in 2010, and the federation has seen declining levels of activity since then. Recently, however, the market has shown some signs of recovery, recording $26bn-worth of contracts in 2012 and $32bn-worth in 2013, ensuring that it remains the second-largest market in the GCC. The strength of the UAE and Saudi Arabia projects markets combined is significant. Together they accounted for a total of 73 per cent of all project awards in the period 2006-13. In the same period, the UAE awarded an estimated total of $350bn-worth of projects, representing 35 per cent of the total contract awards in the GCC. In fact, the value of awarded contracts in the UAE was 30 per cent greater than Bahrain, Kuwait, Oman and Qatar combined.

“The power,

water and transport sectors have been very resilient with almost $68bn-worth of contracts awarded since 2008”

Despite its historical strength, the UAE projects market has until recently been in decline since 2008. In 2011, the market experienced its worst performing year since 2005, when a little over $23bn-worth of contracts was awarded. The principal reason for the contraction in the market can be attributed to the collapse of the construction and real estate sector, particularly in Dubai. Following a total of $34bn-worth of construction-related contracts awarded in the UAE in 2008 alone, only $45bn-worth of similar deals was awarded in the period 2010-12. The collapse of the construction sector was offset by increased government expenditure in the oil and gas sector in 2009, when almost $28bn-worth of hydrocarbons contracts was awarded. This coincided with Seoul-based firms winning the majority of contracts in the oil, gas, power and desalination sectors. South Korean contractors have been making their presence felt in the region since. From a sector perspective, the largest over the past five years has been construction – despite its issues – with just over $75bn-worth of contracts signed, although only 12 per cent of that total ($16bn) was awarded in 2013, demonstrating the declining influence of the sector. Unsurprisingly, the power, water and transport sectors have been very resilient, with almost $68bn-worth of contracts awarded since 2008. As the UAE strides to provide infrastructure to keep up with its rapidly growing population and economy, there is an expectation that the volume of contract awards will increase in the future.


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Figure 4: Breakdown of GCC contracts awarded by sector, 2009-13 160,000 140,000 120,000 100,000 m 80,000 $

60,000 40,000 20,000 0 2009

2010

2011

2012

2013

Source: MEED Projects

Figure 5: GCC contracts awarded by sector, 2009-13 ($m) Water, 26,974, 4%

Chemical, 39,461, 6%

Transport, 144,203, 22% Construction, 215,847, 32% Power, 86,146, 13%

Oil, 77,427, 12%

Gas, 48,299, 7% Industrial, 26,072, 4%

Source: MEED Projects


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5.6

Forecast

While Dubai’s projects market has langu ished at between $5bn and $11bn-worth

of contract awards over the last five years, the general expectation is that there will be considerable growth over the years ahead. The 2020 Expo has provided confidence and impetus to this optimism. However, it should be noted that a revival in the market’s fortunes was already evident prior to the award

announcement. Rising property prices and major project launches such as the Mohammed bin Rashid City schemes, the extension of Dubai Creek and Al-Habtoor City gave credence to the view that the Dubai projects market had recovered and was on the path to growth again. Regardless of whether the Expo had been awarded to Dubai or not, the market would have likely grown in any case. That said, there are specific projects directly associated with the Expo, such as the site infrastructure and additional hotel rooms required, that will contribute to the long-term project pipeline. For real estate investors too, the Expo win will perhaps have provided the additional push required to proceed with their projects. The MEED Insight forecast for the Dubai projects market anticipates significant future growth on a year-by-year basis. For 2014 alone, there is visibility on more than $27bn-worth of projects that are scheduled to be awarded this year. Of this, there is $9.5bn-worth of projects currently under bidding. Table 13: Top 30 Dubai projects due to be awarded in 2014 Project Meydan Sobha - MBR City - District One Meraas Holdings - Dubai Theme Park Nakheel Corporation - Al-Furjan Development: Villas Drydocks World - Water Discus Hotel Emaar - Downtown Dubai: The Address Residence Fountain Views Link Global Group - Falcon City: The Taj Arabia Dubai Municipality - Deira Market Face Lift (Deira Souq) Dubai RTA - Sixth Creek Crossing Dubai Health Authority - Expansion of Rashid Hospital Zabeel Investments - Porto Dubai Dubai Holding - Madinat Jumeirah Expansion Phase 4 Iris - Dubai Maritime City: Iris Mist Nakheel - Palm Jumeirah: Nakheel Mall DEWA - Hassyan Coal Fired Power Plant: Phase 1 Nakheel - International City: Warsan Village Kensington - Dubai Maritime City: Kensington Krystal Meraas Holdings - Phoenix Mall Sobha Real Estate - MBR City : Sobha Lifestyle Emaar Properties - Downtown Dubai - Westside Phase 1 Nakheel - Palm Jumeirah: Palm Mall Hotel Dubai Municipality - Jebel Ali Sewage Treatment Plant : Phase 2 Xtreme Visions - Business Bay: Volante Damac Properties - Downtown Dubai: Prive by Damac Meydan - Entisar Tower Dubai International Real Estate- Jewel of Creek Development:


Contract value ($m) 3,000 2,722 2,000 1,500

Status Design Main contract PQ Design Study

1,200 1,000 817 817 816 700 680 680 680 650 600 545 544 500 436 408 400 400 367 350 300

Main contract bid Design Study Study Design Study Main contract bid Design Main contract bid Study Main contract bid Design Study Design Main contract bid Design Design Design Study Design Main contract bid

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There are also plans to extend the Red and Green lines. The RTA is expected to appoint an external adviser to explore its options for funding the extension of the Red and Green lines in early 2014.The appointed adviser will look at the possibility of raising funding from banks and other private sources to finance the project, and whether the extensions could be structured as a PPP. It will also be asked to look at the possibility of using the PPP model to develop commercial space around three existing stations on the metro. Funds raised from this would then be used to help finance the metro line extensions. In addition, there are also plans to link Dubai Metro with the federal rail network being built by Etihad Rail. A railway station will be built in the Meydan area and the RTA is currently reviewing plans internally for a metro line that would connect the station with the Bur Dubai area. “

There are also plans to link Dubai Metro with the federal rail network being built by Etihad Rail ”

In January 2013, Mattar al-Tayer, the chairman of the board and executive director of the RTA (and also member of the Expo 2020 Preparatory Committee) confirmed that three new metro lines – Blue, Gold and Purple – would be up and running by 2030 and that the current Red and Green lines would be extended. The expansion of the metro will be carried out in three phases – 2020, 2025 and 2030. The first phase will see the construction of a 24.1km-long corridor with 12 stations. The Green line extension will connect Jadaf to Dubai Academic City with 11 stations, covering a distance of 20.6km. This will bring Dubai’s metro network to a total length of 1,009km with more than 70 stations. Work on phase 2 is estimated to cover 91km with 58 stations and cost an estimated AED45bn. Once Dubai’s urban population hits an estimated 4.5 million by 2025, work on the Gold and Purple lines is to begin. By 2030, there will be an assessment of the completed projects, and depending on the passenger uptake of the metro lines, work on the final phase will begin. If the emirate’s population exceeds 6 million, a further 221km of lines and 69 stations could be added.

Table 22: The existing Dubai Metro Red line Elevated section length (km)

Green line 44.1

14.6

Underground section length (km)

4.7

7.9

At grade section length (km)

3.3

0

52.1

22.5

Number of stations

29

18

Travel time (minutes)

67

37

Total length (km)

Source: MEED Insight

6.4.2 Rail About 30 per cent of visitors to the Expo are expected to come from within the UAE. Many of those might choose to travel from neighbouring emirates using the federal railway, which is due for completion in 2018. Etihad Rail is developing a 1,200-km national rail network, which will link major industrial and urban centres across the UAE as well as providing onward links to planned lines in Saudi Arabia and Oman. The early focus was on developing the


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7.

Power & desalination

7.1

Power

Table 27: Dubai power sector key facts, 2012 Installed capacity (MW) Peak demand (MW) Peak demand growth (%) Installed capacity requirement by 2020 (MW)

9,646 6,637 7 14,840

Source: MEED Insight

Dubai’s success in winning the right to host the Expo 2020 will result in a number of infrastructure and real estate projects that stalled during the recession starting up again, and will ensure that a number of previously proposed schemes such as the extension of Dubai metro and full expansion of the new Sheikh Maktoum airport go ahead. The government’s forecast that Expo 2020 will create 277,000 new jobs over the next seven years should also lead to sharper population growth, and, as a result, greater demand for power. In addition to the demand from an increased population, it is estimated that over 25 million visitors will attend the Expo event, with 70 per cent of these foreign arrivals. As a result, Dubai is planning to double the emirate’s current hotel capacity, which will put an unprecedented strain on the electricity grid. “Dubai

is planning to double current hotel capacity, which will put an unprecedented strain on the electricity grid”

In order to ensure that Dubai has enough power to cover demand for new projects and population growth, it will be imperative that the country’s utility provider Dubai Electricity & Water Authority (Dewa) delivers planned projects on time and has contingency plans in place if the rate of demand growth for power is greater than expected. Dubai’s power sector has experienced contrasting fortunes over the past decade. A population explosion in the period 2005-08, driven by a rapidly expanding economy and a property boom, led to double-digit demand growth and placed considerable strain on the emirate’s power and desalination infrastructure. However, the late 2008 collapse in the real estate market, coupled with the emirate commissioning significant new power and desalination capacity, has transformed the situation with Dewa now having significant spare capacity. The growing surplus was one of the main factors in Dewa opting to cancel in April 2012 the state’s first private power project despite being on the verge of selecting a preferred bidder. However, as peak demand growth rebounded to reach almost 7 per cent in 2012, Dewa announced in August 2013 it was planning to move forward its maiden independent power project (IPP) scheme as a clean coal-fired power plant. With the winning of the right to host the Expo, Dewa may have to launch more projects to cope with a growth in demand over the next seven years.


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Figure 22: Dubai peak demand growth, 2005-12 16 14 12 10 % 8

6 4 2 0 2005

2006

2007

2008

2009

2010

2011

2012

Source: Dewa

The fluctuating fortunes of Dubai and its power sector are clearly illustrated by recent peak demand growth. Up until 2003, growth was relatively modest averaging about 4 per cent a year. However, the 2002 decision to allow non-GCC nationals to own property in the emirate resulted in a surge in population, construction activity and power demand growth, which averaged 13 per cent a year in the period 2005-08. The unprecedented growth was brought to an abrupt halt in 2009 when, following the bursting of the property bubble, it fell to 6.5 per cent. Despite a recovery in 2010, when it rose to 9.6 per cent, peak demand growth slumped to a 12-year low of just 0.7 per cent in 2011 before recovering to 6.9 per cent in 2012 when peak demand hit 6,637MW. To accommodate the high demand growth in the period 2005-08, Dewa embarked on a major capacity building programme which resulted in installed capacity almost doubling to 7,000MW. Despite the crash building programme, demand came very close to outstripping supplies in 2006, when the capacity surplus was just 86MW. This forced Dewa to import 400MW of power from Abu Dhabi through the Emirates national grid for the first time. Since 2006, Dubai’s capacity surplus has gradually widened, with its reserve margin reaching 20 per cent in 2009, which allowed Dewa to halt imports of Abu Dhabi electricity the following year. Indeed, by 2012 and with the full commissioning of M station, Dubai was in a position to export power, given that it had a capacity surplus of over 3,000MW and a reserve margin of more than 31 per cent. However, as economic growth accelerates and the population grows, Dubai could see a return of the kind of growth rates seen in the 2005-2008 period. Demand can be managed somewhat through increases to consumer tariffs thanks to the fact that the majority of customers are non-nationals. Yet regardless Dewa faces the prospect of having to invest in more capacity than it may have originally planned.


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Dubai Expo 2020 Report

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