In those countries which have strong drivers the renewable energy boom will happen. –
CSP Today spoke with Michelle Davies, Head of Clean Energy and Sustainability Group at Eversheds, who is an expert in the Middle East. Davies is also on the board of the Emirates Solar Industry Association (ESIA), being the first women to serve as a board member.
What are the characteristics of doing business in the Middle East?
International companies have been involved in the Middle East for many years and so doing business in the Middle East is not new. The key is to understand the importance of having local partners on board. It is quite difficult to establish yourself in the Middle East and set a business on your own, you really do need the support of a partner who understands the country, understands the regulation, and has the right connections and experience. Doing business in the Middle East isn´t necessarily like doing business in other parts of the world, you can´t for example incorporate a company in just a few days as you might in Europe. In the Middle East it can take months, and depending on what your business is, you will have to apply for different licenses. For example, if a CSP company is to develop a solar project, it would need to have an industrial license and this can take time to obtain. Also, you need to understand the regime in which you are about to begin your business. But the most important is having local business partners.
How can CSP companies develop local partnerships in the Middle East?
What they have to do first is decide who they want to have a business relationship with and why. This is important because there are different kinds of partners, as in any jurisdiction, which can bring different benefits to the table and to projects. So a CSP developer might look to partner with a Saudi company that owns a lot of land; it might want to partner with an industrial that can utilise the output from the CSP project; or it may wish to partner with someone looking to establish a supply chain.
So the first two questions are: What type of partner do you need? And what type of partner is really going to help you develop your CSP business?
Secondly, it is important to be properly networked in the local jurisdiction. A number of governments, and in particular Saudi Arabia, are organizing symposiums and events for people to formally meet potential local participants. There are various conferences that you can attend and then of course there are advisers in the market who are able to introduce CSP developers to local Saudi participants. And to be honest there is no substitute to getting on a plane and spending two, three or five weeks in the jurisdiction to just get yourself connected with the right people.
What will be the tax situation for CSP developers in the Middle East?
Each Middle Eastern kingdom or country will have its own tax regime, and broadly speaking you will be taxed on the profits you generate within that jurisdiction. Also the rate of tax that you pay and how you pay it will be determined by each particular regime. For example in Kuwait the rate of corporate income tax is 15% while in Jordan it varies from 14% to 30% depending on the type of activity. Eversheds has written a guide entitled “Developing Renewable Energy Projects: A guide to achieving success in the Middle East” in which you can access all the tax details of each specific country.
How will employment regulations affect CSP development in the Middle East?
They will again vary, but what´s important to know is that certain jurisdictions like Saudi Arabia are considering introducing a high level local content requirement, which will be key if companies are to be successful when bidding for a renewable energy projects. Accordingly, compliance with local content promises made as part of the bid process in this respect will be critical. If you bid on the basis that you will have for example “x” number of employees that are Saudi nationals and then you fall below that number, there are likely to be consequences. For example, it could lead to penalty payments being made or liquidated damages being paid under the PPA which is the current proposal in the Saudi White Paper issued by K.A.CARE.
In addition, there is also minimum legal requirements for the proportion of local national employees’ which have to comply whether you are a renewable energy company or any other company in certain Middle Eastern countries. But these requirements and regulations will change from country to country.
How strong is the commitment of Middle East governments to deploy renewable energy?
In those countries which have strong drivers the renewable energy boom will happen. If you look at Saudi Arabia for example, estimates show that, due to an ever increasing population and internal power demand, before 2030 the country’s internal oil consumption will exceed its oil exports. As we know, oil exports are a key source of revenue in Saudi Arabia. A reduction or loss of oil export revenue will have significant impacts.These are real drivers which are encouraging governments to commit and support renewable energy.
What could be the impact of the Arab Spring for the development of renewable energy?
In those countries where there is an unsettled social position, all investments are threatened not only those in renewables. However, renewable energy creates employment. And so in those countries that are concerned about potential social unrest, particularly where their population is increasing, they will be looking at the employment benefits of developing an improved infastructure.
Michelle Davies will be presenting at CSP Today Sevilla 2013 on the opportunities for CSP in Saudi Arabia. She will be joined by Yara Anabtawi, Director of Business Development- Renewables at ACWA Power, leading developer in the region. The conference will also be attended by a delegation from Jordan formed by the National Energy Research Centre and the Electricity Regulation Commission.