ABU DHABI - The Regulatory System.

The Bureau's powers came into effect on Jan. 1, 1999, when the Abu Dhabi Water and Electricity Department (WED) was dissolved. These powers are somewhat in line with the UK power regulator Offer, in which the Bureau's general manager Sims had worked for almost seven years. (Prior to joining the Bureau, Sims used to be Offer's deputy head and was responsible for regulating the Scottish power sector).

From early 1999 the Bureau's work has concentrated on three areas. The first was the issuing of a licence for each of the companies mentioned above. Its task in this regard is to make sure that each licence contains adequate terms and conditions, and the Bureau regulates through their enforcement. The Bureau has the power to exempt from a licence companies or people having a private generator of up to 20 kW.

The contents of licences vary. The licencing conditions for an IWPP deal largely with technical issues, leaving pricing matters to ADWEC's water and power purchase terms. For distribution licences, the Bureau restricts companies from having more than a 25% market share - to prevent monopoly abuse; but this will apply when the distribution firm for Abu Dhabi, Al Ain and the remote areas have been restructured into several units and privatised.

At present, the licences for the transmission and distribution companies cover both technical and economic issues - with the Bureau's main focus now being on pricing and customer service issues affecting transmission, procurement and distribution. The second area in 1999 involved establishing the economic fundamentals of the water and power system.

The Bureau devised explicit price capping mechanisms, which remained in force until 2002 when new mechanisms were put into effect. As a result, pricing arrangements were put in place between ADWEC and the other companies operating in the system. The Bureau also has established a framework to control prices, giving the companies an incentive to cut costs.

In its third area of work, the Bureau has established industry codes, with companies now having to submit monthly reports on the performance of the power system and having to comply with water quality standards. The Bureau enforcement powers are to make sure its regulations are observed by the companies. If a company fails to meet water quality standards or fails to supply power to paying customers, it is in breach of its licence. In such a case, the Bureau would first issue a provisional order to the firm in question. Failing that, the company would receive a final order. Non-compliance with the final order means the company would be taken to court so that its licence is removed - the most extreme case.

A joint power grid for the UAE, a two-phase project launched in April 1995 at the cost of $194.8m, should help the seven member-emirates save funds and avoid infrastructure duplication. This union has a high concentration of international airports, ports, free zones, banks, etc. In mid-2002 the federal Ministry of Electricity and Water approved a study for the joint network called the Emirates National Grid (ENG) and for the UAE networks to be inter-connected. This proposed establishment of a UAE control and settlement system and creation of a Federal Electricity & Grid Authority (FEGA), the latter to build, own and operate the ENG. FEGA is to be owned by the five utilities in the union: ADWEA, the Dubai Electricity & Water Authority (DEWA), the Sharjah Electricity & Water Authority, the Federal Electricity & Water Authority, and the Abu Dhabi-controlled Union Water & Electricity Co.

The inter-connection system revolves around installation of two 400-kV transmission lines between Dhaid in Sharjah and H station in Dubai; two 400-kV transmission lines between H station and either Shahama or Taweelah in Abu Dhabi; a 400/220-kV substation at Dhaid; and a 220-kV double circuit transmission line between Dhaid and Sharjah's Sajaa region. Electricite de France (EdF), helped by Fichtner of Germany, is the ENG Phase 1 consultant. EdF has estimated that capacity savings from the ENG by 2010 would reach 1,150 MW for the whole of the UAE, and the internal rate of return would be around 22-26%, depending on which option for the grid system is adopted.

The GCC Inter-Connection Authority (GCCIA), set up at Dammam in 2001 with a capital of $100m, has an updated financial study to connect all the grids of the six GCC countries, with Phase 1 to be operational in the fourth quarter of 2007. Full GCC inter-connection will be completed in 2010. The UAE and Oman will be linked to the GCC in the second phase.