ALGERIA - Power Generation.

The power generating capacity in Algeria is limited to around 6,600 MW. This will increase by 314 MW at Arzew before April and by another 1,044 MW later this year with completion of power plants at Arzew and Skikda. It should exceed 11,000 MW by 2010. Most of the increase in generating capacity will involve IPPs, with Sonatrach having branched into the power business in partnership with Sonelgaz. Around 95% of the current capacity is provided by gas-fired plants.

According to Sonelgaz, demand for electricity in Algeria is growing at a rate of about 6% per annum. Power demand is exceeding the installed capacity by more than 450 MW and should rise to 9,300 MW by 2010, compared to about 5,447 MW in 1996. Sonelgaz also exports some power to Morocco during low demand periods.

Sonelgaz will continue to exist as a holding company. It will be transformed into a joint stock company in which the state will maintain and majority shareholding, and local and foreign investors will be able to buy into a 30% stake.

Once reformed, Sonelgaz will have several divisions. One new subsidiary will own and operate the power transmission system. Another, SO-Gaz, will be responsible for gas transmission. The new wholesale system, intended to match offers from generators and gas suppliers with demand from a range of buyers, will be run by a "market operator" company for the power sector and by an entity to be created within So-Gaz for the local gas market.

The privatisation of Sonelgaz will help it raise funds to finance a $10 bn power investment programme in the coming years. Of this $5.4 bn would go to generation, $2.1 bn will be spent on transmission, and $2.5 bn will be invested in improving and expanding the distribution system. (Under a plan for 1996-2000, the power sector received $15.5 bn in total investment, mostly to revamp and upgrade existing facilities - see Vol. 56).

In late 1997, Sonelgaz converted nine of its subsidiaries into autonomous companies pending their privatisation. These include a transformer repair company, a print shop and vehicle repair firms. Client management is to be restructured completely with the decentralisation of billing and the development of a network of 200 agencies open to the public.

Sonelgaz has been trying to become self-sufficient financially. It is to raise the power tariffs to cover costs. It began raising the tariff gradually in 1994. It is also to become more tough towards clients failing to pay their bill on time, like the state water utilities and other public services. Already Sonelgaz cuts clients off if they do not pay within two weeks. To become profitable, eventually, Sonelgaz will have to raise power and gas tariffs to international market levels in line with IMF policy.

On May 23, 2001, Sonatrach (51%) and Sonelgaz (49%) established a JV called Algerian Energy Co. (AEC) to invest locally and abroad in power generation, transmission and distribution, and the transport and distribution of gas. With an initial capital of AD 250m ($2.5m), it plans to sell power to the local market, the neighbouring countries and southern Europe. AEC's main project is to have a 2,000 MW capacity - with an 800 MW plant to be built at Skikda for the local market, and a 1,200 MW plant to be built at Arzew for export. AEC intends to bring in Western partners.

The first major AEC project is Sharikat Kahraba Skikda (SKS - Skikda Power Co.) formed in mid-May 2003, which is having a 730 MW IPP built by SNC Lavalin of Canada under an EPC contract signed in July 2003. SNC has taken an 11% equity in SKS, with the other owners being Sonelgaz (39%), Sonatrach 30%) and AEC (20%). The multi-shaft plant will consist of two gas turbines and two steam turbines. The first block of turbines should be commissioned by end-2005 and the second should be operational in the first quarter of 2006. SNC also has the operations and maintenance (O&M) contract for the SKS plant.

The second AEC project is Sharikat Kahraba Berroughia formed in 2004 which is having a 490 MW plant at Berroughia, 100 km south of Algiers. This is one of the fast-track projects to be completed in 2006. Siemens has the $193m EPC contract as well as a seven-year O&M contract worth $23m.

Alstom has built a 300 MW plant at F'Kirina, 520 km east of Algiers commissioned in October 2004 under a 123m ($137m) fast-track contract signed on Aug. 14, 2003. The plant consists of two GT13E2 gas turbines and the genera-tors. Alstom has also provided high voltage substation and the electro-mechani-cal auxiliaries, plus civil work, erection, commissioning and testing services.

Alstom in October 2004 also completed a 300 MW plant at Ain Beida in Oum El-Bouaghi province in the north-east of Algeria under a 50m ($58m) fast-track EPC contract awarded on June 23, 2003 by Sonelgaz.

Red Electrica of Spain, which operates a marine cable system under the Strait of Gibraltar connecting the power grids of Morocco and Spain, in November 2001 signed a protocol with Sonelgaz for the two companies to have a similar cable between Algeria and the Spanish market. This will run along a marine gas pipeline to be built from Algeria to the Almeria region in Spain. In December 2001, Sonelgaz signed an agreement with the Italian network operator Gestore della Rete di Trasmissione Nazionale (GRTN) to jointly operate a marine cable that will run along a gas pipeline to be built to Italy through Sardinia.

The Kahrama venture between AEC (20%) and Kansas-based Black & Veatch (80%) has the country's first independent water desalination and power project (IWPP) in Arzew close to the GL2Z gas liquefaction complex. This will have a $400m, a power plant of 314 MW and 88,000 CM/d plant built by a Japanese partnership of Itochu and Ishikawajima-Harima Heavy Industries under a $260m EPC contract signed at the end of 2002. This plants will be operational before April this year. GE Power Systems is providing the gas turbines. AEC will supply the plant with gas and will buy the power output under 25-year take-or-pay contracts. Under another 25-year contract, with a 100% take-or-pay clause, Sonatrach will buy the water output for use in the Oran region which is acutely short of water. AEC is having several water desalination plants built based on reverse osmosis (RO).

In March 2001 AEC signed an agreement with Enelpower, a unit of Italian power utility Enel, on co-operation in power generation, transmission and distribution as well as in gas marketing in Algeria and abroad. Under a 12-month Sonelgaz contract signed in late 2001, Enelpower has erected 410 km of high-tension power transmission lines in two sections, one between Touggourt and Biskra and the second from the Hassi Ameur power plant to the Moroccan border.

A 400 MW gas-fired two-turbine combined cycle plant at Hamma, a coastal suburb of Algiers, was built for Sonelgaz by Ansaldo Energia, which also built a 220-kV substation, under a contract signed in March 1999. The first turbine was commissioned in January 2002 and the second started up in June. The plant meets additional demand in the region and replaced an earlier proposal to build two 300 MW units at Ras Djinet (see background in Vol. 60, No. 5).

Several IPP projects announced in 1998 have been transferred to AEC. In 1999 Electricite de France (EdF) completed a pre-feasibility study for a 1,200 MW combined cycle power plant at Hadjret En Nouss, about 80 km west of Algiers on the Mediterranean coast, near Tipasa. But the project is still in the drawing board. Two 600 MW IPPs at Terga and Koudiat Draouch were still in the pre-feasibility phase in 2004. Also delayed is a 1,200 MW CC plant at Jijel, to be known as Jijel-2, scheduled for completion in 2009/10. It will consist of two 600 MW units.

A 300 MW gas-fired plant at Hassi Messaoud came on stream in 1999 and was built by Nuovo Pignone under a contract awarded in 1995. A 200 MW gas-fired plant at Ain M'Lila built for Sonelgaz came on stream in 2002.

A 330 MW gas-fired plant in the oil-rich Hassi Berkine region built for Sonatrach was the country's first privately financed project partly completed. The first 110 MW unit went on stream in 2001 and the other two were operational in 2002. The $107m EPC contract for this was given to Nuovo Pignone (of Italy which is majority owned by General Electric of the US). Finance has been provided by the local oil-producing operators - Anadarko of the US, Agip of Italy and Cepsa of Spain - which are buying the electricity from Sonatrach (see Gas Market Trends No. 6).

Other power projects in Algeria include: a 300 MW gas-fired plant at Hassi Messaoud to be on stream in 2006/08 and to consist of three 100 MW units; a 200+100 MW gas-fired plant at Tilghemt to be on stream in 2007/08; a 200 MW gas-fired plant at M'Sila to be on stream in 2008.

On Dec. 7, 2000, Sonatrach and Conoco of the US signed a partnership agreement to do a feasibility study for a proposed integrated gas-to-power (GTP) project in which investment was to be about $3 bn. This was to include a 1,200 MW plant, development of gas reserves in the Berkine Basin and a pipeline from the field to the power station. The venture was to sell power locally and in neighbouring countries. Conoco was also considering a large-scale water desalination plant adjacent to the power plant.