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PFI - Aramco plans power company

* Oil giant reviews cogeneration assets

* Advisers being sought

By Rod Morrison

LONDON (Project Finance International) - Saudi Aramco is considering establishing, and then IPOing, a power company which will hold the power and steam generation assets which sit inside the fence of its vast industrial estate. A joint local bank/international bank mandate is currently being tendered for the role to advise on the proposal.

The timetable for establishing Powerco is tight with management approval set for November and board approval set for December. The idea has its complexities and is part of a plan to double Aramco's cogeneration portfolio. The oil company's current cogen supplier is Tihama Power Generation Company, a US$800m joint venture between International Power IPR.L and Saudi Oger, which produces 1,076MW of power and 2040 tonnes per hour of steam at four sites in the Eastern Province.

The complexity is Aramco does not own the assets and instead buys the power and steam under a 20 year purchase agreement. To float a company would clearly need to take some ownership of the assets. Aramco is looking to expand the capacity at the four sites and add new facilities at two more sites. It is possible, therefore, it could become directly involved in the development the new facilities.

Part of the advisory mandate will involve negotiating with Tihama and other potential providers on the expansion projects. The four current sites are at Ras Tanura, Ju'aymah, Shedgum and Uthmaniyah. In addition Aramco and its Petrorabigh refinery partner Sumitomo Chemicals 4005.T are negotiating for a US$1.4bn expansion of the cogeneration project at Petrorabigh.

The asset is owned by Acwapower, Itochu 8001.T, JGC 1963.T and Marubeni 8002.T and has a 25 year sales agreement. But it is not clear if this asset will become part of Powerco as it is already in the quoted Petrorabigh company 2380.SE.

Aramco says the vision for the new power company is to aggregate its activities and investments in cogeneration and then leverage these to become a national champion for Saudi Arabian power issues. The new company would share the wealth created by these activities with the Saudi public.

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