Boston, MA -- (SBWIRE) -- 08/30/2012 -- BMI View: Recently-released indicators have reaffirmed BMI's positive outlook on the Saudi Arabian economy, prompting our country risk analysts to hike our forecast for real GDP growth in 2012 from 4.6% to 5.3%. While growth is expected to slow in 2013 as the impact of government spending begins to fade, we remain of the opinion that Saudi Arabia's power sector will remain among the most dynamic in the Gulf Cooperation Council (GCC), owing to both macroeconomic and demographic dynamics. That said, we reiterate once again that the existing regulatory environment creates downside risks for new projects, as it remains highly inadequate, with Saudi Electric Company (SEC) facing a rising financial burden owing to the under-pricing of electricity and rising financial requirements.
The Saudi Arabian economy is firing on all cylinders, as relatively high oil prices in the first part of the year, heavy government spending and buoyant consumer confidence continue to drive growth. The positive macroeconomic outlook has been reaffirmed by a host of leading indicators - credit growth, business sentiment and Purchasing Managers Index (PMI) data all point to a robust expansion across the economy. We thus maintain our healthy growth outlook for the country's power sector.
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- Saudi Arabia has a very strong track record in the development of power projects. The Saudi government has long demonstrated a substantial commitment to social and economic infrastructure (and to the power sector in particular), and the increased volatility due to the Arab Spring is likely to strengthen these commitments.
- The country is executing an extremely ambitious US$80bn expansion plan for power projects, with the Kingdom's Ninth Development Plan (2010-2014) aiming to raise generating capacity by 20.4 gigawatts (GW) by 2014. Even if BMI adopts a conservative stance, and only 70% of the planned capacity comes online, our forecasts show that the country will be able to meet its commitments, and total installed capacity will reach about 72GW by 2014.
- From this perspective, we note that, although at present Saudi Arabia's electricity mix is dominated by oil and gas, the country has been looking to diversify its electricity mix for quite some time. The country recently announced that it is seeking US$109bn of investment to be channelled into expanding its undeveloped solar industry - aiming to reach an ambitious target of 41GW of installed capacity by 2032.
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