Amazingly enough, Bahrain’s authorities are moving ahead with expansion of the energy sector notwithstanding the plunge in oil prices, which have dropped by half over the past 15 months.
The idea of investing in the energy sector is indicative of foresight as the country engages in economic reforms amid the twin challenges of heavy public debt and budgetary shortage.
Recently, Saudi Arabia and Bahrain agreed to expand capacity of a pipeline from the current 267,000 barrels per day to 350,000 bpd. The expansion is expected to be completed by end-2017 or early 2018. What’s more, the plan allows for the option of increasing capacity to 400,000 bpd.
Bahrain imports oil from Saudi Arabia and pays market price for the crude. This is transferred to the sole refinery in Sitra, east of the capital Manama, for processing into petroleum products including jet fuel, diesel and asphalt.
Certainly, it is economical and environmentally-friendly for Bahrain to import via pipeline than options like tankers. Understandably, the expansion is to Bahrain’s advantage and hence the willingness to pay for the scheme in its entirety.
Notably, two GCC firms have two of the three contracts associated with the expansion. Al-Robaya Holding Company of Saudi Arabia will be completing the onshore engineering, procurement and construction work in Saudi Arabia in addition to carrying out the engineering and procurement work in Bahrain. The National Petroleum Construction Company of the UAE has a contract to do the EPC for offshore work.
Yet to be awarded is the construction job for Bahrain’s end of the pipeline.
Saudi visitors
Saudi Arabia is exceptionally vital for the well-being of the Bahraini economy thanks to the large to influx of visitors via the King Fahd causeway during weekends and holidays. This was on display during the Haj festivals, with a large number of Saudi visitors making their way to Bahrain to take advantage of the country’s liberal environment. Needless to say, the pipeline expansion should further solidify economic ties between the two.
In another development in the field of energy, UK’s Petrovac has reportedly won a contract valued at $100 million to build a gas dehydration facility in Bahrain. The facility is capable of producing 500 million standard cubic feet per day. The client is Tatweer Petroleum, which has the mandate to further develop the kingdom’s petroleum industry.
The two mega projects stand the chance of helping Bahrain address some critical challenges via enhanced revenue resources. The projected deficit for fiscal year 2015 amounts to a staggering $4 billion (Dh14.7 billion). The figure is substantial by virtue of being around 40 per cent of total spending for the year and 6 per cent of the country’s gross domestic product.
Gross domestic product
As to the other challenge, Bahrain’s outstanding debt amounted to a record $16.1 billion by July, or 48 per cent of the country’s GDP. Bahrain has a nominal GDP of $33.6 billion, the smallest within the Gulf. The debt comprises primarily of development bonds and to a lower extent treasury bills.
It is hoped that developments in the critical energy sector would eventually convince rating agencies to improve the credit status grated to Bahrain. Over the past few months, Bahrain saw its ratings cut due to concerns about sustainability of its fiscal position. For instance, Standard Poor’s downgraded Bahrain’s long-term and short-term foreign and local currency ratings from BBB/A-2 to BBB-/A-3.
Source: Gulfnews