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Dubai in Land of OPEC Gives Blessing to Going Green: Arab Credit

Dubai, better known for palm-shaped islands and the world’s tallest skyscraper than energy conservation, is on a mission to cut power and water use as the rising costs of fuel and desalination threaten future growth.

The utility leading the campaign for conservation is the one benefiting the most from soaring demand. Dubai Electricity & Water Authority, whose bonds have outperformed Persian Gulf companies on the strength of rising demand, created a unit to advise customers on ways to reduce consumption while the government may start a fund to help energy saving, Chief Executive Officer Saeed Mohammed Al Tayer said in an interview.

Dubai, part of the United Arab Emirates, the fifth-biggest member of OPEC, is targeting greater fuel efficiency because it relies on imported liquefied natural gas paid for at market prices to run power and water-purification plants. Concerned that its fuel bill will surge as energy consumption rises, the sheikhdom plans to cut projected power and water use 30 percent by 2030.

“The population and economy will keep expanding, so they’ve got to deal with energy consumption that keeps rising every year,” Hemant Dharnidharka, the head of credit research at SJS Markets Ltd., said by telephone yesterday from Bangalore, India.

Cutting consumption may be no bad thing for the state-owned utility known as DEWA as it can reduce spending on power stations, said Dharnidharka. “Their credit ratios will look even better.”

Supreme Council

The yield on DEWA’s bonds due October 2020 fell 111 basis points in the past six months to the lowest since the securities were sold in 2010, at 3.3 percent, data compiled by Bloomberg showed today. That’s twice as much as the average decline for corporate bond yields in the richest Gulf countries, according to JPMorgan Chase & Co. index data.

About 30,000 of the emirate’s 130,000 buildings could be candidates for efficiency improvements at a total cost of about 3 billion dirhams ($817 million), according to a report by Dubai’s Supreme Council of Energy, a government body for reviewing policy that involves DEWA.

The new fund could help finance efforts to upgrade buildings, lighting fixtures and faucets, Al Tayer, who is also vice chairman of the policy body, said in an interview in Dubai on May 22.

Market Rationale

Dubai lacks the fossil-fuel reserves of its larger neighbor Abu Dhabi, which holds about 6 percent of global crude deposits and pumped about 2.75 million barrels of oil in April, according to data compiled by Bloomberg. The U.A.E., like Saudi Arabia and some other members of the Organization of Petroleum Exporting Countries, is seeking to pare local use of oil and gas to preserve more of its hydrocarbons for export.

“There’s a market rationale for energy efficiency,” Daniel Zywietz, Middle East managing director for Ambata Capital in Dubai, a private-equity investor in clean-energy companies, said by telephone yesterday. The savings in customers’ energy bills outweigh the costs of the efficiency programs, he said.

Smaller companies with older buildings often lack access to the funds necessary to refurbish, said Zywietz, who also heads Enerwhere, a Dubai-based company Ambata has invested in that rents portable solar plants. With DEWA promoting efficiency improvements and standardizing metrics to estimate possible savings, banks may find it easier to assess risk when evaluating requests for loans, he said.

Light Bulbs

DEWA will lead by example, upgrading seven buildings and becoming the first customer of its wholly owned unit, called Etihad Energy Services Co., its CEO Stephane Le Gentil said in a phone interview May 20. The installation of sensors that turn lights off in empty rooms and more efficient light bulbs at the company’s power plants are quick, simple ways to cut electricity use, he said.

Gulf states must start now to rein in consumption to stay economically competitive, Amrita Sen, chief oil market analyst for Energy Aspects Ltd., said by phone from London on May 20.

“They might start to make some impact in the next five years because they’re starting from such a low base of efficiency,” she said.

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