By Alwyn Scott and Stanley Carvalho
NEW YORK and ABU DHABI (Reuters) - One of General Electric Co's
State-controlled Saudi Electricity Co <5110.SE> has qualified at least two companies to provide service or parts for some of its more than 50 GE-made F-class turbines, and it is in talks with two others over investments to set up facilities to service the plants over many years, according to sources with direct knowledge of the matter.
These approvals for the first time put Saudi Electricity in a position to break GE's hold on that work by having others bid against GE on maintaining the F-Class fleet - among the largest owned by a single entity and among the most lucrative service portfolios in the industry - when the existing contracts come up, according to the sources and industry databases.
Saudi Electricity Co (SEC) has not yet offered any substantial F-Class contracts to new bidders, and it is unclear how soon it intends to seek bids, according to sources familiar with the matter.
In response to questions from Reuters, GE said: "At present, GE's F-class units in SEC continue to be covered under long-term service agreements." Saudi Electricity initially declined to comment.
In a joint statement to Reuters on Sunday after Reuters published, the companies stressed they have been partners on power generation for nearly 40 years.
“SEC has always embarked on a very balanced policy of procurement to ensure well diversified sources of suppliers," said Khalid Al-Tuaimi, executive vice president for generation of Saudi Electricity.
Saudi Electricity “always qualifies multiple vendors to bid on services,” Al-Tuaimi said, adding, “We have repeatedly found GE to be an excellent strategic partner for meeting our servicing needs.”
Joseph Anis, President and CEO of GE Power Services, Africa, India and the Middle East, and Hisham Al Bahkali, President and CEO of GE Saudi Arabia and Bahrain, said: "We support more than half of the Kingdom's power supply, and are proud to be a part of the ongoing development of the sector.”
Saudi Arabia, the world's largest oil producer, has grown increasingly cost conscious, and under its "Vision 2030" reform plan it aims to reduce oil dependence, lower state budget deficits and create jobs.
The kingdom also wants to obtain the best possible prices on large contracts with big companies, according to a source with direct knowledge of Saudi Electricity.
Saudi Electricity is in the process of getting other companies involved in bidding for power plant services, rather than relying on GE as the sole provider, because qualifying competitors will lower prices, the source said.
Saudi Electricity previously created competition for an earlier generation of turbines known as the E-class, according to the sources. After bidding began, GE ended up with less work and prices for the work fell by about 40 percent, sources said.
One source with knowledge of GE's service history in Saudi Arabia said some F-Class turbines that Saudi Electricity purchased more recently may not be under long-term agreements because the service price was high, and those could be opened for bidding at any time.
One side effect of Saudi Electricity qualifying third-party firms to repair its F-Class is that it is large enough to enable competitors to set up operations that they could use to sell the parts and repair services to customers outside Saudi Arabia, potentially threatening portions of GE's service business globally, three sources said.
Saudi Electricity's rigorous qualification process is seen as a stamp of approval that will help bidders sell to other utilities and industries, one of the sources said.
The companies Saudi Electricity has qualified for work on GE’s F-Class are Power Systems Mfg LLC, a unit of Ansaldo Energia SpA of Genoa, Italy, and San Diego-based Combustion Parts Inc. Both declined to comment.
GE Chief Executive John Flannery has said service revenue is important to restoring growth to GE's power business, where profit fell 58 percent in the second quarter. The division, which makes equipment for gas, coal and nuclear power plants, is coping with a steep drop in orders for new plants. Flannery said on Friday that fixing the unit was "clearly our top priority."
As a sign of its emphasis on increasing its own service revenue, GE in May posted videos on YouTube saying it is offering high-tech upgrades to turbines made by rivals Siemens AG
Two other service companies said they are in talks to qualify to work on Saudi Electricity's F-Class plants: Chromalloy, based in Palm Beach Gardens, Florida, and Al Masaood John Brown, in Dubai. Both said they already work on SEC's E-Class turbines.
Al Masaood John Brown shareholders have approved investment to enable it to repair certain F-Class components at its Dubai facility. It plans to present details of the planned investment to SEC as a way of "kick starting" the formal pre-qualification process, General Manager Brian Waddell said in an email. Chromalloy said it is considering a large investment to enable it to work on Saudi Electricity's F-Class turbines for the long term.
"We're definitely willing to make that commitment and are in discussions with SEC on that," said spokesman Jeff Romaine.
"We're looking at doing parts repairs or manufacturing of parts for the long term," he added. "That's what SEC is asking us for."
(Reporting by Alwyn Scott in New York, Stephen Kalin in Saudi Arabia and Stanley Carvalho in Abu Dhabi; editing by Joe White and Edward Tobin)
This story has not been edited by Firstpost staff and is generated by auto-feed.
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Updated Date: Jul 24, 2018 01:05:09 IST