At the time of signing the JV, you said Marubeni Corporation would leverage its knowhow in infrastructure business development and operation in the Kingdom to contribute to the growth of Diarona. Could you please elaborate?
As Marubeni, we have been active in the infrastructure space for 20-30 years in the Middle East. I come from the Power Division of Marubeni, and within the power business here in the region, we have been active in the IPP space and are a developer of power projects. So, whenever a client comes out with power projects, we participate in those tenders like a developer. In order to win those projects, we negotiate with the EPC contractors, we reach out to lenders, and once construction is finished, we operate those power projects typically over a 25-year lifecycle.
Power projects are similar to District Cooling, but with obviously the major difference in the technology. We have been looking at District Cooling for a while now with the aim of using our expertise to pivot into the business, and so we formed this alliance with Qatar-headquartered United District Energy International (UDEI) and Saudi Arabia-headquartered Ajlan & Bros for Trading.
In Saudi Arabia alone, we, as Marubeni, are handling six assets that are power and/or water projects. Some of them are under construction and some under operation. In the whole of the Middle East, we are handling 15-16 assets, so we will bring that operational experience and contribute to the partnership.
What would be your exact scope of work as Marubeni? Would you, for instance, be involved in or jointly involved in the laying of the reticulation network?
First of all, Diarona District Energy is a JV formed in the Kingdom. The business model we are pursuing is similar to the power space. We would be preferring the BOOT model, rather than the DBO or EPC model. So, we will work with EPC contractors, and the piping network will be built by such EPC Contractor or whoever we sub-contract to. So, as owner of assets, we will also need to do the O&M. Of course, we definitely have to review the designs and sign off the designs; and for that, we have the expertise of one of our shareholders, Qatar Cool.
In District Cooling, we have big players in the market, like Empower, Tabreed and Saudi Tabreed, and our business model is the same as developer, owner and operator. Having said that, for DBO projects, where there is an O&M element, we shall be thinking on a case-by-case basis, because we see a lot of opportunities there, as well. And in some of these projects, through getting into a DBO contract, we could potentially convert to BOOT in the future. So, it does not mean that if a DBO, we won’t participate.
From a competition perspective, what differentiating aspects would you look to offer as a District Cooling utility?
I would rather just focus on what I believe to be our strengths. Obviously, in the Kingdom, Saudi Tabreed is a big player. Now, one of the reasons we decided to enter the market is that Saudi Arabia is booming, such that one player cannot take all the projects. And our strength is that we bring a good mix of expertise from each party. As Marubeni, for instance, our expertise lies in the fact that we compete with other competitors or stakeholders in the power/water space. We think that through leveraging on that expertise in the power and the water space, we can make some noise in the District Cooling space.
Would Diarona choose to lean more heavily on water-cooled systems?
First of all, as Diarona and as a business, we want to be technologically agnostic. And our clients will have a say on the type of plant they want, so we don’t want to restrict ourselves to either water-cooled or air-cooled systems. As shareholders of Diarona, we also have to contribute to ESG and to choosing the most efficient and environmentally friendly system. And ultimately, the most efficient systems are the most economical, as well, when you look at the total package, the carbon emission and the ability to reduce the total power capacity in the context of the grid.
Saudi Arabia is embarking on creating an interesting energy mix with Green Hydrogen and with solar, which is already in the picture? As Diarona, where do you fit into that ecosystem?
Not to give away too many internal things, at least from a Marubeni perspective, although we do District Cooling as a standalone business, it would be interesting to see how it fits with our overall capability in the region. As Marubeni, when we look at District Cooling, we see cooling as a utility that is similar to water and power in the Middle East, simply because of the environment in the region. And for us, having the ability to offer power and water and not just cooling is an important element when it comes to talking to clients. It is about being able to offer a one-stop shop.
What is the business model of Diarona?
All the three shareholders have a long-term view in terms of the business. We all recognise that it is a utility business and not a retail business, where you make money from Day One. We understand that these contracts typically run the course of 25-30 years. As Diarona, we have the good fortune of being backed by very financially strong partners. All the parent companies are financially strong, be it UDC, in the case of Qatar Cool, or Ajlan, which is one of the biggest family companies in the Kingdom. So, we have the financial backing of our shareholders to see any kind of project through.
What measures would you take to ensure Diarona offers a consumer-friendly service?
From that perspective, we need to go back to the total package of having a District Cooling scheme. People may say, ‘District Cooling is expensive,’ but when you do a comparison, you cannot forget that power prices in the region are subsidised – and that way, you cannot fully capture the benefits of District Cooling. Also, carbon is not being priced yet, and the trend is that it is coming, so we have to look from an overall perspective.
What we offer is going to be case by case. Those real estate developers who want District Cooling may have their own model on how they want to offer District Cooling to their customers, but we have an advantage of the expertise and experience of Qatar Cool, who do District Cooling on a day-to-day basis, and their customer relationship structure is something we will benefit from and use in the Saudi Arabia market.