Daily Times

One of General Electric Co’s largest and most valuable customers, Saudi Arabia, is lining up competitors to bid against GE for lucrative power plant work, according to five people familiar with the situation.

State-controlled Saudi Electricity Co (SEC) has qualified at least two companies – Power Systems Mfg LLC and Combustion Parts Inc – to provide service or parts for some of SEC’s more than 50 GE-made F-class turbines, and is in talks with two others over investments to set up facilities to service the SEC plants over many years, according to sources with direct knowledge of the matter.

The qualifications for the first time puts SEC in 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 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 SEC.

The utility 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 Co 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 side effect of Saudi Electricity Co 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.

For bidders, qualifying also provides inroads to selling to other utilities and even other industries because SEC is seen as technically sophisticated and other companies would rely on its qualification, one of the sources said.

SEC declined to comment, as did Power Systems Manufacturing, a unit of Ansaldo Energia SpA of Genoa, Italy, and San Diego-based Combustion Parts Inc.

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.”

GE Chief Executive John Flannery has said service revenue is important to restoring growth to GE’s power business, where profit fell 45 percent last year. The division, which makes equipment for gas, coal and nuclear power plants, is coping with a steep drop in orders for new plants.

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 and Mitsubishi Hitachi Power Systems.

Published in Daily Times, July 20^th 2018.