Higher demand for power and water last year from Dubai’s growing population lifted earnings at the emirate’s utility company in what analysts say is an indicator of healthy economic expansion.
In a bourse filing yesterday, Dubai Electricity and Water Authority (Dewa) reported a 16 per cent rise year-on-year in total comprehensive income attributable to the government of Dubai to Dh6.2 billion. The Dubai government is Dewa's sole shareholder.
The emirate’s population grew about 9 per cent over the past year, which led to an increase in peak power demand in September to more than 7.69 gigawatts – a 6.4 per cent increase compared to the same period in 2014.
“Electricity and water revenues have grown … commensurate with the higher dispatches to a larger customer base,” Dewa said. “[Pointing] to strong and continuing growth of the emirate.”
Mohammed Atif, Middle East and Africa area manager for energy at the advisory firm DNV GL, said that given that Dubai has been focusing on energy and water conservation, a reported increase in consumption signalled real economic growth.
“Dispatch of electricity grew by 5.8 per cent. However, peak demand rose by 6.4 per cent. This generally implies that demand for capacity has grown more rapidly than the demand for energy,” he said.
Dewa revenues increased 7 per cent last year to Dh19bn from Dh17.8bn a year earlier, it said.
Julien Haddad, an analyst at the ratings agency Moody’s, said that apart from population growth, a cut in borrowing costs had also helped earnings rise.
“Another important [factor] is the significant decrease in terms of finance costs, and that’s because the company has such a strong cash position that Dewa was able to prepay some of its debt last year,” Mr Haddad said.
Net finance costs last year dropped to Dh901 million from Dh1.14bn as it repaid Dh5.2bn in loans.
Dewa also said that it had amassed enough cash to meet a US$500m bond maturing in October, and that it paid a dividend of Dh500m to the federal government this year.
Mr Haddad pointed to two reasons that helped the utility to build up its cash reserves. One is that Dewa increased tariffs and introduced surcharges in recent years.
Second, the company’s capital expenditures have been decreasing given the healthy reserve margins. Dewa’s net cash used in investing activities was cut in half over the past year.
“These two combined resulted in the company being able to generate free cash flow and build cash position, which the company used to prepay some of its debt maturing in the long term – mainly the export credit agency loan of Dh2.1bn,” said Mr Haddad.
It is anticipated that the utility will open its doors to more private investment this year – particularly in the emirate’s renewable energy sector, which will save it more money while expanding its overall network.
lgraves@thenational.ae
Follow The National's Business section on Twitter