ESCO contracts in the GCC should be more regulated

For an Energy Service Company (ESCO) model to scale up, it is imperative that it is well regulated, says Sougata Nandi, founder of 3e Advisory

Sougata Nandi, founder of 3e Advisory.
Sougata Nandi, founder of 3e Advisory.

For an Energy Service Company (ESCO) model to scale up, it is imperative that it is well regulated, said Sougata Nandi, founder of 3e Advisory.

Nandi said that the concept of ESCO (Energy Service Company) services is picking up pace in the UAE. He said: "While this was earlier spearheaded by the ESCOs themselves, over the past five years, the leadership role has shifted to entities like Etihad ESCO of DEWA and the Kafaati initiative of the Tarsheed program of Abu Dhabi Water and Electricity Authority (ADWEA). SEWA is putting together their concept of the ESCO as well."

He added: "These initiatives are streamlining and standardising the ESCO business model, by managing such programs on behalf of end customers, using unified contracts, best suited to the unique needs of the ESCO business.

"Historically, ESCO contracts have often been fractious, with no legal expertise existing in the region; sometimes ending in arbitration. Typically, the ESCO would present a draft ESCO contract to the client, whose legal team would inappropriately review it from the purview of a regular construction contract, resulting in delays in contract signing, terms and conditions of which would leave either or both parties dissatisfied.

"Thus, standardising this business model and associated legalities, by authorities like Regulation & Supervision Bureau (RSB), is a welcome move for the industry."

Nandi said that for ESCO projects that do not originate through bodies like Etihad ESCO, a major hurdle is the fact that significant number of facilities that qualify for energy savings, are freehold and thus have an owner’s association, instead of a single owner, managing such decisions.

He said: "In such instances, although the project itself might be very attractive, with multiple owners involved in the decision making process, the contract negotiation process can be well stretched."

To read Nandi's entire views, check out #1302 of MEP Middle East, which will be out on the first week of February 2018.

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