Oman will privatise existing power stations and invest 3 billion rials ($7.8 billion) in new projects in a bid to boost the economy and narrow the budget deficit as electricity demand grows, officials told Reuters.

Urbanisation and years of growth have put Oman's existing grid under strain and prompted moves by authorities to recruit private sector investment alongside its own.

'If we can get the private sector to generate power then that will help reduce the government's deficit in the annual budget,' Sheikh Abdulmalik al Hinai, undersecretary at the Ministry of National Economy, told Reuters.

'The aim is to eventually sell, partly or wholly, government owned power stations to attract more international investors to the country,' Abdulmalik said.

Oman plans to invest the money over the next six years,  Mohammed Al-Mahrouqi, chairman of the state-run Public Authority for Electricity and Water at the Gulf Arab state, told Reuters.

'Higher consumption due to rapid project growth and urbanisation make it necessary to spend that much to build or update current power plants,' Al-Mahrouqi said.

Five projects are in line for development aimed to boost electricity generation, demands on which are increasing about 15 per cent annually, according to Al-Mahrouqi, adding that total consumption up to June 2009 reached 3,600 megawatts, 16 per cent more than the same period in 2008, year on year.

The government is firming up the tender for the 420-megawatts Mirbat power plant in the south planned to be operational in 2011 and upgrading the Ghubrah power plants in Muscat for an additional 500 megawatts generation scheduled for 2013 completion, Mahrouqi said.

The Barka phase three and Sohar phase two power stations each with a capacity of 650 megawatts have already been tendered with a submission date set for October 19 this year while the coal-fired 1,000 megawatt Duqm power station is scheduled to be operational by 2015.

So far the private sector operates power plants with a total capacity of 2,500 MW of electricity. The total cost of building these plants cost the private sector some 700 million rials ($1.82 billion), Mahrouqi said.

Oman heavily relies on oil exports for its income, which make 70 per cent of its total revenue.

The government set aside a total of 6.424 billion rials ($16.7 billion) in its 2009 budget to spend on development projects forecasting a deficit of 810 million rials.

Oman was the first Gulf state to allow private investors to generate electricity and United Power, the country's first independent power project, was set up in 1994 with an installed capacity of 90 megawatts, later expanded to 280 MW.

Suez Tractebel, part of France's Suez Energy International, was the main investor of United Power. Suez also has interests in Oman's second private power company, Sohar Power.

Apart from Suez, other international investors owning power projects in Oman are AES Corporation which partly owns the Barka Power plant and Britain's International Power Company with a major stake in Al Kamil Power Company.-Reuters