A $1.1-billion power grid to connect Gulf Arab states is set to come on line in early 2009, paving the way for a regional electricity market.

Gulf Arab countries are building the grid to help meet spiralling demand for power as record oil revenues fuel an economic boom in the region.

"Once the grid is ready, it will be a fundamental step, paving the way for a regional electrical energy market," said Hassan al-Asaad, head of corporate affairs at the Gulf Cooperation Council Interconnection Authority (GCCIA) at a conference.

Power shortages in the region mean that participating states were unlikely to benefit much from the grid in the short-term as they would be unable to contribute power, Al Asaad said.

But states have committed to sending power to the grid for emergency purposes, he added.

The grid would eventually facilitate regional trade and encourage the private sector to participate in power generation projects in the GCC, he said.

The project is about 55 percent complete and should be online before the second quarter of 2009, he said.

The GCCIA is a joint stock company owned by the six states to build and oversee the common grid.

Construction began in 2004 at a cost of $1.1 billion, with each state contributing equally. The grid will have capacity of 1200 megawatts but could be expanded later.

In the longer term, the grid may become part of a wider pan-Arab electricity system and link up to a Mediterranean grid, Al Asaad said.

The system would also provide opportunities for telecommunications companies, which could lease unused fibre optic cables from the GCCIA, he said. Discussions had already begun with telecom companies, he added. - Reuters