Power utility Saudi Electricity said it would borrow from banks and use Islamic bonds to help finance a SR6.88 billion ($1.8 billion) contract signed on Tuesday.

The Gulf's largest utility by market value raised SR7 billion earlier this year from its second sukuk after a maiden issue for the same amount in 2007.

The firm signed the agreement awarding South Korean builder Doosan Heavy Industries & Construction and Arabian Bemco Contracting Co the contract to expand al-Qurrayah power plant.

The contract is for the conversion of al-Qurrayah into a combined-cycle regime from a gas-powered plant to add 1,241 megawatts of new capacity, Saudi Electricity said in a statement on Tuesday.

"The financing of this project ... will use the firm's own resources and through lending from local banks which includes issuing Islamic sukuk," it said, without giving more details.

Chief Executive Officer Ali Saleh al-Barrak told Reuters the project would be partly financed by proceeds from the sukuk sold in 2009 and from a future sukuk issue, but he declined to say when this third issue would take place.

"It all depends on the cash flow and the situation in the market," he said.

The new plant, which is expected to start production in 2013, will cater for Saudi power demand which is growing at an annual 8 per cent, it added.

Barrak said the firm is currently executing projects to add 5,105 megawatts of new power capacity by 2012. The firm also plans to buy electricity from an independent consortium that is developing a power and desalination plant with an output capacity of 850 megawatts.

"These projects should satisfy the domestic power needs up to 2012 and there are other important projects with a total capacity of 24,000 megawatts which require to be executed in order to fulfill power demand between 2013 and 2020," Barrak said.

Saudi Electricity posted on Monday a 15.4 per cent rise in third-quarter net profit, as seasonal peak demand increased revenue and new and more efficient plants helped it tame cost growth. – Reuters