x Abu Dhabi, UAEMonday 24 July 2017

Tabreed blames developers as cooling costs row heats up

Air conditioning fees were nearly doubled for homeowners in towers across Dubai last year.

Tabreed, the UAE's largest district cooling company, was hit hard by the property downturn. Jumana el Heloueh / Reuters
Tabreed, the UAE's largest district cooling company, was hit hard by the property downturn. Jumana el Heloueh / Reuters

Property developers are to blame for disputes over the cost of air conditioning that led to some services being cut last year, the UAE's largest district cooling company said.

Sujit Parhar, the chief executive of Tabreed in Abu Dhabi, said the cost of district cooling compared with traditional chillers in buildings was substantially less over the life cycle of a building and reduced energy consumption by as much as half.

A district cooling company traditionally charges developers a fee for the amount of cooling used in buildings, but also a set "capacity charge" that pays for the construction of the cooling plant.

"That's our arrangement," Mr Parhar said. "How the developers deal with their consumers is a totally different arrangement. Therein comes the big controversy you are seeing."

In an ideal situation, the developer should have disclosed to buyers of properties the cost of district cooling provided to their homes. Mr Parhar said a developer should have either factored the cost of district cooling into the price of the units and charged buyers just a usage fee or disclosed from the start that they would be charged a capacity fee as well and lower the price of the homes. Homeowners in towers across Dubai were hit last year with new fees for air conditioning that were nearly double in some cases. Notices were posted in buildings on Nakheel's Jumeirah Islands, Palm Jumeirah and Jumeirah Lakes Towers saying air conditioning would be cut off unless fees were paid. Nakheel declined to comment.

Michael Ryall, a director at Place Strata Management, a property management company, said "a complete lack of disclosure" to buyers of properties about district cooling costs was at the heart of the disputes at properties in Dubai.

"There is very little you can do," Mr Ryall said. "In most cases, they are stuck with the costs. Some of the owners are talking to district cooling companies to try and find a way to reduce the fees." He was speaking just weeks after Tabreed underwent a debt restructuring and recapitalisation. The company was hit hard by the property downturn caused by the global financial crisis. It had started building plants in areas where projects were cancelled, reducing its revenue and greatly expanding its debt.

Tabreed's net profit fell by 21 per cent in the first three months of this year to Dh32.8 million (US$8.9m), compared with the same quarter last year.

While revenue rose, finance costs related to the restructuring and recapitalisation reduced profit. Waleed al Muhairi, the chief operating officer of Mubadala Development, took over as chairman, replacing Khadem al Qubaisi.

Mubadala, a strategic investment company owned by the Abu Dhabi Government, injected funds into Tabreed as part of the restructuring and is its largest shareholder.

"Discipline" was the most important trait of the company after the changes, said Mr Parhar. Tabreed was now becoming more flexible with construction by building its facilities in line with progress on the properties it would supply with district cooling. The company also aimed to increase the use of its existing plants, he said.

Ninety-two per cent of the capacity of Tabreed's 49 plants in the UAE was contracted out to customers and a team was working to sell the remaining 8 per cent.

Existing buildings were also being targeted by the company as owners weighed the cost of replacing chillers every eight or nine years with connections to district cooling. Tabreed is working with about five existing buildings to connect them to nearby plants.

"It hasn't been done yet, but we are working very closely to do that," Mr Parhar said. "It immediately reduces their power bills and removes for them the cost and hassle of having to maintain the systems."