Key fact

The Muharraq plant will process 100,000 cubic metres of waste a day

Source: MEED

As the smallest country in the GCC in terms of geographical footprint and population size, Bahrain’s wastewater needs are much smaller than its neighbours’. However, years of insufficient planning and construction have resulted in a strained wastewater system. The environmental impact has been severe.

The Muharraq wastewater project is the first completely project-financed deal outside Abu Dhabi

The government took the bold decision to build a new wastewater treatment facility at Muharraq on a public-private partnership (PPP) basis. As the first project-financed wastewater scheme in Bahrain and one of the first schemes of its kind in the region, it has been a challenge.

The tender was launched in 2008 and in early 2011 a developer team was selected. Financing agreements were signed in July and financial close is expected to be reached by mid-September.

Essential sewage scheme

The project is vital to Bahrain’s efforts to address its sewage crisis and prevent further damage to the environment. The Muharraq sewage treatment plant is “a very environmentally sensitive project” according to a source close to the deal.

The facility will process 100,000 cubic metres a day (cm/d) of wastewater. The project also includes new wastewater connection networks to a 16-kilometre-long deep-gravity sewer. The sewer will have a 1.8-metre diameter and will discharge into a terminal lifting station located at the head of the new sewage treatment plant. The site also includes a new sludge incinerator plant to treat the sludge from the sewage treatment plant.

It is scheduled to be completed within 30 months. The concession period was originally set at 27 years, but this was later extended to 29 years.

While the project is not as large as other regional wastewater projects, it will nevertheless make an important impact. The country currently has a population of about 1.28 million. By 2020, this figure is expected to rise to 1.51 million.

The country’s Public Works Ministry received bids to build the Muharraq wastewater plant in February 2010

As a PPP wastewater project, Muharraq is a landmark scheme. “While there have been a few quasi-project-financed wastewater deals in the Middle East, this is the first completely project-financed deal outside Abu Dhabi,” says a lawyer. Bahrain’s Public Works Ministry received bids to build the treatment plant and sewage conveyance system in February 2010. The project includes significant tunnelling work and this aspect deterred some bidders and raised the price offered by others.

“We were prequalified for Muharraq with Aqualia,” says Xan Morgan, Middle East director at the UK’s Bluewater Bio. “However, the deep-gravity sewer design was not in our traditional business model. I think that [the ministry] probably should have separated that into two contracts.”

Financial bids

Financial bids were opened in May 2010 with prices as follows:

  • United Utilities (UK)/Samsung Engineering (South Korea): BD0.550 ($1.459) a cubic metre
  • Acciona (Spain)/Kuwait Finance House (Kuwait): BD0.607 a cubic metre
  • Saudi Oger (Saudi Arabia)/Korea Water Resources Corporation (South Korea): BD0.6896 a cubic metre
  • Metito (UAE)/Berlinwasser (Germany): BD0.7165 a cubic metre
  • Degremont (France)/ Sumitomo (Japan): BD0.7426 a cubic metre

Berlinwasser and Metito submitted an alternative bid of BD0.6081 a cubic metre. Degremont and Sumitomo had an alternative bid of BD0.6675 a cubic metre.

The bid submitted by Saudi Oger and Korea Water Resources Corporation was initially suspended by the tender board since the group submitted a copy of the bid bond instead of the original in the commercial bid envelope.

However, the decision was subsequently overturned following an appeal from the bidding group on the basis that the bid was in fact submitted in line with the guidelines for the request for proposals.

In February, the ministry selected the UK/South Korean partnership of Samsung Engineering and United Utilities.

Financing came together shortly afterwards. Abu Dhabi financial services firm Invest AD bolstered the equity side of the transaction. Samsung committed 45 per cent of the equity for the project, while Invest AD has supplied 35 per cent and United Utilities has put forward 20 per cent.

Bahrain wastewater treatment capacity
  Population served Design capacity cm/d
Tubli WPCC 600,000 200,000
North Sitra 25,000 16,500
South Alba 3,000 3,500
Bahrain University 1,679 500
Al-Hamala 1,500 350
Jau 1,500 400
Jasra 1,500 340
Askar 1,250 288
Al-Dur 250 70
Total   220,830
cm/d=cubic metres a day; WPCC=Water Pollution Control Centre. Source: Works Ministry

Export credit agency Export-Import Bank of Korea (Kexim) is lending $208m for the project, while three commercial banks are providing $44m each. The banks are France’s Credit Agricole CIB and Natixis, and Japan’s Sumitomo Mitsui Banking Corporation. The banks are currently finalising interest rate swaps ahead of financial close, which is expected to be reached by mid-September.

Kexim was instrumental in the financing of the project. In addition to providing a significant portion of the debt, it also provided cover for the commercial debt tranche.

“The deal is very heavily skewed towards Kexim cover with the commercial banks picking up a lot less risk,” says the lawyer.

The debt has a tenure of 23 years and according to a source close to the deal, debt pricing is in the mid-200 basis points range.

The government of Bahrain was advised on the project by Germany’s Fichtner, UK bank HSBC and UK law firm Norton Rose. UK law firm Ashurst was legal adviser to the sponsors, while Australia’s Macquarie was financial adviser. US law firm Shearman & Sterling represented the lenders.

Wastewater capacity building

The Muharraq wastewater project will have a capacity of 100,000 cm/d. The deal also includes the option to extend the project.

“The transaction includes a provision for expanding the plant at a later date. There is a process for the government to go to the sponsors for a proposal for the expansion,” says the lawyer. “The size of this expansion is pre-arranged. This is unusual.”

The extension would be an additional 60,000 cm/d of capacity. The Public Works Ministry is also upgrading Bahrain’s largest treatment plant at Tubli. It has awarded a contract to Bluewater Bio to improve the efficiency of the facility.

The Tubli plant serves a population of about 800,000 and is far exceeding its 200,000 cm/d capacity. The contract, worth $20m, is for the installation of Bluewater Bio’s biological treatment process technology at the site, which will treat an average wastewater flow of 100,000 cm/d.

The scheme is aimed at improving the efficiency of the plant as well as raising the quality of the effluent of the plant. The new sludge treatment facilities will prevent the excessive carry-over of sludge from the treatment plant into Tubli Bay.

Due to rapid urban development and population increase, the Tubli plant is overloaded. This has caused obvious deterioration in the quality of the treated effluent and in the ecology of Tubli Bay. Following the upgrade, the treatment capacity of the overall secondary treatment plant will be 300,000 cm/d.

“I think that Tubli represents the three mega trends across the Middle East,” says Morgan. “These are urbanisation, [water] scarcity and environmental protection.” The ministry also plans to expand treatment capacity with a completely new sewage treatment plant at Tubli.

Last year, it launched a tender for a 200,000 cm/d sewage treatment project with six kilometres of associated sewer networks to be built on a build-own-operate basis.

Originally, the project was to include the rehabilitation of the existing Tubli plant, but this aspect was subsequently dropped. According to sources close to the project, this makes the plant a more attractive option for developers. “The Tubli plant … is being run hugely over capacity,” says a source. “So it is a [far] more attractive project now that [the upgrade] is not included.”

Expressions of interest were received from more than 50 companies to develop the Tubli sewage treatment plant in December. However, the project has stalled somewhat since then due to the popular protests across the country as part of the Arab uprisings.

The project has also faced delays due to a determination on the part of the ministry to get the Muharraq deal out of the way before embarking on a similar scheme at Tubli.

Public-private-partnership potential

The delay has also facilitated a debate on the application of PPP for new wastewater plants. A review is underway into the potential of the Tubli project to determine whether it should be built on a PPP or engineering, procurement and construction (EPC) basis.

For Kyeong Choi, managing director for Europe, Middle East and Africa at Samsung Engineering, the Tubli review is an extension of the age-old debate of PPP versus EPC.

The position is very different for countries with sufficient government funds than for countries with limited resources to pay for infrastructure immediately. For countries such as Bahrain, PPPs may have a lot to offer.

Once the Muharraq project has reached financial close, all eyes will turn to the Tubli scheme to see which approach the Bahraini government will take. Many still believe the Tubli project will be a government procurement project.