Gulf states privatise water projects

26 November 2010

Investment in wastewater infrastructure remains a priority for the GCC states and Saudi Arabia in particular offers major opportunities for the private sector as it begins to open up its water market

Key water fact

Saudi Arabia will become the GCC’s biggest treated sewage effluent market if it hits its 2020 target of 1.9 million cm/d

cm/d=Cubic metres a day. Source: MEED Insight

The GCC is one of the biggest sewage markets in the world. Some $15bn-worth of wastewater projects are currently planned or under way. Analysts at Middle East research service MEED Insight estimate that $10bn will be spent on new capacity in the next five years to lift total capacity to 5.57 million cubic metres per day (cm/d) by 2015. Governments in the region can no longer afford to allow under-capacity networks to overflow into the streets, nor allow odours to emanate into people’s homes.

Saudi Arabia will become the GCC’s biggest treated sewage effluent (TSE) market if it meets its objective of increasing re-use from its current volume of 0.34 million cm/d today to 1.9 million cm/d in 2020.

Making use of TSE in the kingdom makes a lot of sense. The kingdom’s customer tariffs remain among the lowest in the world and yet Saudi Arabia is one of the world’s most intensive water consumers. Population growth of up to 3 per cent a year is putting further pressure on water provision.

There is talk of tariffs going up in the future and this increases the attractiveness of treated effluent

Ibrahim Shirazi, National Water Company

“TSE fits the bill on all sides, not only commercially but it helps with the demand supply gap, and reduces our carbon footprint,” explains Ibrahim Shirazi, executive director of business development and adviser to the chief executive’s office at the kingdom’s National Water Company (NWC).

NWC was established in January 2008 and began operations in July 2008. It was set up to manage the privatisation process and is currently responsible for water assets in Riyadh and Jeddah. It is in the process of taking over in Mecca and Taif. Between 2013 and 2015 it will have taken control of all 15 major cities and it is planning to establish long-term joint ventures with private partners to operate and maintain water and wastewater infrastructure. Joint venture companies will also be set up to manage the production and sale of TSE. 

Originally NWC considered separating TSE sales companies from the production plants but then decided that a combined structure would be better suited to the market.

“Initially we looked at TSE as two components, one related to the wastewater treatment plants and the other option as TSE companies selling the effluent,” says Shirazi. “What we have learned is that, when you have these activities, one of them makes more sense commercially when compared to the other activity. The TSE company is basically a trading company that would buy from the plants.

“NWC has had a lot of discussions and the studies are still being finalised. It is proving day by day that, when we combine these two activities, it becomes a bankable proposition.”

 NWC would maintain its position as a partner in the joint ventures.

Riyadh is expected to be the first city to operate as a private TSE venture and key customers are expected to be high-volume water consumers, such as industrial businesses.

“Currently, what NWC is focusing on is the industrial and commercial users of today,” says Shirazi. “We do not have any ban on the pricing mechanism for sales to these sectors. So we have been signing a lot of memoranda of understanding (MoUs). In October we signed an MoU to supply TSE into the Heart of Mecca near the Holy Mosque for district cooling.”

This agreement joins another recent district cooling (and in this case irrigation) agreement worth $320m over 20 years with Knowledge Economic City in Medinah.

“The MoUs are for long-term contracts of 20-25 years with commercial rates based on what the market is willing to pay,” says Shirazi. He adds that prices for TSE are 40-50 per cent lower than the highest water rates for large consumers of SR6 per cubic metre.

“It is a win-win,” he says. “There is a lot of talk of tariffs [going up] in the future and this further increases the attractiveness of TSE.”

Plans for the TSE companies are moving fast, but it just one of four priorities that Shirazi identifies as vital to market development. The second is moving forward with the operation and maintenance of water assets by the private sector through joint venture companies, within which NWC will become a partner. This arrangement moves on from the earlier five-year management contracts let to Suez and Veolia for Riyadh and Jeddah.

“We started the journey with a management contract because we knew that over two years we would be very active,” says Shirazi. “NWC has really been moving very fast. Now we are entering further into the public-private partnership (PPP) process.”

Development of the company’s real estate portfolio, and establishing a training and research centre are also on the agenda.

“We want to optimise the use of our assets and we are talking with the construction industry to find the most appropriate model.”

Neighbouring Bahrain is also attracting a lot of attention. Its $200m Muharraq wastewater treatment project is the first stage of Bahrain’s wastewater privatisation programme and comprises a 100,000cm/d treatment works with a 15 kilometre-long gravity sewer and associated connecting pipework. The successful developer will deliver the project and then operate it under a 27-year agreement. The preferred bidder was identified in July as South Korea’s Samsung in consortium with the UK’s United Utilities, followed by Spain’s Acciona with Kuwait Finance House. The deal was expected to be signed in mid August but the bidders are still awaiting confirmation. Sources close to the scheme say the delay is due to prolonged financial negotiations.

A second build, operate and transfer project at Tubli is set to follow Muharraq. A conceptual review for the scheme is under way for the 200,000cm/d plant, which currently takes flows of up to 322,000cm/d.

Meanwhile Qatar is opting for traditional contract routes for its wastewater upgrades, which include its first new plant for 15 years – the $1bn Doha North project. Singapore’s Keppel Seghers is main contractor on the 439,000 cm/d project, and will operate the plant for 10 years after completion. Effluent will be treated with advanced tertiary processes, such as ultra-violet filtration to enable TSE re-use.

Qatar is also planning to ensure that more water in the country is re-used. The government has formed a joint venture with Singapore’s Darco Water Technologies to build a $5bn wastewater recycling facility for towns and villages. An engineering, procurement and construction contract is expected to be awarded in mid-2011 and the plant is due for completion in 2014.

Although a number of wastewater projects in the GCC are progressing more slowly than bidders would like, there is still a massive demand for new infrastructure throughout the Gulf region.

It is true that Abu Dhabi has held off awarding the major contracts for its $2bn new deep sewer project and Bahrain is yet to appoint its preferred bidder as the developer for the Muharraq build, own, operate wastewater treatment works project, but such delays are a common feature of regional infrastructure.

Clients are reassessing their requirements, working to ensure they obtain the best deal from contractors and, in the case of PPPs, compete to raise finance.

Abu Dhabi’s super-sewer

Abu Dhabi’s network of 50 pumping stations and sewage mains is under severe strain, thanks to a population surge from 156,000 in 1975 to about 1 million today. The city’s main wastewater treatment works, Mafraq, is regularly deluged with flows of up to 500,000cm/d (its design capacity is 300,000cm/d) – an unsightly issue for Abu Dhabi Sewerage Services Company (ADSSC).

A solution is under way in the form of a 40km-long deep-sewer tunnel, which will collect the city’s waste through gravity mains and transport it to a single pumping station at Al-Wathba, eliminating a multitude of smaller pumping stations. Four new treatment plants will provide an additional 800,000cm/d of capacity. The Strategic Tunnel Enhancement Project (STEP) has an estimated value of about $2bn. US-based consultant CH2MHill was appointed as programme manager in February 2008 and award of the tunnelling and pumping station contracts is much anticipated. Bids for the six contracts have been received and evaluated by ADSSC but only a single award has been made to date.

Italy’s Impregilo will build the central 15.6km section between Mafraq and Mussafah. The $143m award was made in September 2009 and two other tunnelling contracts, along with contracts for link sewers and the pumping station, were expected to be awarded.

Sources: MEED; UK Trade & Investment

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