Navigating the changing dynamics in the water sector

25 October 2018
Water management solutions provider Metito is not afraid to take calculated risks, says the UAE firm’s managing director Rami Ghandour

The Middle East and North African water sector is undergoing several major transformations as governments seek to meet the rapidly rising water demand from growing populations and industrial diversification initiatives.

In the GCC alone, MEED forecasts that water demand will increase by 62 per cent by 2025, with $80bn-worth of water projects currently planned or under way. In tandem with the growing demand for water is a push for privatisation, with governments turning to the private sector to help finance utility projects as part of wide-reaching economic reform and development programmes.

One regional company well-positioned to prosper in the changing water market is UAE-based Metito. Founded by the Ghandour family in Beirut in 1958, the company has steadily grown throughout the region and internationally, now operating from 21 offices with a workforce of more than 2,500.

Evolving role

According to Rami Ghandour, the firm’s managing director, the group’s structure enables it to participate in projects across the spectrum in various roles, from developer to contractor.

“Historically we were an EPC [engineering, procurement and construction] contractor, then we entered the concession business,” says Ghandour. “We secured the first two [water] BOT [build, own, operate] concessions in the region, both signed in 1999; one was for a wastewater project in Dubai and one was for a desalination water supply project in Sharm el-Sheikh in Egypt.”

Following its early success in the region’s pioneering water concession schemes, Metito moved to restructure its expanding business to boost its competitive advantage in a changing market.

“As the concession business started to grow, we decided to structure it into a completely separate entity,” explains Ghandour. “In 2007, we established Metito Utilities, which is the investor and operator of assets, and Metito Overseas is the EPC company. Sometimes they work together, but there are projects where both entities have worked with other contractors or developers. It depends what is optimum for the project.”

IFC investment

According to Ghandour, the decision to structure the group into two operating companies was influenced by the investment from the Washington-based International Finance Corporation (IFC).

“When IFC became a shareholder in 2007, that was one of their recommendations,” he says. “They said you don’t have the right financial structure; it would be better to separate the two entities to make sure pricing is done at market rates. It has now been 11 years since we implemented that structure, and so far it has been quite successful.”

Evidence of this success was provided in September, when a Metito-led consortium submitted the lowest tariff price for the Dammam independent sewage treatment project (ISTP) in Saudi Arabia, the kingdom’s first public-private partnership (PPP) wastewater scheme. Ghandour is hopeful that progress with Saudi Arabia’s maiden PPP water schemes will lead to a substantial pipeline of schemes and opportunities for investors.

“The Saudi privatisation programme has been talked about for a long time, and finally it is here, so we are very focused on this; there should be a huge programme to follow,” he explains. “Dammam was the first one on the wastewater side, but similarly there is a number of projects on the desalination and water supply side. We participated in the Shuqaiq IWP [independent water project] and are waiting for results. We were very happy we were able to demonstrate such a competitive offer for the Dammam project, and are looking forward to it going to the next stage.”

PPP growth

Ghandour notes that Saudi Arabia is not the only country moving towards using PPP models to develop water projects.

“In terms of what is happening more macro-scale, we are seeing the change across the region,” he says. “Government entities are looking at how they can optimise their use of capital, how they ensure things are done efficiently, on time and on budget. They have come to the conclusion that PPPs are a winning formula – and that is why we are seeing an increase in these type of projects across the region.”

While a quest for private capital from regional governments will offer increasing investment opportunities, Metito’s EPC arm has also remained busy as utilities seek to ensure supply keeps up with the growing water demand. Ghandour highlights Egypt as a market that has proved a fertile hunting ground for the group in recent years.

Egypt opportunity

“There is a huge opportunity in Egypt, given the population and need to diversify,” he says. “We have built the largest plant treating the River Nile’s water in 6 October City, and now the government has taken the decision to push for desalination in other regions. Earlier this year, we commissioned an 80,000 cubic-metre-a-day (cm/d) plant in Hurghada, which was Egypt’s largest desalination plant at the time, and we have just recently commissioned the first 150,000-cm/d stream of Galila. We are already in discussions to expand this and build another desalination plant at Port Said.”

While Egypt’s push to develop desalination and water treatment plants through PPP have stalled in recent years, Ghandour is hopeful that Cairo will make progress in implementing privately financed schemes in the near future.

“Currency concerns was a major issue,” he explains. “We hear they are now considering a position on currency protection, which could lead to a whole load of bankable projects; hopefully this will happen.”

Calculated risk

While Egypt will remain a risk for many investors in the near future, Ghandour says Metito is not averse to risk for the right projects.

“We will take a certain degree of risks compared with our competitors,” he says. “If we can manage aspects of the risk and can ensure it is bankable, we are not afraid to invest and we are keen to push into new markets.”

Ghandour highlights a project Metito is currently developing in Rwanda as an example of the firm’s willingness to take on new challenges.

“This is the first PPP water supply project in Sub-Saharan Africa in Rwanda, and so a landmark scheme for the region,” he says. “The technology is not that sophisticated, but the challenge is how you structure it and have the right financial structure in place to make it work.”

Technology drive

The push for efficiency and clean energy is another changing dynamic affecting the region’s water sector, says Ghandour.

In addition to the switch towards reverse osmosis (RO) technology to facilitate the decoupling of power and water assets, the integration of clean energy into the water sector is set to become an increasingly prominent part of future schemes across the region.

“We are constructing a project right now in King Abdullah Economic City in Saudi Arabia, which is a desalination plant with a capacity of about 30,000 cm/d, and part of that will be powered by a solar plant,” says Ghandour. “That is our first venture into a commercial solar facility, and I think we will see a lot more of that.”

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