National Water Company to decide on water management strategy

30 November 2010

Riyadh may turn to operation and maintenance contracts for water services

Saudi Arabia’s National Water Company (NWC) is currently reviewing its strategy of tendering water management contracts and intends to make a decision on the type of contracts to be awarded for Medina and Damman by the end of December.

NWC originally planned to award water management contracts to serve the cities of Medina and Damman following the award of similar contracts for Riyadh, Jeddah, Mecca and Taif. A request for proposals (RFP) for the Medina contract was set to be issued in early-September 2010 and the Damman tender was to follow.

The state-owned company recently began to review its plans and may now award operations and maintenance contracts covering the entire water production and delivery system for each city instead.

Speaking at MEED’s Wastewater Treatment and Reuse 2010 conference in Abu Dhabi on 29 November, Nasser al-Aamry, senior manager at NWC, said that the smaller size of the upcoming contracts encouraged NWC to consider alternative options.

“When we award a management contract, the company acts as a consultant. We continue to work with them. With an operations and maintenance contract for a whole city, they become fully responsible for that city’s water,” said Al-Aamry.

“It would be impossible to issue such a contract for large cities, such as Jeddah and Riyadh, but it may be right for smaller cities such as Damman and Medina. A decision will be made by the end of December,” he added.

According to some industry experts, the water management contracts that Saudi Arabia has already tendered have drawn limited interest from large players, as they offer low-risk and low-return investment opportunities to the private sector.

Saudi Arabia’s decision to reconsider its water management strategy may be due to NWC anticipating a low quality of respondents for the Medina contract. By proceeding on an operations and maintenance contract basis, Saudi Arabia might expect to draw fewer bidders, but attract large companies with international expertise, which are comfortable with high risk and high upside. Al-Aamry acknowledged there are benefits, “We want to privatise, but we want to do it to our standard.”

A tender for a water management contract to cover Mecca and Taif only received two bids in May 2010. The Saur/Zomco bid was selected over only one other joint submission from Malaysia’s Ranhill, India’s Jamshedpur Utilities & Services Company (Jusco), and Saudi Arabia’s Al-Amal Group, despite 11 groups having been prequalified for the project (MEED 21:5:10).

The limited interest in the Mecca and Taif contract may be the result of several of factors. Firstly, the low-risk nature of the contract may appeal to smaller risk-averse and typically local companies, but large international players may have been put off by this as it implies reduced potential profits.

Also, running a management programme in Mecca as opposed to the larger metropolitan cities of Jeddah and Riyadh may have deterred some bidders.

In addition to the Mecca and Taif management contract, two other contracts have been awarded within the past three years to cover water services in Jeddah and Riyadh. The Medina contract was to be the fourth water management contract.

The first and second contracts tendered – for Riyadh and Jeddah respectively – drew a healthy level of interest. France’s Veolia Water won the $60m contract for Riyadh, while French competitor Suez Environnement took the $70m Jeddah water management contract.

Saudi Arabia’s Ministry of Water and Electricity first unveiled plans to introduce competition into the country’s water sector in 2007. The process was formally started in early 2008, with the tendering of a contract to manage Riyadh’s water networks.

The objectives of the contracts include reducing water leakage by half, ensuring continuous water supply and connecting up more homes to the wastewater network. The tendering was started shortly before the kingdom’s NWC was formed and took over the process.

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