PRIVATISATION: Biwater buys into the new Gulf agenda

27 January 1995

The impression created by big budget cuts in the Gulf states is that markets may be shrinking in the year ahead. Governments may indeed be setting out to spend less, but the private sector will have every opportunity to spend more. Instead of contracting, markets are changing. Public utilities that were once off-limits to private money are being thrown open to new ideas. Privatisation and new private initiatives in the Gulf could mean more business for companies that take up the challenge.

The UK's Biwater International is one company that sees major opportunities for growth in the region's new approach to infrastructure. 'We believe that the region's water sector is in expansion mode,' says Paul Bradley, director for the Middle East and Far East at Biwater. 'We are looking to raise our profile.'

For the past two years, Biwater has been scoring well in the region. It has won two of the largest contracts tendered in the Gulf for expansion of sewage treatment plant capacity and taken an operations and maintenance contract (O&M) on the Cairo wastewater project. It has reopened a regional sales office in Abu Dhabi and sponsored a water management conference in Bahrain. The company is aiming to build upon this and respond to the needs of regional clients who are looking for new investment in the Gulf's infrastructure.

Biwater has built its Middle East reputation on turnkey contracting. It is involved in the $100 million expansion of the Mafraq sewage treatment plant in the UAE. In Qatar, it is nearing completion of a $12.6 million contract, won with Qatar Building Company, to extend the Doha west treatment plant.


However, turnkey contracting is only one strand of Biwater's business capabilities and there could much greater demand for other skills in future. Says Bradley: 'Regional clients are placing greater emphasis on efficiency. The need to contain capital expenditure will lead to more attention being given to rehabilitation of existing facilities.'

Biwater already has a solid background in rehabilitation work. It is working on a $20 million programme to rehabilitate 14 pumping stations in Abu Dhabi city and executives are upbeat about future prospects. 'Biwater is well placed to contribute. We can use our technical expertise, such as our process capability, to the client's benefit. We also have the work experience. For instance, at Tubli in Bahrain we have done two extensions to the plant in the past 10 years, so we know it inside out,' says Bradley.

Biwater banks on its reputation and past experience in the region as the best recommendation when plans for greater private sector participation are canvassed. 'If, as a company, you are known to have performed, it gives people some confidence when new ideas are under consideration,' says Bradley.

Biwater is best known as a contractor but it is also an experienced investor with holdings in two privatised UK water companies. This gives it some insight into the challenge of privatisation and it is keen to learn more about prospects in the Middle East. 'We are very interested to hear other people's views on the issues and that is why we decided to sponsor the conference in Bahrain,' Bradley says. 'Governments need to understand the benefits of local and international private sector participation and set out a policy framework,' he adds. 'At the same time, we have to recognise that it is a traditional region.'

Plans for boosting private sector involvement in infrastructure vary from state to state across the Gulf. In Qatar, Biwater has recently submitted a report to the government which includes proposals for management lease contracts. These would keep facilities under public ownership but contract out operations and maintenance to private companies. The approach is similar to current practice in Saudi Arabia and could one day be extended to include actual private sector ownership.

Biwater is also monitoring a far more ambitious project, the Muscat wastewater scheme. The Omani government is considering proposals from at least four consortia for a fully fledged build-own-operate (BOO) scheme.

The successful bidder will set up a company, with a minimum capital equivalent to $52 million, which will become a proprietor, owning and operating the existing treatment plant and conveyance system for 30 years. In addition, it will be obliged to build new facilities, to include several wastewater treatment plants, 138 district pumping stations and more than 900 kilometres of main gravity sewers. The cost of the network expansion is estimated at more than $500 million. The company will recover its costs through customer tariffs, household connection fees, and the sale of treated water to the municipality.

The Muscat wastewater scheme is the first proposal of its kind in the Gulf, but it is based on a tried and tested method which has been adopted elsewhere with mixed results. 'We have 10 years of experience in pursuing this type of project and we have seen only a limited number proceeding,' says Bradley.

The Muscat proposal has one key advantage over some schemes which failed. 'In such projects, the most important aspect is a commitment of policy by the government. There has to be some framework,' Bradley says. Oman has just implemented the Manah independent power project and is keen to build on that experience. 'That scheme proves the obstacles can be overcome,' he says.

The wastewater project also meets other key criteria. 'A project must be affordable and viable in its own right,' Bradley says. The government is taking a pragmatic approach, with the investment staggered over an eight-to-10-year period.

Biwater is closely following other private sector water schemes in the region. In Bahrain, it has teamed up with the Kuwait-based Gulf Investment Corporation (GIC) to bid for the planned BOO desalination plant at Muharraq. Biwater will act as the technical partner in the group, providing its reverse-osmosis technology. The plant is expected to have a capacity of 135,000 cubic metres a day and cost more than $200 million.

In late November, the company signed a declaration of intent with Pakistan's Water & Power Ministry to set up a 15-MW hydroelectric scheme at Sai, near Gilgit in the north. The project cost is estimated at $30 million.

Bradley realises that private sector infrastructure projects may lack universal appeal. 'From an investment aspect, one of the problems is that the returns are rarely spectacular and often long term,' he says. The process has to be proven and projects cannot afford to fail if the idea is to gain wider acceptance. Bradley is confident that the merits of increased private sector involvement will eventually be recognised by both customer and investor. 'To Biwater, private sector participation ensures a long- term presence. It also means that you are there, on the ground, to solve any problems that may arise.'

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