The Middle East and North Africa (Mena) wastewater sector has not felt the effects of the global economic slowdown as strongly as the region’s power and water industries. While power and water projects across the region have been put on hold due to a lack of available financing, the number of waste-water projects delayed or cancelled has been proportionately smaller.
But the sector has not escaped the effects of the downturn altogether. Over the past year, the start of construction on many new projects has been postponed while developers try to secure long-term debt. Two wastewater treatment plants planned for the world’s largest waterfront development – UAE developer Nakheel’s Dubai Waterfront – have been put on hold due to delays in the wider project. Governments have also delayed tendering schemes as they try to ride out the worst of the recession.
At the same time, projections about the impact of the downturn on the Gulf’s expatriate populations have led to revised forecasts of wastewater treatment demand. Expectations that the downturn in the region’s economy would bring about an exodus of foreigners have eased the immediate pressure on local utilities to deliver new wastewater treatment capacity.
The latest figures for power demand in the region demonstrate that the slowdown has had a significant effect on utilities in general. Growth in electricity demand in Dubai has fallen by about half to 6 per cent this year. Demand growth in Bahrain has fallen from 8.3 per cent in 2008 to 5.3 per cent in 2009. But in Abu Dhabi, demand growth has increased to 11 per cent from 8 per cent last year.
Demand for wastewater treatment has followed a similar course, and nowhere has this been more evident than in Dubai. The emirate has faced some of the biggest wastewater challenges in the region in recent years, with Dubai Municipality predicting 15 per cent growth in demand in 2009 and 2010, taking wastewater inflows to 700,000 cubic metres a day (cm/d).
But if forecasts by Swiss bank UBS that put Dubai’s estimated population decline at 8-17 per cent prove correct, the municipality will have spare treatment capacity up to 2013.
The dive in Dubai’s real estate prices – the value of villas in the emirate has dropped by up to 40 per cent since July 2008 – has had a knock-on effect on utility providers. As major real estate projects have been put on hold, developers have been forced to cancel or scale back planned wastewater projects.
In April, MEED reported that Nakheel had terminated an $817m contract it had awarded to France’s Degremont and Belgium’s Besix for the construction of a treatment plant at the Jumeirah Golf Estates development.
With a capacity of 220,000 cm/d, the plant would have been the largest in the world to use membrane bioreactor technology, an efficient combination of sludge treatment and filtration.
“Expectations that the downturn would bring about an exodus of foreigners have eased the pressure on utilities”
Nakheel has also cancelled the Palm Deira sewage treatment plant and cut the capacity of its planned International City plant in half, from 88,000 cm/d to 44,000 cm/d.
Meanwhile, neighbouring Abu Dhabi is pressing ahead with plans to expand its wastewater networks, as the emirate’s population continues to grow.
Abu Dhabi Sewerage Services Company (ADSSC) recently issued two tenders for the construction of 137 kilometres of gravity sewers, for which engineering, procurement and construction (EPC) contracts are expected to be awarded this month.
But even Abu Dhabi has not escaped the effects of the financial crisis. A tight project finance market has threatened to derail plans to build two new wastewater treatment plants in Abu Dhabi and Al-Ain. The developer, a team of France’s Veolia and Belgium’s Besix, has struggled to secure long-term finance and was forced to opt initially for a $500m short-term bridging loan.
For a time, it seemed Abu Dhabi Water & Electricity, ADSSC’s parent company, might have to step in and nationalise the projects, eliminating the need for project finance. But in September, 15 months after the contract was awarded, a group of eight banks committed $400m in debt. This was divided between a $384m, nine-year loan with an option to extend to 20 years, and a $20m standby facility. Abu Dhabi Commercial Bank, First Gulf Bank and National Bank of Abu Dhabi also provided a two-year bridging loan.
The project involves the construction of two plants in Al-Ain and Abu Dhabi under a 25-year, build-own-operate concession. The plants will have capacities of 130,000 cm/d and 300,000 cm/d respectively.
Private wastewater schemes in the wider region have also faced severe delays. In Saudi Arabia, National Water Company’s long-awaited sell-off of wastewater treatment plants in Riyadh has yet to materialise. The utility has not managed to secure a credit guarantee from the Saudi Finance Ministry for the build-own-operate scheme. With the project now severely behind schedule, the company is considering aborting the privatisation plan in favour of EPC contracts.
The original privatisation plan envisaged the sale of wastewater treatment plants in the Al-Kharj area of Riyadh. A private developer would operate an existing plant at the site, buy a plant that was under construction and build a 100,000-cm/d facility.
This would be followed by a separate bidding process for the privatisation of facilities at Manfouha and Al-Hayer, with the successful bidder operating existing capacity at Manfouha until 2015, when the plants will be decom-missioned. The private company would also take over a plant under construction at Al-Hayer and build a 400,000-cm/d plant.
A decision to abandon the build-own-operate model would be in line with the policy that the kingdom has recently adopted on other utility schemes. The government scrapped private participation on the Ras al-Zour and Yanbu independent water and power projects in April and July respectively.
Elsewhere, rather than completely abandon private projects, governments have waited for the worst of the crisis to pass before launching them. The Bahraini government, for example, first invited interest in the Muharraq waste-water treatment project in July 2008. It finally issued a request for proposals in late May this year and is now asking bidders to submit fully underwritten proposals. Developers have until 20 January 2010 to submit bids for the 100,000-cm/d facility.
In the meantime, the Bahraini Works Ministry is already planning its next build-operate-transfer scheme at Tubli. The project will involve expanding the capacity of the existing treatment plant by 120,000-cm/d to 350,000-cm/d. The scheme was originally to be delivered on a design-build-operate basis, but the Finance Ministry has not allocated a budget to it and is now pushing for it to be privatised.
Kuwaitalso seems to be undeterred by the slump in the project finance market. It is considering developing the planned Umm al-Hayman wastewater treatment project as a build-operate-transfer scheme. This would make it the country’s second private wastewater treatment plant after the Sulaibiya facility.
The Umm al-Hayman plant will be expanded from its current capacity of 27,000 cm/d to at least 300,000 cm/d, replacing an existing treatment plant at Riqqa.
Outside the Gulf, Egypt has made significant strides in the wastewater sector under its public-private partnership (PPP) programme, although this too was affected by the global economic slowdown. The Housing, Utilities & Urban Development Ministry awarded the country’s first wastewater PPP to a team of the local Orascom Construction Industries and Spain’s Aqualia in June, 18 months after the government launched the project.
While some delays were to be expected, given that the project was the first of its kind in Egypt, it is likely that some were the result of financing issues.
With one project successfully awarded, Cairo is now moving ahead with two more. In early November, it invited companies to prequalify for the 6 October wastewater treatment plant. A private developer will design, finance, build, operate and maintain a 150,000-cm/d wastewater treatment plant in the southern part of 6 October Governorate.
The government also plans to issue a request for qualifications for the planned upgrade of the 1.2 million-cm/d Abo Rawash wastewater treatment plant by early December.
With several projects now out in the market and more due to follow, it seems utilities are confident that financing will be available.
MEED Insight’s s GCC Wastewater 2009 report estimates that the region will need an additional 5.5 million cm/d of treatment capacity by 2015. This will more than double existing capacity, which in March this year stood at 4.2 million cm/d. The capacity boost will cost an estimated $9.8bn, or $15bn if associated sewage networks are taken into account.
The biggest requirement for new capacity is in Saudi Arabia, which will need 2.2 million cm/d of treatment capacity by 2015. The UAE will need 1.3 million cm/d and Kuwait will require 795,000 cm/d. An easing in the project finance market should make delivering a significant proportion of these requirements through private investors far more appealing.