National Water Company (NWC) may not tender the water management contract for the city of Medina in Saudi Arabia.

The company is currently considering alternatives to a management contract such as operations and maintenance contracts and concession agreements.

NWC’s decision also throws into doubt the future of upcoming management contracts for Dammam and Khobar. The deadline for bids was planned for August 2011 with an award in October that year, but these plans also look set to be reviewed.

A request for proposals (RFP) for the Medina contract was set to be issued in early-September. A source at NWC says this strategy is being reviewed and there will be a workshop on this issue on 6 October. “Originally we were thinking of a management contract [for Medina] but at the minute this might really change. NWC is studying a different model”, says the source.

When asked why NWC would want to change its strategy, the NWC official said “probably management contracts are not the most suitable solutions.” According to some industry experts, Saudi Arabia decided to offer a low-risk management contract to the market, presumably in the hope that the tender would draw as large a group of bidders as possible.

Saudi Arabia’s decision to re-consider its water management strategy may be due to NWC anticipating a low quality of respondents. 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.

A tender for a similar scheme that covers 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 last 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.