Saudi Arabia tests case for wastewater privatisation

04 December 2009

The public-private partnership approach adopted for the Riyadh and Jeddah wastewater networks is a model for the development of the sector in Saudi Arabia, with similar schemes planned across the country

Saudi Arabiahas come under increasing pressure to meet the needs of its large and rapidly growing population. Demand for water is growing at 6 per cent a year and, although the kingdom owns nearly a quarter of the world’s desalination capacity, it has to cope with ageing water networks and poor coverage in cities such as Riyadh and Jeddah.

Wastewater treatment will help meet some of the demand. The Saudi government is two years into a major overhaul of its water and wastewater industry, and has turned to the private sector for help. The National Water Company (NWC) was set up in 2007 to provide services to 13 regional directorates previously managed by the Water & Electricity Ministry.

“A further nine locations have been earmarked for privatisation in the coming five years”

Its mandate is to push through an extensive privatisation programme, which began last year with the award of two $60m contracts to French companies Veolia and GDF, to operate networks in Riyadh and Jeddah respectively. Ten similar private-public partnership (PPP) contracts are due to be awarded, covering the water and wastewater systems of Saudi Arabia’s largest cities.

The Saudi government has set aside $40bn to ensure full coverage of the kingdom by water and wastewater services by 2030. An additional $17bn will be spent on operations.

Limited coverage

Only 45 per cent of the country is provided with sewage collection services, with particularly poor coverage of cities such as Jeddah, where the figure is only 11 per cent. More than half of the budget has been dedicated to sewage collection.

Another target is water reuse. NWC plans to set up a dedicated company to market and sell treated sewage effluent, with a view to selling stakes in the entity at a later date. Only 18 per cent of treated water is reused in Saudi Arabia, accounting for just 6 per cent of the drinkable water supply. NWC estimates this figure could rise to 70 per cent over the next 25 years.

A test study has been made of Riyadh, where NWC estimates 1 million cubic metres a day (cm/d) of treated sewage effluent could be available, with a market identified for about 80 per cent of the product. Some 800,000 cm/d of treated wastewater can be used for irrigation, landscaping, district cooling and recharging aquifers. The incentives for private operators – or stakeholders – have also been clarified. If the treated effluent is sold at a conservative price of $0.53 a cubic metre, it will bring in revenues of about $4bn over a 25-year period.

The most pressing item on the agenda is privatisation. The PPP model adopted for Riyadh and Jeddah is in many respects a test case. The six-year contracts, which cover both water and wastewater services, could be replaced with long-term concessions. Alter-natively, full -privatisation of the networks could be -considered.

Consultants have been appointed for the next stage of the PPP process, covering the Dammam/Al-Khobar conurbation on the Gulf coast, as well as Medina, Mecca and Taif to the west. A further nine locations have been earmarked for privatisation in the coming five years: Buraida, Onaizah, Khamis Mushayt, Abha, Tabuk, Jubail, Hofuf, Al-Mubarraj and Yanbu. Together, the cities are home to about 60 per cent of the Saudi population and account for three-quarters of the kingdom’s drinking water supply.

The second phase of the programme covers the sale of wastewater treatment plants to the private sector, starting with Riyadh and then Jeddah. NWC will act as offtaker and take a 40 per cent stake in each project company. As well as operating existing assets, the company will build and finance new projects on a build-own-operate basis, under a 25-year concession programme.

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