Saudi wastewater strategy is still privatisation

27 January 2010

Once the regional economy picks up, the government’s privatisation drive should gather speed

These are worrying times for private utility developers in Saudi Arabia. The National Water Company’s (NWC) decision to tender the construction of a new wastewater treatment plant at Al-Kharj, Riyadh, under an engineering, procurement and construction (EPC) contract has raised fears that the country’s privatisation plans could be abandoned.

The project is the third utility scheme in the kingdom to shift from private to public in the wake of the global economic crisis. But the changes are just a reflection of the current tough economic conditions. Once the regional economy picks up, the government’s privatisation drive should gather speed.

NWC had intended to offer the latest, third phase of the Al-Kharj project to private companies on a build-own-operate basis, but its failure to secure a credit guarantee from the Finance Ministry forced a rethink.

This is NWC’s first ever EPC project and progress has been slow. Under the original schedule, companies were due to submit their bids on 1 January, but the client has not yet even prequalified any of them to bid. In the meantime, NWC’s other wastewater treatment plant privatisation projects remain intact.

Ultimately, there is no harm in delaying privatisation until a government guarantee is in place and the project finance market has recovered. In any case, NWC could yet sell off the Al-Kharj Phase 3 plant to a private company once construction is complete, together with other existing facilities at the site.

Saudi Arabia cannot afford to wait to bring wastewater infrastructure on line. It is this urgent need for new capacity which has forced NWC to act on the Al-Kharj scheme.

Developers should be reassured that this is almost certainly a temporary tactical shift to cope with the current economic environment, and does not signify a change of strategy.

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