SWCC: Managing water

12 November 2004
Fehied al-Shareef has a job of strategic importance. Appointed governor of state-owned Saline Water Conversion Corporation (SWCC) in March, he is in charge of the biggest national desalination industry in the world, accounting for 25 per cent of global production. Through its 30 plants, SWCC produces some 3.4 million cubic metres a day (cm/d) of water, equivalent to 60 per cent of the kingdom's requirements. Without desalination, the country would grind to a halt.

It is not an easy job. Population growth, a wave of new industrial projects and agricultural usage in particular are driving up demand for the precious resource. The agricultural sector alone accounts for 85 per cent of the kingdom's water needs - the result of generous government subsidies to farmers in the 1980s. Despite attempts in the late 1990s to cut subsidy levels for the sector, the reduction in water consumption has been minimal to date. '[Total] water demand is rising by about 3 per cent a year,' says Al-Shareef. 'And it will increase to about 10 million cm/d in the next 20 years.'

In an attempt to quench the kingdom's growing thirst, SWCC has embarked on a two-fold strategy. First, it is financing a range of new desalination and water transmission projects out of its own pocket. These include the estimated $240 million programme to build six small and medium-scale desalination plants and a $900 million water transmission project in the western region (see table). Second, SWCC is pushing for greater private sector participation in the desalination sector.

Meeting these targets will not be easy - nor will it come cheap. Based on estimated per capita water consumption of 250 litres a day and a desalination target of 60 per cent of the country's total water needs, capacity will have to climb to 4.4 million cm/d by 2010 and 5.5 million cm/d by 2020. At the same time, SWCC is lumbered with ageing desalination plants, many of which will need to be decommissioned by 2015 as they reach the end of their 30-year life-cycle.

According to Al-Shareef, SWCC's capital expenditure on the construction of new desalination capacity will reach at least $4,000 million by 2020 - in addition to the $6,100 million in capital to be raised by the private sector for four planned independent water and power projects (IWPPs). Factor in operation, maintenance and distribution, and the desalination sector will need about $23,000 million by 2020.

The sheer size of the financial burden has inevitably led SWCC to look at alternative financing options, notably bringing on board private investors. 'As per resolution 5/23 of the Supreme Economic Council of Saudi Arabia, which is under implementation, great strides are being taken towards privatisation of desalination projects,' says Al-Shareef. 'Four IWPPs with desalination capacity of 2.2 million cm/d and power capacity of about 5,000 MW are already on the table and the RFP [request for proposal] for the first project - Shouaiba phase 3 - has already been issued. We believe that this will invigorate the desalination industry and a rising number of IWPPs, or IWPs [independent water projects] will come into being.'

By dint of being the first, Shouaiba phase 3 will be the benchmark for IWPP development in the kingdom. Considerable attention has been paid to the issue of guarantees on offer to developers, which will be critical in determining the success of this and future projects, given that water tariffs are low and customer non-payment is considered a risk. The Finance Ministry earlier this year issued two guarantees - a full termination guarantee and a protection against defaults on monthly payments - in favour of the offtaker, Water & Electricity Company, a 50:50 joint venture between SWCC and Saudi Electricity Company (SEC). Developers have been invited to bid for Shouaiba phase 3 by 8 January, and several major international players are preparing to

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