The long-awaited spin-off of water and sewerage infrastructure assets in the Kingdom looks to be imminent. Wastewater will lead the way in attracting private sector involvement.
Saudi Arabia’s National Water Company is on the cusp of starting the tendering procedure for the part-private SPVs that are scheduled to assume ownership and operation of water and wastewater assets in the country’s key cities.
As this month’s magazine went to press, NWC told GWI that within a week it would be inviting bids from consultants to advise on the formation of two special purpose vehicles which will deal with water and sewerage infrastructure – one covering Riyadh and the other covering the cities of Mecca, Jeddah and Taif.
This marks a change of tack from NWC’s earlier privatisation plans, where wastewater and potable water services were to have been privatised separately, the first through the formation of asset-owning SPVs, and the second through a series of O&M contracts.
NWC business development director Ibrahim Shirazi told GWI that while privatisation is still an evolving process, combining water and wastewater provision under the same business group is now seen as the best option. The proven income stream attached to wastewater treatment (through the sale of treated sewage effluent) would make up for the lack of a sustainable cost recovery method in the potable water business, which had previously proved a stumbling block for private investment.
“We are thinking aloud; it’s not yet decided,” he said. “But tentatively these two businesses will be clubbed into one, the water as well as the wastewater, and it will be a complete integrated approach. The logic is that treating sewage has a cashflow, it’s a cash-rich initiative, and this will sustain the water O&M costs to a great extent.
“O&M doesn’t give you a profit from day one, and it is a long, drawn-out process. So we felt that integrating the two would give the joint venture or SPV better commercial strength in the market.”
A request for proposals from potential private sector partners in the two SPVs is currently earmarked for the final quarter of this year, after consultants have carried out studies into setting up the groups.
Among the issues facing the consultants will be to what extent the SPVs will be responsible for investing in potable water treatment and distribution assets, and the precise role that the NWC will play in the groups. NWC is likely to be an active partner in the groups through an equity share of some kind, but the exact corporate makeup of the bodies has yet to be decided.
Private sector involvement in the Kingdom’s municipal water and wastewater service is currently limited to three management contracts covering water treatment, distribution, and wastewater collection in Riyadh, Jeddah and Mecca/Taif. These are held by Veolia, Suez and Saur/Zomco, respectively.
Shirazi said there would be a “gradual and smooth” transition between the management contracts and the new SPVs once they are set up.