Getting serious about water management?

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Building new capacity is a waste of money if the distribution network is not managed properly. Gulf countries have a poor record in this area but there are signs that this is changing. However, it may not be soon enough for some.

Water production in the Gulf may be a booming business, but distribution and wastewater treatment remain largely neglected areas. The general picture is one of high leakage rates, low wastewater coverage and low tariffs. Unfortunately, the less glamorous nature of this business meant that it got pushed to the third day of MEED’s 2nd Power and Water Conference, by which time a number of the delegates had already left.

Traditionally, the region’s public water agencies have been happy to discuss their future investment programmes but have shied away from talking about issues such as network losses, billing and revenue collection. The consequence of this is that there is very little publicly available information on these statistics. Average losses due to unaccounted-for water (UFW) are either in the 20-30% range or as high as 50% for some countries, depending on who you talk to.

The biggest problem in this respect is tariffs. Average domestic water tariffs in the whole Middle East region are low by international standards and do not reflect the true economic cost of producing and supplying water and collecting and treating wastewater. It is common practice in many countries for nationals not to pay for water services. This means that water agencies must be heavily subsidised by central government. The only profit-making public water agency in the Gulf is reckoned to be the Dubai Electricity & Water Authority (DEWA), solely by virtue of the fact that 60% of Dubai’s population is comprised of
expatriates who pay their water bills.

The lack of confidence in the tariff regime means that private sector participation (PSP) in this field is extremely limited. With the exception of RWE Thames Water, which has a shareholding in the Ajman Sewerage Company, few international private water companies are involved in BOT projects or concessions in the Gulf. A cursory glance through the list of attendees at the Abu Dhabi meeting suggests that not many of them see future business opportunities there either. GWI could only find representatives from Thames and the Saur Group.

Saur’s Charles Dupont, a deputy director with the company, did not hold out much hope for change. “Where there is no confidence in the stability of tariffs, water companies will not be prepared to take risks,” he said. He also made it clear that his company was no longer prepared to invest in assets but was instead focusing on managing water and wastewater plants and networks.

Dupont suggested that there were three types of private sector contract that could be made to work in the future: a management
contract, probably based on performance targets, where the contractor assisted the public water agency to manage a transition
process or implement new technology; a lease agreement under which operations are privatised but managed in close partnership with the water authority; and a BOT or concession in partnership with a financial investor. Under the last option, the investor would invest, leaving the operator to run the system according to agreed financial and contractual requirements.

Eryl Edwards, Thames Water’s country director for the Gulf states, admitted that moving to a system where end-users pay for water would be extremely difficult. In addition to its work in Ajman, Thames has been limited to acting in an advisory capacity for a distribution project in Al Ain in Abu Dhabi Emirate (see below).

However, there are signs that public water agencies in the Gulf are paying more attention to potable water once it has left the
treatment plant and taking their role of collecting and treating it prior to discharge to the environment more seriously. The most common approach involves a government-owned company, or partially private entity, entering into an O&M contract or JV arrangement with a partner. A summary of recent developments is given below:

Abu Dhabi
Two companies distribute and sell water and electricity at the municipal level. The Abu Dhabi Distribution Company (ADDC) sells water in the municipal area of Abu Dhabi while the Al Ain Distribution Company (AADC) supplies water to customers in the municipal area of Al Ain. Both are wholly owned subsidiaries of the Abu Dhabi Water and Electricity Authority (ADWEA).

At the end of 2004, ADWEA announced that it was going ahead with the privatisation of both companies through a private placement. BNP Paribas is advising ADWEA on the transaction; ADDC is being advised by Hyder Consulting and PB Power, while AADC is working with Thames Water and Siemens. The likely outcome is the sale of a 10% to 20% stake in both distribution companies and a limited O&M contract.

Oman
There is already contracting out of meter reading and billing in Muscat. Wastewater services in the capital are provided by the government-owned Oman Wastewater Services Company (OWSC). Its objective is to provide a service through sewer networks to 80% of the population of Muscat by 2014 and to 90% by 2017 and to provide 200,000m3/d of treated water for reuse by 2025. The current sewerage coverage rate is 13%.

OWSC’s strategy has been to tender construction work including sewage treatment plants, pumping stations, sewers, house
connections and treated effluent pipelines on an EPC basis. This approach allows for the gradual expansion of the system.
However, OWSC is not capable of operating the assets and is considering the most appropriate option. For the moment, it has tendered O&M work on a short-term basis, but it favours a joint venture approach and has appointed a team of advisers to help it set up a JV.

Saudi Arabia
The Ministry of Water and Electricity (MWE) has been working on a water rationalisation programme since October 2004 to reduce what it describes as the “unnecessary use of water”.

This has involved handing out free conservation kits to households in the first phase of the programme and to large users such as schools, mosques, hotels and government buildings in the second phase. The kits include conservation devices such as toilet tank displacement bags. Deputy minister of planning and development Loay Al-Mussallam told GWI that nearly four million kits had been ordered and about one million distributed to households. A further 5.6 million conservation items had been ordered for public buildings.

The Kingdom’s other major demand management initiative involves the reduction of leakage in big cities. MWE is undertaking an operational audit of water and wastewater services and says that a negotiation process with water companies is in progress for the award of contracts in Riyadh and Jeddah. RFPs have been issued for Madinah, Dammam and Al-Khobar. At the end of the assessment, MWE could delegate the management of city distribution networks to private companies.

Qatar
Qatar has explored privatisation of its water transmission and distribution network. A 2003/04 study by Germany’s Fichtner
recommended the phased introduction of cost recovery tariffs and sector reform, including the introduction of an independent regulator.

However, Yousuf Janahi, manager of corporate planning and business development with Kahramaa, said that privatisation remains a vision for the future. New water network projects in Qatar will continue to be financed by the state. According to Janahi, the budget for water transmission and distribution projects between 2005 and 2009 is $506 million.