Sadyt aims for the big time

Subscription required

As a guest you can read up to 3 full articles before a subscription is required.

You can read a further 2 articles for free.

Subscribe Now, Sign up for a Free Trial, Log In

Sociedad Anónima de Depuración y Tratamientos has ambitions to become a major player in the desalination market at home and abroad. Richard Weyndling talks to managing director Manuel Rubio.

Sadyt is a medium-sized desalination and water treatment company. Established in 1995, it is based in the south-eastern region of Murcia. It is part of the Sacyr Vallehermoso construction group and has 45 desalination plants, either constructed or in the process of construction, with a total capacity of over 400,000m3/d. In three of these plants the company also holds the operating contract.

In 2004, the company was a member of the winning consortium in the bidding for two desalination contracts in Algeria worth $250 million in total: Skikda (100,000m3/d SWRO) and Oran (150,000m3/d). It also won the contract for the Alcudia plant in Mallorca, where construction is due to start this month.

Company turnover last year was €12 million and after-tax profits €0.6 million.

How would you evaluate the company’s performance in 2004?

In terms of profitability, it was a very good year but in terms of consolidated turnover it was less good because of delays with projects. From a business point of view, we had a very good year because we increased the size of our order book by a factor of 10 but in terms of production it wasn’t good, things didn’t go as we had hoped and part of our work has been held over to this year.

What has the strategy of the company been since its creation in 1995?

It was very conservative in the first years – growing in response to the work available. It has to borne in mind that we started up in a year in which there was a big demand for water but the market was already very mature, so the first four or five years were really difficult.

We had limited resources and we didn’t grow by spending money in advance of production. They were slow years in which our young workforce developed their skills. I started the company up, laying the first bricks of our first office with my own hands. I had to recruit all the staff and find the outside technical support myself.

So they were difficult and very variable years, one year being much better or worse than another. I came in from working in Pridesa, which was the number one company in Spain, and found myself in a situation of competing with the numbers one, two, three and four strongest companies. After the first five years, we achieved more stability and got more of a name for ourselves. Then in the last two years we have really begun to take off and we hope that in the next four years we will reach our target of getting on a par with the leading players.

Sadyt appears to be a company with very strong local roots in the south-east.

That was true originally, but we’re moving away from our roots because you have to get out into the world. We began in our local niche market, which was providing desalination plants for irrigation because there was a big demand in Murcia and Almeria and it enabled us to consolidate ourselves technologically, but that is changing.

Last year we opened a new line of business treating industrial water and that has led us to open an office in Madrid.

Our vocation now is to be an international player in all modesty. It is such a difficult and mature market that if you don’t diversify and innovate and look for opportunities elsewhere you haven’t got a future. Something like 40% of our turnover in the coming years is going to be from exports. We’ve started in Algeria but there are other places and I hope to be able to announce some more news before long.

The Spanish industry should be making the most of its opportunities in export, firstly because we’re number one in terms of technology, nobody anywhere in the world can teach us anything about how to build a desalination plant because we’ve been doing this for 25 years, secondly because here there is increasingly less work when you bear in mind how many companies are competing, and thirdly because exporting is good, it’s healthy.

It’s difficult to negotiate but it offers decent profit margins and there are new markets opening up.

Turning first if we may to the Spanish market, we appear to be on the verge of the biggest opportunities ever in desalination. Figures like €1,650 million in investments without including European funding have been mentioned. What do you make of this new opportunity?

This is a big new opportunity. There was a boom in Spanish building from approximately 1990-96 and if you put all the new projects together, this will be an explosion even bigger than that period. But all the investment is not going to happen at the same time.

Of the 22 projects, half are medium- and long-term and there won’t be much movement for two or three years, and with the other half, complications will slow progress in 50% of these too, so I don’t think we’re going to go back to a period like the early 1990s. If you add up all the investment this is the biggest programme, but it will come through in stages.

But we are talking now about very large plants.

Yes, that is the difference. But we’ll have to wait and see with this as well. The big 100,000m3/d plants aren’t always the right solution. It can sometimes be more expensive to transport the water than to build two separate plants.

Above 35,000m3/d, the rise in construction costs is lineal so there are no more economies of scale – so it makes little difference building two of 50,000m3/d or one of 100,000m3/d. The operating costs are a bit higher in the first case because of labour, but the difference is not that large and the transport costs can be greater.

So now they’re thinking of building big plants in some places – up to 150,000m3/d – and then plants of 30,000m3/d or 40,000m3/d in other places.

I imagine all these new plants will also offer considerable business opportunities in terms of contracts of operation too.

That’s the most important thing. Now the construction contracts go together with management. Even when they are not OT contracts, they are construction and exploitation.

A concession is not always appropriate, especially when the plant can be paid for with European funds. But the important thing is the question of operation because we can be talking about 15-17 years for the life of a plant. And when you’re operating a plant, you experience new situations and learn new things, that’s the way to progress. The construction process in itself doesn’t teach you as much.

How much do you estimate this business could be worth with these new plants?

The first batch of plants could produce 500,000m3/d and if you multiply that by $0.75, you’re talking about a business worth around $350,000 a day.

Turning back to Sadyt, how well is the company positioned to compete for these new contracts?

In technical terms, we’re in the first five. We’re not technically limited in any way. We have the ability to adapt as well because we haven’t been around long, and we have grown from a very small base and have a different way of doing things from desalination companies of the past. We are a new generation of membrane technologists, we’re more flexible.

Do we know when these new contracts are going to come out?

The initial consultants contracts in six different areas have been awarded and by the summer, AcuaMed [the publicly-owned water company responsible for running the desalination plant construction programme] will have received the recommendations from the six areas about exact locations; because they know what they are doing in AcuaMed, they should be putting out tenders before too long after that.

In some cases the bidding stage will take longer than others because of environmental questions and local complications, but we should have the first contracts awarded at the end of this year and more next year. Some of the projects are to increase the capacity of existing plants and these will be the first to reach completion.

As you have noted, the Spanish market is competitive. There are some big desalination companies out there. You have direct experience of one company, Pridesa. What is your view of the competition?

There are three groups of companies. There are four or five big companies. Then there is a group of medium-sized companies in which I would include ourselves, who are well placed technologically-speaking and have the capacity to grow.

Then there are a lot of small local companies working principally in industrial water, a market worth €250 million a year. There aren’t quite as many working in desalination but it is similar.

Some of the bigger companies are moving out of desalination. Pridesa is up for sale – it’s moving into services a lot. It has a turnover of €110 million with €50 million of that coming from services and what is strictly speaking engineering, and the construction of desalination plants accounting for €60 million.

It’s not excessively buoyant at the moment. Degrémont does a lot of industrial, it is a bit smaller with a turnover of about €80 million, but its figures are not altogether clear because they are consolidated with Paris and so its not clear how much of that is Spanish business.

Inima is largely concentrating on the international market. Cadagua, with a turnover of €70 million, is the most stable company at the moment.

How do you explain Thames selling its Spanish desalination interests just when this big business opportunity has appeared on the horizon?

For me, this goes beyond Thames and has to do with RWE. At one time, energy and water were considered two services that went together. And then a couple of years passed and it was discovered this wasn’t true. It’s also true that our business is not excessively profitable.

It’s a business where you have to fight for work with margins of perhaps 5%. So if they’ve got money to invest, they can invest it in a gas-fired power station or a gas pipeline somewhere, where they can get 12%. Also, at a world level, for the half dozen companies who are out there competing globally, there isn’t work for everyone.

Perth came up, then two years ago there was Mexico, there are a couple more in Australia that will come up in the next few years. India’s got some projects but they are very complicated, UAE has got one and Saudi Arabia’s got another three coming up.

In the end there will be two or three new projects coming up per year. One for Ionics, one for Black & Veatch with I don’t know who, one for Degrémont-Suez. So Pridesa has taken the London plant and the refit of the Tampa plant, which is a box of surprises – it’s a very complicated job, which has taken a toll on the companies that were working the project before.

The London plant looks as if it will go ahead and be reasonably profitable.

Why did you decide to move into the international market? Sadyt had very little previous experience.

That’s true, we had only built a little plant in Jordan back in the 1990s. We decided to go for the international market because there are few opportunities here. When you’re not doing much business you have to get out and hunt it down. And in this market there are good hunters. The smaller companies have to take measures in order to survive.

What factors are important in winning contracts such as those in Algeria last year?

It wasn’t easy. Our success in Algeria was not our first attempt to win a contract abroad. We’ve been in negotiations with people in the Far East and in the Middle East. We’ve done some trial projects in Chile and other parts of Latin America.

You have to select the project very well. There are opportunities in India and in Turkey. In fact the Indian Ocean region is going to be a magnificent market. The drawback is that these places are very far away.

In Spain, we’ve lost the global perspective we might have had back in the days when we had our empire in America. I notice that the people I meet from other countries such as Britain or Germany have a much more aggressive approach.

One has to make several attempts before pulling something off. We formed the Geida consortium with the other desalination
companies in 1993 and we worked for a year and a half before getting the contracts in Algeria. It’s not easy dealing with people over there. They have pretty Kafkaesque ideas about project finance.

As regards the competition, Ionics got the first contract and the French didn’t compete. They haven’t got into the water market in Algeria.

What are the objectives for Sadyt in the medium term?
We’d like to increase our involvement in industrial water treatment. Providing services to industry is an ever-more important sector of the business. With desalination, we can do more business in the international market and where we see the biggest potential for growth. By 2007, we hope to have increased our turnover by 400% from €12 million to €45 million.

The new opportunities offered by the desalination plant-building programme here in Spain are real. We’re talking about the
construction of 500,000m3/d of new capacity in the first phase. And though there are bound to be problems, the programme will go ahead.

The people in charge at AcuaMed are people who have tremendous experience in the field. I have a lot of confidence in them.