Positive road ahead for wastewater projects
- From: Vol 6, Issue 6 (June 2005)
- Category: General
- Region: Middle East
- Related Companies: ABN Amro, Bilfinger+Berger, Black & Veatch, Denton Wilde Sapte, Galfar Engineering & Contracting, Hermes, Passavant Roediger, RWE/Thames (Water) and VA Tech (Wabag)
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The Middle East wastewater sector, once bereft of any significant activity, has started to see some action.
Wastewater projects in the Middle East, so often overlooked in favour of grand water supply and distribution schemes, are starting to make progress.
Last month in the emirate of Fujairah, a 33-year concession for the provision of wastewater collection and treatment services reached financial close and project advisers are now putting the finishing touches to prequalification documents for a contract to provide management support to the Oman Wastewater Services Company (OWSC), the government-owned organisation charged with building and operating the Muscat wastewater system.
The drivers for wastewater services are the increased economic activity in the region and increased immigration, both of which are putting pressure on existing systems. Many areas in the Middle East still rely on septic tanks, and in many cases sewage is still discharged untreated, with obvious consequences for the environment and public health.
However, there are signs that the region’s governments are waking up to the size of the task and the level of investment required to improve services – GWI’s Water Market Middle East estimates that $44 billion will need to be invested in the wastewater sector in the next 10 years. Several recent high-profile projects have helped kick-start the wastewater business including Kuwait’s award-winning Sulaibiya project, Jordan’s As Samra WwTP and the Ajman wastewater
project in the UAE. Generally, however, the sector has lagged behind the regional market for IWPPs.
According to Raj Kulasingam, a partner with law firm Denton Wilde Sapte, which advised on both the Fujairah and Ajman schemes, one of the problems has been overcoming the hurdles to getting wastewater projects done.
“Wastewater projects are generally less structured and there is no model contract,” he says. This compares with IWPPs, which usually have a structured bidding and negotiation process and have been tested in the market.
In addition, wastewater projects are regulated through a contract with a law often passed to match the contract requirements. IWPPs fall under detailed regulatory frameworks, such as the ones in Abu Dhabi and Oman. “This substantially reduces the regulatory risk,” says Kulasingam.
The biggest problem to date, however, has been charging for wastewater services. The developers of the Ajman wastewater project – RWE Thames Water and Black & Veatch – took the bold step of charging customers directly. Customers must pay an upfront charge to be connected to the system followed by a monthly service charge. If bills are not paid on time, the Federal Electricity and Water Authority (FEWA), which produces and distributes water and electricity in the northern emirates of the UAE, can cut off their electricity supplies.
“The Ajman structure is good in theory but has proved rather different in practice,” acknowledges Kulasingam.
While GWI does not have access to the Ajman project’s connection and payment data, it is believed that FEWA has been reluctant to terminate supplies because of concerns over its liability for disconnections. A lack of uniformity in disconnections is also thought to have resulted in the developers focusing on commercial and industrial accounts rather than domestic ones. And, as ever in this part of the world, there are some rather delicate political issues to overcome: “How can you disconnect the ruler’s brother or cousin?”, one observer asked.
The big difference between Ajman and the Fujairah and Muscat projects is in the allocation of retail risk.
In the emirate of Fujairah, project firm Tanqia FZC has been granted a concession by the government to design, build, finance, own, operate and expand a wastewater treatment and collection system for Fujairah, Qidfa and Mirbah, as well as a number of smaller settlements in the concession area. The main elements are a WwTP with an initial capacity of 16,000m3/d, a sea outfall, a 150km primary and secondary wastewater collection network, over 30 pumping stations and a digester for sludge treatment.
The project has been put together in such a way that construction, which is being undertaken by a consortium of Germany’s Bilfinger Berger and Passavant Roediger, is funded by connection charges while debt costs are covered by a fixed service charge. The key difference, however, is that the government bills customers and decides on the tariff. Connection and service charges are then paid to Tanqia by the government.
“One of the main lessons learnt [from Ajman] is that it is difficult to get consumers to pay for services in the future [through connection fees],” says Kulasingam.
By effectively removing retail risk from the Fujairah project, the developer was able to access cheaper sources of finance and the developer and lenders avoid a lengthy due diligence process. The project is being financed with a $100 million Hermes’ insured export credit facility from ABN Amro.
Muscat wastewater project
The region’s other big wastewater project, in the Omani capital of Muscat, is following a similar course. The structure is quite different from Fujairah but there is no question of a private partner taking retail or collection risk. OWSC, which has a concession to build and operate the wastewater system, undertakes billing and collection, and the eventual intention is to establish a regulator that will set tariffs and regulate the wastewater sector in Oman.
A number of projects are underway to construct WwTPs and collection networks, including a 53,000m3/d plant at Al Ansab that will use membrane bioreactor (MBR) technology supplied by Japan’s Kubota. The contractors are Galfar Engineering and VA Tech Wabag.
A prequalification process is due to be launched imminently for a private operator to provide management support to OWSC. “The idea is to recruit and train local people rather than outsource operations to a third party,” says Hughes Leglise of BNP Paribas, which is advising OWSC. The contract is likely to be for an initial five to eight years with the operator remunerated on a fixed and variable (performance-related) basis. A number of larger British and French water firms are believed to have expressed interest.
The operator will also be expected to develop a commercial strategy that generates revenues for OWSC from the sale of treated wastewater – OWSC’s intention is to provide up to 200,000m3/d of treated wastewater for reuse by 2025.
The Muscat contract is one of only a few competitively tendered wastewater projects in the Middle East – both Ajman and Fujairah were negotiated between the respective governments and developers. “This is a fully transparent process and the Omanis want to make it a showcase for the region,” says Leglise.