The key to solving Jeddah’s water crisis

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The focus of the gradual unbundling of Saudi Arabia’s municipal water infrastructure has moved on to Jeddah. The timescales are tight.

The seven-year contract to manage water distribution and wastewater collection for the city of Jeddah is expected to be signed at the end of March 2008. The race to the finish-line kicked off with the issuance of RFQs at the roadshow hosted by MOWE on 24 July, and qualified bidders are expected to be chosen on 20 August, with the request for proposals set to be dispatched the following day.

The consultancy team of CRA International, Ernst & Young Consulting, Hyder Consulting and Freshfields/Prima Law has been working closely with the team overseeing the Riyadh management contract, and the similarity between the two PPPs led to the Riyadh pre-qualifiers being advised in mid-July that they would automatically pre-qualify for the Jeddah contract. While this is all very well for the teams who did not bid for Riyadh, it leaves very little breathing space for those who are gunning for the Jeddah contract, but did not make it through to the Riyadh prequalification stage.

There have been some grumbles at the tight two-week schedule given to firms to prepare their statements of qualification for Jeddah, though any shift in the timetable could potentially bring it into conflict with key dates in the tender processes for the wastewater contracts in both Riyadh and Jeddah. The shifting of the bid deadline for the Riyadh management contract indicates that the ministry’s rigid timescales can be moved, though MOWE officials will be doubly keen to see that this does not happen again.

Two of the key priorities of the Jeddah contract are to improve the intermittent water distribution pattern to Jeddah’s three million inhabitants, and to reduce non-revenue water figures from their current level of more than 30%. These issues are already being addressed under a “quick wins” contract (see story p9), but in order to ensure that these objectives are fully met, the seven-year term of the contract includes a 12-24 month KPI validation period, during which baseline performance will be assessed in order to pave the way for the introduction of a performance-based compensation scheme.

The contractor will get a monthly fee, and will be entitled to capped performance-based payments based on a system of KPIs and deliverables, which will be “realistic and achievable,” according to Loay Al-Musallam, deputy minister for water. A capped penalty system will also apply.

The target entity for the management contract is the Jeddah City Business Unit (JCBU), one of two arms of the Jeddah Branch of the soon-to-be-formed National Water Company (see figure p9). Under the terms of the management contract, the JCBU will be run by the private operator, and MOWE is in the process of selecting the management team. The contractor will then work with the NWC to appoint all other levels of personnel. As part of the process, up to 1,500 staff employed by the Jeddah Water Directorate will be seconded to the JCBU.

Although the NWC will provide the capital investment throughout the duration of the initial management contract, the intention is to implement a full-blown concession once the seven-year term has expired. Al-Musallam has warned against assuming that the original contractor will automatically be re-appointed (see GWI, February 2007, p22), but the incentivised compensation mechanism should ensure that the contractor performs to a sufficient standard so as to meet the NWC’s strategic objectives within the agreed timeframe.

MOWE looks for “quick wins”
The Jeddah audit identified a number of short-term infrastructure improvement opportunities. A new €5.4 million deal could give Saur the edge when it comes to bidding for the management contract itself.
While the Jeddah management contract is due to be inked some time in March 2008, it was stressed at the recent roadshow that the most important issue in the city’s water future is service continuity.

In order to smooth the transition phase leading up to the PPP contract, MOWE has signed a 12-month “quick wins” contract with Saur and Al Zamil Group, which came into force on 1 August.

The main objectives of the €5.4 million contract are to prioritize and implement the quick wins identified in the city’s water and wastewater audit, which was carried out by Safege, and to advise the Jeddah Water Directorate in a technical capacity.

Charles Dupont, Saur’s international division head, describes the scope of the contract as “very large. In fact, it’s an intermediate contract between the full audit and the PPP”.

The Ministry of Water & Electricity is expecting a very significant change in the water system in a very short time, so there are lots of small, quick wins. Some have been identified by Safege as consultant for the full audit, and we identified additional quick wins,” he told GWI.

As well as tackling such thorny issues as leakage detection, the Saur/Al Zamil team will provide technical support to the JWD, supervise day-today O&M activities and help to develop a water supply contingency plan for the city. Unaccounted-for water stands at about 30% in Jeddah, though water losses are expected to increase in the short term, especially when the Shoaiba III desalination plant starts supplying the city with water in 2009.

These challenges notwithstanding, Saur’s performance on the “quick wins” contract is certain to play a key role in its bid to win the Jeddah management contract itself. Despite pre-qualifying for the more lucrative management contract in Riyadh, the Saur/Al Zamil team did not submit a bid in the end, preferring instead to focus on Jeddah. One hopes for their sake that this strategy pays off.