Water trends in Saudi and the GCC

Executive Summary

Ikaraam Ullah April 2009

GCC & Saudi Market
• The Regional Market for the water industry is
estimated to be worth $53bn over the next 12
years.
• Desalination alone needs at least $5bn
investment in Saudi Arabia over the long term
to supply an extra 4.5 million cubic meters of
water a day as the country's population grows.
 Case Study: Saudi Arabia
• Regional population has grown strongly since the 1960s.
Population growth & water use has outstripped supply.
Saudi Arabia Demographics
Age range Population (m) % of population
Population Growth 0-19
20-54
12.9
13.5
45
48
Saudi Arabia 55+ 2.0 7
Source: US Census Bureau, 2005

Yemen
1960

Libya 1980 • The demographic

2000 structure indicates
UAE
2020 that growth rates of
Kuwait more than 3% year-
Bahrain
on-year are likely to
continue
- 5.0 10.0 15.0 20.0 25.0 30.0 35.0
Population (million)
Demand-Side Drivers
• Agricultural sector remains main user of water
Million Million
cubic Water Use in cubic
meters meters
30,000 Saudi Arabia, 1980–2010 30,000

25,000 25,000

Agriculture
20,000 Domestic & 20,000
Industrial
15,000 15,000
25,589
10,000 10,000
14,700
5,000 11,200 5,000

0
1,850 0
1980 1990 2000 2010
Source: MOP 1990; Dabbagh and Abderrahman 1997
Supply Side Drivers
• Water is provided at prices below cost-recovery threshold.
This creates incentives to consume more and supply less.
• In Saudi Arabia, the cost per cubic meter of water ranges
from $0.03 to $ 0.10 depending on the amount used. This
pattern is reflected elsewhere in the region.
• In comparison, the US (where market conditions dictate),
the average cost per cubic meter of water ranges from
$0.35-$0.65. Water
Regulator New Water
Production
Water Tariff Tariff
Cost
US$ per cubic
1.86 0.03 1.33
meter
SR per cubic
7.00 0.11 5.00
meter
Source: GWI
Supply Side Drivers
• End-to-End service provision hampered by
revenue risks
Case Study: Riyadh Source:
42% World Bank
Revenues

Physical
Losses
21%

24%
13%
Billed unpaid Undermetering
Other sectors (1)
• The electricity sector has experienced very similar trends of
increased consumption combined with low cost-recoveries
Other sectors (2)
Electricity Cost & Consumption
US$/KWh
United
0.20 Kingdom

0.18
0.16 Yemen Australia United States

0.14 Cost-Recovery
Spain Threshold
0.12
0.10 Turkey

0.08
Saudi
Arabia
0.06 Jordan
Oman
0.04 Bahrain
Qatar
0.02 UAE Kuwait
0.00
- 5,000 10,000 15,000 20,000 25,000
Kwh/Capita
Source: IEA
Opportunity Landscape (1)
• Desalination plants reaching end of their design life
Capacity,
Cubic Metres
1,200,000
Saudi Arabia: Plant Capacity & Age

1,000,000
940,000

800,000 824,000

600,000

400,000 388,800
317,940
272,000
200,000

56,800 27,000 44,000

-
5 10 15 20 25 30 35
Age, Years
Opportunity Landscape (2)
• More than 60% of water users does not have access
to piped water.
% of
% of
households Saudi Arabia, Drinking Water households

40 40

35 35

30 30

25 25

20 39 20

15 29 15

10 10
17
5 8 5
6
0 0
Piped Well Truck Bottled Other
Source: Family Health Survey, 1996
Opportunity Landscape (3)
• Wastewater treatment opportunity in main cities
% wastewater
treatment
Wastewater Treatment % wastewater
treatment
100 100
90 90
80 OPPORTUNITY 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
Riyadh Jeddah Madinah Dammam Kharj
Source: Ministry of Water & Electricity, KSA
Value Chain Manufacturing 45%
Customer Operation &
Maintenance
27%
Billing
Installation,
Design, Training
& Support 28%
Network

Storage &
Distribution

Consulting New Builds Water Treatment Rehabilitation Upgrading O&M

Abstraction

Sea Water
PESTLE
Scenario Statement
Parastatal Need takes precedence
above all else
compromise

TRANSITION
Quasi-Public Provision balanced
against fiscal
Private Ownership sustainability

Private Market driven provision

of public goods
Ownership
PESTLE
Features
Protectionism through
regulation and exclusivity.
Productivity affected.
Cautious market liberalisation,
private sector productivity up
against the public sector
A loosening of rentier model,
encouraging endogenous
growth, reduced protectionism
Drivers for change
a) With a view to meeting collective wants
and needs of the Saudi Government and
Kingdom
b) To settle centres of population and
patterns
a) Rising energy subsidies
b) Need to cope with demographic and
climate change
c) Old way of doing things is
expensive/doesn’t work
a) Move towards a consumer-based
deregulated market supplied through the
private sector
b) Global acquisition and diversification in
commerce
Role of the Private Sector
Water Private Sector Participation
Morocco

Oman
2008

2015
Saudi
2025
Qatar

Kuwait

Bahrain

0 20 40 60 80 100
Source: Pinsent Masons % participation
Examples of Operating Models
Privately Privately financed and
financed and privately managed
Long-term investment financed by private sector

publicly
managed
50%
Publicly Publicly financed DBO contract
financed and Cambodia
and privately
mostly managed
publicly
managed
20% BOI contract
Paraguay

BOI contract
Colombia
10%
DBL contract
Cambodia
0%
OMM contract OML contract BO contract DBL contract
Uganda Philippines Colombia Philippines

Bill, collect Operate and Build, Design, Design,

and operate maintain operate and build, build, own,
maintain operate and operate and
maintain maintain
Thank you.

ikaraam.ullah@gmail.com