Saudi Water Industry Privatization
Oasis or Mirage?
Saudi Arabia's rapid population growth has meant increased demand for fresh water, and the Saudi government has repeatedly called for greater private sector involvement in water desalination and water treatment. The primary means for implementing privatization was expected to be the establishment of Independent Water and Power Production projects (IWPPs) that would allow private ownership as high as 60%, with the ultimate goal of privatizing the Saline Water Conversion Corporation (SWCC), which runs more than 30 desalination plants in the Kingdom. The government has also taken steps towards privatizing municipal water networks and created the National Water Company (NWC) to gradually take over water and wastewater responsibilities from the Ministry of Water and Electricity.
• In 2008, NWC signed two contracts worth more than $60 million each with private companies to manage Riyadh’s and Jeddah’s water networks.
• According to the U.S. Department of Commerce, Saudi Arabia will need close to $93 billion in investments in the water and sewage treatment sector over the next 20 years.
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Expert 1: Senior executive in a large Saudi conglomerate active in water and energy services and a key adviser to the Saudi Water & Power Forum
“I don’t see any wildcards that could change the scene, process or speed. The National Water Company won’t be independent from the government or the Ministry of Finance. I don’t see an integrated strategy, plan, policy or regulator that will push for efficiency or privatization. It all depends on how much the Ministry is willing to fight and push forward.”
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Expert 2: Senior consultant at TNO Oil and Gas and former senior manager at Deloitte Financial Advisory Service
“The general feeling is that the privatization of Ras al-Zour is under pressure, not because of issues related to water financing, but due to the fact that other projects in Ras al-Zour are under pressure. With the [aluminum smelter and] refinery, there are issues with production capacity and infrastructure they are not yet clear about. So that’s why Saudi Arabia has taken the approach not to do the IWPP as EPC [engineering, procurement, and construction] – just to take things further…A possible reason for the EPC is that these problems are affecting the overall financing requirements and interest of investors and contractors. Political issues also play a part, but the general feeling is that the liberalization of the sector is still heading as planned.”
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Expert 3: Internationally recognized expert in the political economy of water policy
“The easy part is privatizing desalination. Privatizing distribution is also not too complicated. It’s privatizing the provision and selling water to households that is fraught with political problems. If you are going to invest, invest in privatizing desalination and distribution, but there’s no sense in investing in the provision of water to households because that is something where the government will always let you down.”
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Expert 4: Consultant on water issues and a journalist covering water for a leading Saudi newspaper
“Water is a basic need. It is for this reason that Saudi Arabia has resorted to desalination to meet its water needs. It is now the biggest producer of desalinated water. There may be no indicators now that privatization is moving in a better direction but news toward this end is expected sooner than later.”
Insights from the Ergo Network
Ergo asked four experts to comment on the potential for water privatization in Saudi Arabia to be slowed or side tracked.
Ergo's House View
The experts that Ergo and OOSKAnews engaged expect Saudi water privatization to continue moving forward, but believe the government approach to each future project will vary, confusing the exact form and pace of this privatization. For example:
• Riyadh seemingly took a step backward last month by proceeding with its third IWPP, Ras al-Zour, on an engineering, procurement, and construction (EPC) basis under the auspices of SWCC rather than through the development consortium chosen last year. The government also stipulated that Marafiq’s Yanbu project will be implemented on an EPC basis.
• At the same time, the privatization of the Shuaiba and Shuqaiq plants with IWPP contracts, as well as major contracts for private companies to manage municipal water networks, have been employed effectively.
Questions remain as to whether Saudi Arabia will continue to use the EPC process, but our on-the-ground experts believe there will certainly be a greater role for the private sector in water desalination and distribution. The pace and level of this involvement, however, will depend upon Saudi leadership, bureaucratic considerations, and how much the Ministry of Finance is willing to drive the process. As such, each future Saudi project proposal will require bidders to fully understand the eccentricities of these key players and issues.
Ergo’s extensive past performance on critical infrastructure and environmental resources over the past several years, along with our new partnership with OOSKAnews – the world’s leading water newsletter – enables Ergo to provide hard-to-get insights on the most difficult and opaque water-related questions. Teaming with OOSKAnews has further deepened our extensive network of infrastructure, policy, and business experts in Saudi Arabia that are quickly able to shed light on current and future water projects.