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Quenching the Gulf’s growing thirst for water
Global Arab Network - Dr Mohamed Ramady
There is a Gulf saying that one can (almost) do without oil, but certainly cannot do without water. Today, demand for water in the Gulf has grown exponentially, fuelled by energy revenues. But a fundamental rethink is required on how water is supplied. It is no coincidence that the UAE is currently hosting the International Desalination Association in Dubai, given the urgency of the matter.

An increase in demand has necessitated countries in arid regions to embark on ambitious plans to achieve self-sufficiency in water production through desalination projects, often at great cost. Today, more than 50 per cent of the world’s desalination plants are located in the Middle East, particularly in the GCC.

In the Gulf, Saudi Arabia leads the way in desalination capacity and future plans in this sector. Saudi Arabia’s share is about 41 per cent, followed by 35 per cent for the UAE, 13 per cent for Kuwait and 7 per cent for Qatar. What happens in this sector affects them all. The kingdom has 30 desalination plants of varying ages and technologies operating on either thermal or membrane processes with a total daily production of more than 3 million cubic metres and generating 5,000 megawatts of electricity, as some of the plants are dual-use.

This provides about 70 per cent of the daily drinking water supplies and 20 per cent of the power generation of Saudi Arabia, the rest coming from the Saudi electricity companies. The kingdom’s share of global desalination is about 20 per cent and plans are under way to restructure the water supply industry along a more efficient and commercial basis to meet future projected demand and reduce state expenditures.

The amounts are staggering by any standard and it is forecast that about US$24 billion (Dh88.15bn) will be required by 2020 in both capital and operating expenditure for existing plants and six new major projects. A central plank will be the restructuring and privatisation of the Saudi Saline Water Conversion Corporation (SWCC) as well as developing new desalination technologies. Saudi Arabia, through the SWCC’s research institute, has become a leading world-class centre of research into desalination methods that could benefit the whole region.

The SWCC has invented an approach to pre-treat seawater using nano-filtration prior to being pumped to the conventional desalination plants, whether thermal or reverse osmosis. As a consequence, desalinated water production has been increased by 30 per cent, as well as an associated reduction in energy consumption.

The privatisation strategy hinges on transforming the SWCC into a state-owned joint stock holding company that has multiple subsidiaries consisting of current and future planned production companies. The aim is to invite private-sector investors and developers to tender for the production companies.

The Saudi privatisation plans are novel; they consist of separating production from transmission, and maintaining these as well as older operating plants and the Research and Desalination Technology Institute under the holding company. This is different from the “full” water privatisation models adopted by other countries.

Some have argued that these models have led to negligence in core investment areas such as transmission and delivery systems, as well as in research and development. It is not surprising that even in the UK – a pioneer in privatisation – Northern Ireland and Scotland have decided to reverse privatisation from private companies back to the public sector, on the ground that consumers have been passed on higher prices but with marginal efficiency in water services.

Under Saudi privatisation plans, private-sector investors and developers will not bear the burden of transmission, which is exorbitant given the huge land mass of Saudi Arabia over that has to be covered to deliver water from coastal desalination plants. At the same time, costly research and development will be assumed by the new SWCC holding company. Hopefully, what emerges is a more realistic but “tiered” water tariff level to consumers, compared with current subsidised pricing that induces waste on a massive scale.

It is estimated by the Water Ministry that Saudi consumers on average use 221 litres to 250 litres of water a day, compared to between 150 and 200 litres a day internationally. Wastage is also significant, with an estimated 20 per cent of water production wasted through spillage in the kingdom.

The status quo is unsustainable and Saudi Arabia, along with other GCC states, are now reconsidering their water supply systems, the efficient use of desalination projects and operating structures.

The global financial crisis has also had an indirect impact on some of the water privatisation plans of the kingdom. In order to assure the public that the government is committed to its planned projects, the Saudi government has decided to assume responsibility for executing the Ras Al Zour power and desalination plant because of financial issues faced by the developer consortium that had been awarded the project. Increased financing costs and the delay in executing the project agreements has led the government to decide to fund the project from its own budget.

The massive Yanbu III plant had also been planned as the first plant to be implemented under the SWCC privatisation programme in a build, own and operate scheme. However, in light of the Ras Al Zour experience, and the difficulties faced by Marafiq Utility Company in their Yanbu project, a royal decree was issued combining the Marafiq and SWCC power and water projects into a single entity with a water production capacity of 550,000 cu metres per day and an electricity generation capacity of 1,700mw.

The SWCC will tender the project under an engineering, procurement and construction (EPC) scheme, but will continue with its core privatisation plans for the existing plants. Whichever options are planned, it is clear that governments in the region are now focusing on this vital economic and social sector.

Global Arab Network

Dr Mohamed Ramady is a former banker and a Visiting Associate Professor, Finance and Economics Department at King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia.

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