Investment opportunities for private sector participation in the water sector
Eng. Abdullah I. Al Abdulkarim Deputy Governor, Planning & Development, SWCC Riyadh, Saudi Arabia
1 Water desalination is a vital sector for KSA, with the largest installed capacity globally
Desalination installed capacity1, %
33% 20%
11% 9% 8% 6% 4% 3% 3% 3%
Saudi United UAE China Spain Kuwait Algeria India Oman RoW Arabia States
1. Sea water desalination Source: GWI DESAL (Global Water Intelligence Desalination database)
2 SWCC is the global largest desalination producer with 5.6 MM m3/d capacity in 2018, producing ~70% of KSA’s desalinated water
SWCC presence in KSA1 Selected plants SWCC overview in numbers
3 Installed Water Capacity (1,000 m /d) Desalination plant Installed Power Capacity (MW) Transmission pipeline By 2022 • #1 global desal producer
Haql 1,201 2,650 Hafr Albatin Khafji Duba Ras Alkhair • ~70% of desalinated Jubail 1,530 1,589 water in KSA AlWajih Buraidah Alnoairya Khobar Umluj Al-Madina 1,100 1,153 1, 193 3,021 Yanbu Al-Hafoof • 33 desalination plants Riyadh Rabigh Alazizia Makkah • ~5.6 M m3 daily Taif 670 785 Jeddah water production with Shoeiba Albaha AL-Lith potential to increase to K.Moshait 1,550 785 AL-Qunfutha Abha ~8.4 M m3 in 2022 Shuqaiq
Farasan Jazan • ~6,800 km of 550 108 transmission lines currently and ~3,144 1. Includes capacities planned up to 2022 2. 2022 production km under constructions
3 SWCC privatization strategy aligned with the National Water Strategy 2030
NWS 2030 Framework Availability Quality Environmental Economic Affordability Sustainability Sustainability Preservation of Access Water Quality Economic Contribution Objective Resources Price Affordability Contribution to PSP Dimensions Quantity Growth Service Quality Environmental Footprint Cost Effectiveness Resilience to Emergencies Localization
Demand Supply Supply Chain (Agriculture, Urban, Industrial, Environment) (Surface, Ground, Desalination, TSE, Alternative Sources) Storage Agriculture Water Demand and Supply Mix Transmission and Interconnections Efficiency Levers Water Harvesting and Aquifer Distribution and NRW Recharge Collection and Treatment Urban and Industrial Water Demand Production Cost and Energy and DSM Efficiency Customer Service Regional level, consolidated at the national level
A Institutional B Policies, Laws C Capabilities D Economic E Performance Setting & Regulations Requirements Management . Sector Structure . Demand, IWRM and . Organization & Human . Financial Requirements . Monitoring & Control Enablers . Mandate by Entity Supply Chain Policies Capital . Financing Models Models . Outreach & Engagement . Integrated Planning . Private Sector . Laws and Decrees . Commercialization Processes Participation . Technical and Economic . Localization . Technology & Systems Regulations (costing, pricing and subsidy) . R&D and Innovation . Licensing (facilities, utilities & base resources)
Source: Booz Allen Analysis 4 Aimed Sector Commercial Setup
Production / Generation Transmission Distribution Retail
Water Transmission & IW(P)Ps DistributionWater Companies IW(P)PS Engineering Company Distribution Companies PWPAs
TSA Consumer On-Sale Tariff Consumers Agreement Future ProjectCosFuture WEC ProjectCos
Balancing of Accounts FSA Saudi Aramco
MOF
5 Five core objectives were identified for SWCC privatization
SWCC Privatization Objectives
. Deliver best-in-class service levels at the lowest possible costs Customer Focus . Improve access to water resources in rural areas
. Promote attractive deal size, PPP model and contracting terms Investor Attractiveness . Attractive and stable return on investment without being predatory
. Maximize valuations of assets Govt. Attractiveness . Reduce financial burden on government through drawdown of subsidies . Balance commercial and operational risks with the private sector
. Create competitive (local) environment between market participants Sector Development . Optimize deployed capital and create a strong foundation for cost recovery . Ensure adequate local content both in terms of hard assets as well as services, throughout implementation and operation phases
. Minimize lead times and effort required for handover to the private sector Ease of Implementation . Ensure option is feasible with no disruption in service . Allow for an approach which identifies and mitigates top risks
6 In the preferred model, SWCC transmission and production assets will follow different strategies
• Transmission assets Production assets
Commercialization Privatization
Carve out of transmission Prepare production and service assets assets for privatization
• Set up of Government owned, commercially • Assets will be ring-fenced and commercialized independent transmission and services in preparation for privatization company • Private sector will be responsible for • Continued safe, secure and economical participation in production assets transmission and dispatch of water
7 The program will carve out transmission assets into a commercial entity; production assets will be prepared for eventual privatization
Key steps for SWCC privatization and commercialization
Production Companies
ProdCo 1 ProdCo 2
ProdCo 3 ProdCo 4
Privatization ProdCo 5 … SWCC
Desalination
Transmission R&D Transmission Company Other Storage and Transmission Dispatch
Training R&DE3
Other Commercialization
Note: Not to chronological scale 8 Preparation of assets for privatization is underway with eight workstreams; five are fully mobilised and actively working on the program
1 program management
Technical 2 (incl. financial valuation)
3 Accounting
4 Human capital
5 Legal
6 Transaction Advisor to be selected Advisor to be 7 IT and processes selected
Change management Advisor to be 8 selected
9 Key attributes to be considered for bundle structure were identified, and grouping options designed…
• Asset grouping variables and options
Key Variables Grouping Options Description
1 Beneficiary Area • Assets grouped based on plant locations and capacity, Location Based which allows for location and scale driven synergies • Transmission and Production assets are separated Plant Location
2 • Assets grouped based on operational performance (asset Operational Performance quality and performance) to maximize bundle value for Performance Index Driven money • Transmission and Production assets are separated Capacity 3 • Assets are grouped on the basis of geographical Beneficiary proximity of customers served Age Region • Meant to improve customer focus through a vertical integration model (production and transmission)
Technology 4 • Assets grouped to create balanced cross-region Market of production companies with similar capacities Fuel Type Equals • Transmission and Production assets are separated
Note: Operational Performance Index is a composite index that measures plant-specific “value for money”
10 Key transaction milestones once market and production assets are ready for privatization
Define legal/ regulatory framework and Information Short listing Preferred partners commercial agreements memorandum and due diligence and negotiations
Preparation and Preliminary Firm Confirmatory DD “Concept Report” Proposals Proposals and Completion
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