Saudi Arabia to remain region’s most lucrative water market in 2020

The submission of bids and selection of a consortium of France’s Engie and the local Mowah as preferred bidder for the planned 450,000 cubic metre a day (cm/d) Yanbu 4 independent water project (IWP) on 13 February is the latest sign that Saudi Arabia will remain one of the region’s most active water markets for investors and contractors in 2020.

Out of a total capacity of 6.2 million cubic metres a day (cm/d) of desalinated water that was either tendered or awarded in the GCC in 2019, Saudi Arabia accounted for nearly half of the total with 2.9 million cm/d tendered or awarded.

While the kingdom has been the world’s largest producer of desalinated water for more than a decade, the efficiency and timeliness of its recent push to move ahead with desalination and wastewater projects in partnership with the private sector has impressed investors and contractors. Most of the projects it tendered or awarded in 2019 were public-private partnership (PPP) schemes.

Private partners

 

Although Riyadh successfully implemented the independent water and power project (IWPP) model between 2004 and 2010, awarding contracts for three large power and water cogeneration projects during this period, that majority of the kingdom’s desalination capacity had been delivered through government-funded engineering, procurement and construction (EPC) contracts.

As with most of the kingdom’s utilities sector, the push towards utilising public-private partnership (PPP) models to develop power and water projects has been swift since the fall in oil prices in 2014 and the subsequent launch of the Vision 2030 economic reform plan in 2016.

The kingdom awarded the contract for its first PPP standalone desalination plant, the $700m Rabigh 3 independent water project (IWP) in late December 2019. An Acwa Power-led consortium will develop the 600,000 cm/d plant, one of the largest reverse osmosis (RO) plants in the world.

The kingdom also awarded a contract for the development of the 450,000 cm/d Shuqaiq 3 IWP in the first quarter of 2019 to a consortium of Spain’s Acciona, Japan’s Marubeni and the local Rawafid Alhadarah.

In December, Saudi Water Partnership Company (SWPC), the sate entity overseeing the country’s ambitious IWP programme, received bids for the 600,000 cm/d Jubail 3A IWP. In January, the client issued the request for proposals (RFP) for the 570,000 cm/d Jubail 3B IWP, with bids due in May.

In addition to SWPC’s IWP programme, state desalination provide Saline Water Conversion Corporation (SWCC) awarded contracts for three projects with a combined total capacity of more than 1.1 million cm/d last year.

Low margins

 

Although the efficacy of Saudi Arabia’s IWP programme has been welcomed by companies in the water sector, the increasingly competitive nature of the market has led to record low tariffs for desalinated water production and sewage treatment. While this is clearly beneficial for the government entities overseeing the programme, the shrinking margins on investment for developers could dampen enthusiasm and the competitiveness of the market in the future.

The consortium selected for the Shuqaiq 3 IWP in early 2019 had submitted a water tariff of $0.52 per cubic metre (cm), one of the lowest tariffs in the world. Just one year later, the winning tariff for the Yanbu 4 IWP scheme was $0.47/cm, representing a fall of more than 9 per cent.

In addition to favourable economic conditions, primarily low interest rates, facilitating the sharp fall in tariffs, a dearth of major projects elsewhere in the region has focused the attention of most regional and international developers squarely on Saudi Arabia’s development programme, increasing the level of competition for each project.

Saudi Arabia will remain the GCC’s central hive of activity for desalination projects until 2025, with SWPC planning to increase its portfolio from the 1.2 million cm/d installed in 2018 to reach 8.5 cm/d by 2025 to meet the rapidly growing demand for water.

While the sheer size of its water infrastructure development plans will ensure the kingdom remains a key target market for local and international investors and contractors alike, they will hope that the rise in projects does not correlate with a further fall in margins.