JEDDAH, 25 July 2007 — Water privatization through the process of public private partnerships (PPPs) is a step closer to becoming the reality of water production and distribution in Saudi Arabia.
The process of reform in the water industry recently took a major step with the formation of the National Water Company (NWC) and approval of its bylaws by the Supreme Economic Council (SEC).
The plan intends to achieve a separation (unbundling) of water and wastewater operations on a city-by-city basis and offer wastewater treatment plants to the private sector on contract terms yet to be finalized.
“PPPs are widely adopted internationally and we perceive these are the best option for our local conditions,” Water and Electricity Minister Abdullah Al-Hussayen told delegates to the Ministry of Water and Electricity (MOWE) road show in Jeddah yesterday. He said the ministry had chosen the PPP model best suited to the Kingdom after an in-depth study of models operating in other countries and learning from their experience.
Al-Hussayen emphasized that there were many incentives that the Kingdom could offer to the private investor, starting with the government’s commitment to the reform process. “We are aware that potential operators are looking for a reasonable return on their investment, fair risk allocation between rigorous legal, institutional, regulatory and financial framework, a stable economic environment and a transparent bidding process.”
Answering a question from the floor, Al-Hussayen confirmed that the operators were responsible for revenue collection and that the methodologies and systems to facilitate that were still under study.
Riyadh has already been issued with a “request for proposal” for water and wastewater services based on a performance-based contract. Work was in hand, said Al-Hussayen, by a consortium of advisers regarding PPPs for Jeddah.
The holy city of Madinah and Dammam will complete the quartet of cities to reform their water networks and operations which, leaving aside agriculture, account for about 50 percent of water consumption in the Kingdom.
Al-Hussayen laid out candidly the facts that have driven the decision toward PPPs forming the basis for the Kingdom’s industrial and domestic water industry. Saudi Arabia has limited water resources — in terms of ground and fossil water — and the minister described the current level of performance in the industry as “below the generally accepted standards.”
Coupled with that were the current water tariff — which is one of the lowest in the world — and the transport and production costs — which are among the highest. He put the average per capita water consumption at more than 250 liters per day; in 1999, Riyadh was over 300 liters per day. It is though not the highest in the world; an average Canadian, for example, uses over six times as much water per day as an average Indian, and over 30 times as much as a rural villager in Kenya (326 liters versus 53 liters versus 10 liters).
The efficiency of the distribution, however, is low; the non-revenue water (NRW) percentage was between 30 and 55 and unaccounted for water (UFW) about 30.
NRW is the difference between the volume of water put into a system and the volume of water paid for by the customers and it comprises two components — Physical Losses and Apparent Losses.
UFW is the difference between the quantity of water supplied to a city’s network and the metered quantity of water used by the customers. UFW has two components; physical losses due to leakage from pipes, and administrative losses due to illegal connections and under registration of water meters. Often both components contribute roughly equally to UFW.
The reduction of UFW is a crucial step to improve the financial health of water utilities and to save scarce water resources. UFW in well-run utilities is 15-20 percent.
The level of UFW is a useful indicator of how well a utility is managed. Improvements in UFW thus are an important progress indicator for World Bank projects, such as in Gaza, where UFW was reduced from 48 percent to 31 percent in less than four years.
“We are confident,” said Al-Hussayen, “that the involvement of private operators will help improve performance in the key areas identified.” He added that the contracts were expected both to bring in new investment for more efficient replacements and rehabilitation of aging assets and provision of new assets.
