The Case of Water PPP in Saudi Arabia

UNECE PPP Team of Specialist 3rd Session

Palais des Nations, Geneva, Switzerland, 18th-19 April 2011

Agenda

NWC, the Road Traveled

Future Opportunity Assessment

Partnering with UNECE

The Road Ahead

Introduction, Global PPP Trends

Water Sector, Privatization Journey in KSA

3

PPPs in the water & waste-water sectorsGlobal Trendso PPPs provide a means of ‘filling the infrastructure gap’ and financing the

delivery of these critical water infrastructure programs, both in developed and developing countries.

o PPPs also provide a means of using the innovation of the private sector, to help integrate both natural and infrastructure-based solutions to water management.

o Waste-water is a rapidly and globally expanding area of infrastructuredevelopment, that enables the sustainable re-use of scarce water resources for non-potable purposes in industry, agriculture, and greening.

o Demand for water and waste-water infrastructure projects has remained unaffected by the global financial crisis, and it continue to grow exponentially.

4

Water Infrastructure Market Forecast by Region (USD 1.4 Trillion in 7 Years)

Source: Global Water Intelligence, Water Technology Markets 2010

2010-2016

5

Water & Sewage Infrastructure Market Forecast – MENA Region (2010 – 2016)

Source: Global Water Intelligence, Water Technology Markets 2010

Water Infrastructure Spend by Country (in US$ Mio)*

Country Water Wastewater Total

Algeria 8,945 2,587 11,532

Bahrain 1,871 739 2,611

Egypt, Arab Rep. 4,129 5,540 9,669

Iran, Islamic Rep. 8,747 3,194 11,941

Iraq 1,767 85 1,852

Palestine 3,445 590 4,036

Jordan 7,710 335 8,045

Kuwait 4,676 757 5,434

Lebanon 254 479 733

Morocco 1,879 2,232 4,111

Oman 2,589 4,595 7,184

Qatar 2,571 1,744 4,315

Saudi Arabia 17,782 12,711 30,493

Syrian Arab Republic 659 539 1,198

Tunisia 872 938 1,810

United Arab Emirates 11,835 9,564 21,399

TOTAL 79,732 46,631 126,362

* Inclusive of infrastructure for Water Desalination

Agenda

NWC, the Road Traveled

Future Opportunity Assessment

Partnering with UNECE

The Road Ahead

Introduction, Global PPP Trends

Water Sector, Privatization Journey in KSA

7

Historically, the Saudi water and wastewater sector faced many critical challenges

Poor Infrastructure

Depletion of Non-Renewable Water Resources

Shortages in Water Supply

High Increase in Water Demand

High population growthHigh economic growthHigh consumption per capita

Old assets with unplanned interruptions High levels of leakagesMore focus on capital expenditure than operational expenditure (maintenance)Groundwater deterioration Limited control over abstraction levels Excessive non-renewable groundwater consumption by the agriculture sectorWater rationing due to demand/supply gapLow pressures in networkIncomplete network coverage Suboptimal reliability of distribution

Low collection network coverageNeed to cater for increasing water supply and consumption

Inefficient Organization and Processes

Limited Sewerage Collection

Nonexistent Price-Signaling Mechanism

Low tariff levels for water and wastewaterHigh subsidies to cover the growing gap between expenditures and revenues

High Non Revenue Water and Low Collection Rates

High unaccounted for water levelsLow tariff collection levels especially from Government and Royal customers

Lengthy government processes, especially planning, contracting and procurementInadequate asset managementLimited automation

Suboptimal Customer Service

Complex complaint managementService is not customer orientedDelays in connecting customers to networks

Environmental Issues

High water spillagesNo control over industrial effluentSub-standard TSE qualityInadequate sludge disposal practices

HR Issues

High CAPEX requirements to meet water demand, expand the sewerage network and develop treatment plants

High Expenditures

Overstaffing Limited staff development and motivationInadequate HR processes

Source: Riyadh Full audit 2006; Jeddah Full Audit 2006

Key Challenges of Saudi Water Sector

8

Saudi Arabia has embarked on a privatization strategy which covers twenty sectors.Water and Sewage services privatization initiative

Source: Governmental Resolution Number 60 of 1/4/1418 H (5/8/1997) and Number 219 of 6/9/1423 H (6/11/2002)

Privatization Program Key Objectives

1. Improving the capacity of the national economy and enhancing its competitive ability

2. Encouraging private sector investment and effective participation in the national economy,

3. Increasing employment opportunities, 4. Providing services to citizens and investors in a timely and cost-

efficient manner5. Rationalizing public expenditure and reducing the burden of the

government budget6. Increasing government revenues from returns on participation in

activities to be transferred to the private sector

Government Assets Covered by Privatization Program (1424H)

1. Water and Sewage Services2. Desalination3. Telecommunications4. Air Transportation and related services5. Railways6. Highways7. Airport Services8. Postal Services9. Wheat Mills and storage facilities10. Port Services11. Industrial Cities Services12. Government’s shares in Public

companies13. Government’s shares in the Arabic and

Islamic common investment companies14. Government Hotels15. Sports Clubs16. Municipal Services17. Education Services18. Social Services19. Agricultural Services20. Health Services

9

The Kingdom’s privatization program has targeted the water sector by introducing key changes from 2005 to 2010, onwards

Key Milestones in the Privatization of the Water and Wastewater Sector (2002-2010)

2005 2007 20152008 2010

NWC launches the PPP agreement for

Makkah / Taif partnering with Saur Group & Al Zamil.

MOWE develops the Strategic

Transformation Plan (STP) to introduce

private sector participation in the

water sector

CoM Resolution 2/27 sets the guidelines for the privatization of the water and wastewater

sector

NWC is created by Royal Decree M-1 (13/1/1429H)NWC launches 1st PPP

agreements for the water sector in Riyadh and

Jeddah, partnering with Veolia France & Suez

Group respectively

Timeline

PPP Model expected to evolve to complex

and more collaborative arrangements with O&M joint venture. Moreover, NWC to cover the rest of the 15 cities in KSA for

65% population coverage

Privatization Timeline

10

Implementing the Strategic Transformation Plan (STP)

Achievement Accelerated in 3 years

Achievement Accelerated in 2 years

Identify Opportunities for

Improvement (2 years)Management contracts (PPP)In 2 cities

NWC Incorporation( 5 years transition)

Expand in other cities, more complex PPP contracts (lease, concessions.) Private sector will assume greater operating,

commercial and investment risk

Achievement Accelerated By 50%

Achievement Accelerated in 1 year

11

KEY ACHIEVEMENTS (2008 – 2010)

Service continuityOperational Transformation1.2

JaddahRiyadh

0

20

40

60

80

100

BENCHMARK

100%

32%22%

2011

55%55%

2010

43%

2009

34%

N/A

31%

%

Water supply

1,035942827753

0

500

1,000

1,500

2009 2010

Million m3

10%12%

20112008

Operational Transformation1.2

Volume of water saved due to leak reduction Operational Transformation1.2

65,00053,915

23,0187,251

0

20,000

40,000

60,000

80,000‘000 m3

21%

20092008

134%

2010 2011 TARGET

Standard method of measurement to be developed

0

10

20

30%

30%30%

BENCHMARK

23%

2011 TARGET

30%25%

2010

JaddahRiyadh

Non revenue water (NRW)1.2 Operational transformation

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KEY ACHIEVEMENTS (2008 – 2010)

*

Number of new wastewater connections per yearDelivery of capital projects2.3

30,000

20,700

40,000

27,600

20,000

30,000

40,000

#

10,000

45%

2011 TARGET201020092008

Average time to install connectionCustomer Focus1.1

30304760

180

20283030

70

0

50

100

150

200

2010

Days

2011 TARGET

5%

- 35%

35%

- 49%

BENCHMARCK20092008

JADDAHRIYADH

Customer satisfaction index

020406080

100%

1%37%

2011 TARGER

85%

2010

84%

2009

85%

2008

45%

Customer focus1.1

Complaint resolution

2424

48

96

0

20

40

60

80

100

20092008

Hours

2011 TARGET2010

0%

-50%

1.1 Customer focus

13

KEY ACHIEVEMENTS (2008 – 2010)

*

Volume of TSE agreements and MOUs signedCash inflow from Non-Core Activities3.2

475,000

395,000

287,200

M3 / day

500,000

400,000

300,000

200,000

100,000

2011 TARGET2008 2010

20%

38%

Collection ratio in current periodCash inflow from Core Activities3.1

%

100

80

60

40

20

23%33%

BENCHMARCK

97%

2011 TARGET

75%

2010

61%

2009

46%

Agenda

NWC, the Road Traveled

Partnering with UNECE

The Road Ahead

Introduction, Global PPP Trends

Water Sector, Privatization Journey in KSA

15

Clear strategic roadmap developed – Five transformation themes to driveperformance and health of NWC

16

6 priority initiatives and 5 enabling initiatives, which will drive strategy implementation

1 Customer Experience & Operations Excellence

1.1 Customer Focus

1.2 Operational Transformation

1.3 Opex Optimization

2 Projects Acceleration

2.1 Initiation, Planning and Design

2.2 Awarding

2.3 Delivery

3 Increased Cash Inflow

3.1 Revenues from Core Activities

3.2 Revenues from non-Core Activities

4 Performance Management

4.1 Framework & System

5 IT Integration Project

5.1 Compass

6 Privatization Growth Strategy

6.1 Planning

Enabling Initiatives

7.1 Mid-management Transformation

7.2 Highly Competent Employees 7.4 Strategic Marketing Capabilities

7.5 Change Management

2011 Priority initiatives

Priority Initiatives and Programs

7.3 Organization Structure with Clear R&R

Agenda

NWC, the Road Traveled

Future Opportunity Assessment

Partnering with UNECE

The Road Ahead

Introduction, Global PPP Trends

Water Sector, Privatization Journey in KSA

18

Currently, NWC is looking at collaborative joint efforts with the UNECE Program on PPP

Host the PPP PPP Specialist Centre for water

Integrated in NWCGovernance through UNECE MOUOperates under KSA lawActivities defined in UN MOU

Development of UN PPP Best Practice

Formula for Success – high level guide for governmentsSolutions for Practitioners –detailed research based guide for PPP Units and PPP Managers

Area of Support Description Support From

UN PPP SecretariatPrivate sectorResearch institutions

UNECE Editor-in-ChiefTOS membersOther CountriesPrivate sectorUniversitiesInstitutions

NWC, the Road Traveled

Thank You

Introduction, Global PPP Trends