Healthier Environment

How have the changes over the past year impacted your business?

The reforms that took place during the last two years have, in a way, cleared the market that was sprawling with non-professional companies. The market is healthier now, because companies are more professional, providing healthier competition. For those who could survive the difficult past year-and-a-half, prospects are brighter. The government is also considering reduction of subsidies on water, electricity, and fuel and this will be done in a gradual manner over the next four to five years to enable the business community and general consumers to adapt to the new scenario. The government is also looking into increasing the privatization of the water sector, which will help in availability of larger funds allowing for an increase in the number of projects in this sector. This will encourage the entry of more local and international companies into the market. Local companies that often lack expertise and magnitude will have an opportunity to link up with international players.

How have you done this?

We started by having a joint venture with Suido Kiko Kaisha, Ltd. of Japan to create and improve our EPC capabilities. Our desalination-based private water utility, SAWACO, is expanding organically in Saudi Arabia and we are looking into opportunities outside of the country. However, the size of assets required for the privatization of the market is so huge that we need companies with a significant capital, as well as international and local exposure. We currently target the mid-size desalination market. We have, under our management, a capacity of 40,000cm/d but seek to increase this to 70,000-100,000 cm/d. Even this is considered mid-market but we are proceeding in this direction in a gradual manner. These assets are built on a BOO/ BOT basis.

Do changes in the tariffs for consumers, such as subsidies, affect your operations?

SAWACO is locked into long-term contracts with clients such as the ARAMCO and MODON. When there is an increase in diesel or power tariffs, it is not easy to pass on this increase to them because we have contracted with them for a fixed period. This puts pressure on us and takes time to convince our clients to agree to an increase in price. This does have a bearing on our profitability, but with time we can adjust the rates and maintain an acceptable level of profitability.

Is SAWACO looking into renewable energy?

SAWACO is interested in renewable energy and we are contemplating a couple of investments in solar energy. We are also looking at zero liquid discharge (ZLD) for all desalination plants where we can take the brine water and recover salt and sweet water from it. It is here that ZLD and solar energy find a place.

What are your plans and expectations for 2017?

It will not be an easy year but is expected to be much better than 2016. The challenges of limited spending exist, and may well persist until the end of this year. The market is getting healthier, and the remaining players are stronger and more capable. Moreover, the quality of projects open for bidding are high. From a realistic point of view, we are not going to see the lavish spending that we saw in 2013 and 2014; but the spending will be more focused because of more prudent considerations at government level. Serious companies will now have higher chances of securing projects than before. This is a positive outlook. Earlier, we used to have innumerable projects to bid for, but now we only have a few dozen projects for bidding. The quality of the projects and the quality of our competitors is better now than what we saw five years ago. The market is also in a clean-up mode and we can expect healthier competitive environment. Any correction or improvement in any market is painful at times, but the rewards are already starting to show.