A Lot Going On Underground

What potential is in the Saudi market, and what were the initial reasons for entering the market?

Market size was extremely important. The Saudi Arabian market has a larger population than any country in the region, and, truly, it is the most important market in the region. Additionally, the geographical size of the country requires a much larger investment of time and capital, and companies willing to make these investments will be able to capitalize on the country’s rich wealth of opportunity. We were the first Spanish private company to be awarded with a non-revenue water contract. This means we try to optimize the network to avoid leaks. We were awarded this contract because we are one of the top-10 firms in the world in the field of water management. Our core business is managing sewage and water networks for cities, and we have extensive experience and world-class expertise. In Spain, for example, we manage the sewage and water systems of more than 1,000 cities. In countries where there are major water scarcities, it is important to reduce water consumption and properly manage water resources. Really, our extensive experience and long history of success was why we were awarded contracts in Saudi Arabia.

What techniques are you applying to reduce non-revenue water?

Normally we do this by sectorizing a network. This simply means we design a network in a series of small cells that are independent of other cells. We can then control the water inside these smaller cells to a much greater degree than we could if we were trying to control the entire network at once. This has to be done in a way that does not affect the larger network. After the sectorization of the network, we apply certain state-of-the-art technologies that rely on wireless connectivity. We remotely monitor our network without relying on connections with any other utilities. We can understand exactly how much water is moving through the system and how much water we are billing, giving us a much better idea of waste and leakage, which we can then address. Non-revenue water can be as much as 40% of the water moving through a system in some areas, so it is extremely important that we pinpoint and address leakages. We think that the government is headed in the right direction, and that there are huge opportunities in the market for the private sector. We at Aqualia are particularly well positioned because we know how to reduce costs and increase efficiency and we have a long history of industry experience. We are ready and willing to transfer our knowledge and expertise to the Saudi market.

What potential do you see for Aqualia to participate in the privatization of the Saudi water market?

We are ready to work in many different ways. For us, an important model is the concession model for Water Management. We work within this structure in many places, including Spain, Italy, and the Czech Republic. This model is the future. There are other modalities too, like developers for desalination and sewage treatment plants. We finance, we build, and we operate plants, and we are considering a similar model for Saudi Arabia.

Are pure concessions for existing assets under consideration?

There is potential for this, but it will not be considered on an asset-by-asset basis, rather it will be considered regionally. It will be done this way because some assets are old while others are quite new. Companies can be more properly compensated this way. We plan on bidding on projects like this.

What changes need to happen in terms of reform to make it economically viable and attractive for Aqualia to bid on these projects?

BOT projects need a minimum legal structure and a minimum financial structure. All companies come to the market with financing, but most of this financing is coming from banks and investment funds. These institutions will need a clear picture for how their investment will be recovered. Additionally, it is clear that sovereign guarantees will be required. Those two changes need be achieved in the country. Legal changes allowing firms to generate profits will also have to be implemented or addressed, and the country will have to rely on private companies to generate the contracts. The BOT framework does not fully exist at the moment, and we need to finish developing it. I’m convinced that the Saudi authorities are doing a good job and will deliver a strong framework in the coming months.

What are your expectations for the coming years?

For us, 2017 will be a transition year. Many governmental agents are announcing their intentions to begin new projects this year, but we know that these types of initiatives take time to develop and implement. These are huge changes that need massive adjustments on the legal and financial side. This will be a major issue both this year and next year, and it will take time to address this challenge. I think we will see major changes by the middle of 2018, but not before. Aqualia has a number of projects with all of the water works institutions. It is great that 2017 is fully loaded in terms of projects. While 2016 was a poor year for tenders, right now we are in a good position. We hope that in the coming weeks we will have even more projects confirmed, especially in water management.