SALT OF THE EARTH
TBY talks to Nizar Kammourie, General Manager of SAWACO, on government reforms, renewable energy, and a new mode of doing business in the KSA.
How have the changes over the past year impacted your business?
The most important point is that the government has come to realize that the oil prices will not return to the old highs witnessed during 2009. The government has, therefore, prioritized infrastructure projects, reduced the budgets of existing/ongoing projects, and, has focused on key sectors while slashing non-essential projects. The reforms which have been introduced over the last two years have, in a way, cleared a market which was sprawling with unprofessional companies. The market is healthier now because companies are more professional and are providing healthier competition. For those who could survive this difficult year-and-a-half, prospects are brighter. The government is also considering a 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 increase availability of greater funds, allowing for an increase in the number of projects in this sector. This will encourage entry of both local and international companies into the market. Local companies which, most often, lack expertise and capacity, will have an opportunity to join international players.
How have you done this?
We started by creating a JV 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 Kingdom. However, the size of assets required for the privatization of the market is so huge that we need companies with significant capital, as well as international and local exposure. At SAWACO we are, currently, targeting the mid-size desalination market. We have, under our management, a capacity of 40,000cm/d but are looking into increasing this to 70,000–100,000cm/d. Even this is considered as mid-market, but we are proceeding in this direction in a gradual manner. These assets are built on a BOO/BOT basis.
What size projects have you been looking at over the past year?
We are looking at desalination plants between 20,000 and 100,000 cm/d and water treatment assets between 25,000 and 100,000cm/d for wastewater treatment. This is the market segment where we would like to position ourselves.
Do changes in the tariffs for consumers, such as the subsidies, affect your operations?
Yes. In SAWACO for example, we are 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 of time. This puts pressure on us and it 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 are able to adjust the rates and maintain an acceptable level of profitability.
Are you looking at forming more relationships that are project-based to encourage finance?
We are looking at some acquisitions in the water industry because we believe that, in order to grow, we need to have a minimum technical mass required for growth. Sometimes we are left only with two options: (a) either form a consortium, or (b) an acquisition and then take a decision as required. This is not easy but we are contemplating a couple of opportunities for acquisitions. We are also having ongoing discussions with groups around the world to acquire larger BOT concessions, all within the desalination field. We are working on both though it will not happen overnight. We are looking seriously at markets like Tunisia, India, and Egypt, in addition to KSA.
Is SAWACO looking into renewable energy?
SAWACO is very 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. Solar energy and ZLD can find a place here.
What are your plans and expectations for 2017?
It is not going to be an easy year, but is expected to be much better than 2016. The challenges of limited spending exist, and may 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 is 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 on prudent considerations at a state 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 probably have only a few dozens projects to bid on. Now the quality of the projects and the quality of our competitors is better 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 up.