Saudi Arabia Water Report Q2 2012

BMI View: Saudi Arabia has started 2012 in an active mode, with the signing of a major corporate loan
for the main power and water utility company Marafiq, planned revisions to operation and maintenance
contracts covering water facilities in the main urban centres, large contract awards for water and
wastewater treatment networks, and the starting of the bidding process for a new Jeddah sewage
treatment plant. Increased budgeted spend for water this year (up by 13% year-on-year) will help to
underwrite contract awards to improve service distribution across the kingdom. Notably, Jeddah –
neglected in terms of public infrastructure spending to date – will receive renewed attention. National
Water Company (NWC) completed phase one of upgrades to the city’s wastewater treatment facilities
last year, providing coverage for almost three-quarters of residents. The new spending will increase this
to nearly 100% coverage. This is a welcome development and one that is related to the wave of protests
in parts of the Arab world over the past year.

The key themes to highlight for Saudi Arabia’s water sector are:
.. Increased funds have been set aside for boosting water supply and upgrading water and
wastewater treatment networks. Overall spending in the 2012 state budget has increased by 13%
y-o-y to SAR57.5bn, focusing on water, agriculture and related infrastructure. The short-term
budgetary increase underscores long-term capital expenditure plans announced by the main
water utilities. NWC plans to spend US$66bn on water and wastewater developments in 2012-
2020 period. About US$30bn of this will be capex.

.. Jeddah will be the centre of much of the spending. An estimated US$8bn will be spent on
projects in the city. NWC has said the development of the sewage system is seven months ahead
of schedule. The coming on stream of five sewage treatment stations with a total of 622,000m3/d
will, over the long-term, give Jeddah more than 1mn m3/d capacity, according to NWC.
Contractors have been invited to submit bids by mid-May 2012 for a SAR1bn contract to build a
sewage treatment plant at Jeddah’s international airport with 500,000m3/d capacity.

.. NWC is also preparing for operation and maintenance (O&M) contracts that will involve the
private sector this year, with the first tenders anticipated in H112. This will mark a break with
previous practice, under which NWC remained in control of the city business units in each of the
urban centres. The new O&M regime will include the creation of business units outside of direct
NWC control, though they will still be answerable to the NWC CEO.

.. Marafiq secured a US$1.2bn Islamic finance loan in February 2012, arranged by HSBC and
Banque Saudi Fransi, which will help to underwrite the company’s expansion plans in the
water sector.
Saudi Arabia must confront a growing crisis associated with its rising consumption of water. In BMI’s
five-year forecast, we expect an increase in water demand to 11,833bn m3, an increase of nearly 300bn m3
from our previous forecast. This represents an increase of more than 3,000bn m3 of water demand in 2012
and will clearly drive policymakers’ decisions to increase water production and promote reuse as the
number of subscribers exceeds 1mn. The growing focus on treated sewage effluent is welcome, as is the
improved effort on water retention, with NWC claiming it saved 67mn m3 of water by preventing
leakages from drinking water networks. Even so, it will be tough for the Saudi authorities to keep pace
with demand that is growing from industrial and domestic users.