TBY meets with Saudi Arabia’s Deputy-Minister for Water Services
Riyadh, February 19, 2018—TBY, a global media group providing business and economic information on national economies through the eyes of the country’s decision-makers, recently conducted an interview with Mohammed A. Al-Mowkley, Saudi Arabia’s Deputy-Minister for Water Services and one of the Kingdom’s key policy makers, for its upcoming edition on the country, The Business Year: Saudi Arabia 2018.
Saudi Arabia’s Vision 2030 maps out an all-encompassing economic transformation of the Kingdom, which includes a large-scale privatization agenda, transferring state assets to various companies. The water sector is set to be the first to make this transition, including the seawater desalination and wastewater treatment sub-sectors. TBY recently sat down with the deputy minister of water services & CEO of the National Water Company (NWC) to discuss the different models of privatization and to find out how the private sector can get involved.
He began by explaining the proposed timeline for these developments: “we intend to take the privatization in two stages. Stage one entails issuing management contracts, followed by a concession of 25-30 years. The management contract means the contractor will take over the region or city for three to five years, depending on the complexity of the area. The contractor will evaluate the asset, manage the whole operation, and oversee all the manpower. During this period, the contractor will decide and vocalize the investment requirements so as to ensure the efficiency of the operation.”
In terms of the CAPEX, the public sector will provide everything necessary during this period of time. However, the Deputy-Minister went on to explain that, “once we move from a management contract to a concession, the contractor will take over everything. It will be responsible for the manpower and investing in CAPEX to manage the master plan, which will have previously received our approval. The contractor will, therefore, become the supervisor and operator of the water sector.”
Up until recently, the government has taken responsibility for all water project developments, while contracts were granted to private sector operators. From now on, this collaboration will be more dynamic, as Al-Mowkley continues: “The benefit of having this model comes from the private sector, which has the expertise to run the water sector. It will level the efficiency of the sector and improve performance to higher levels than we are seeing today. We could do what the private sector is doing, but it might take 20 years to get there, while we expect the private sector to do the same work in half the amount of time. Finally, we will pay the private contractor based on a unit rate according to each cubic meter of water supplied or the wastewater being discharged. The other benefit of the private sector is that all the CAPEX can be deferred. We do not need any more funding from the government. The private contractor has to fund all the expansions and upgrades for brownfield and greenfield projects.”
This is where the vast opportunities for the international contractors lie, as Al-Mowkley highlights. “International operators and developers have the know-how and experience. At the same time, it is important that they partner with a local developer because the local developer has the knowledge of the market, connections to necessary organizations, and an understanding of the culture. When coupled, these two can form the perfect, complimentary partnership. Today, international players are in alliances with local developers.”
Al-Mowkley sees an important role for NWC to monitor continued high standards while handing over the operations to the private sector. “NWC has to leverage the entire efficiency factor, either in terms of the billing coverage, collections, costs, the way we operate, or project execution. If we go without spending enough time on efficiency improvement on everything we do, then the private sector will unquestionably charge additional costs because of these efficiency issues. We seek to minimize or reduce the gap.”
Mohammed A. Al-Mowkley was appointed as Deputy Minister of Environment, Water, and Agriculture in 2016. Soon after this, he issued a resolution to merge water services throughout the regions with the NWC, of which he then became CEO. Al-Mowkley has vast experience in the industrial investment sector, having previously served as executive in the Obeikan Group.
TBY published its Saudi Arabia 2017 edition in September and is currently working on the fifth edition in the Kingdom. Ay≈üe Valentin, CEO of TBY, comments on the relevance of this research: “Saudi Arabia is currently undergoing a comprehensive economic transformation, and the Future Investment Initiative showed how the global business community is interested to get more involved. The achievements in the water sector in particular underline Kingdom’s seriousness when it comes to its privatization agenda.” The Business Year: Saudi Arabia 2018 will be published in September.