Demand and opportunity: Moves towards conservation and reuse of limited resources

An efficient and reliable supply of water and electricity feeds Qatar’s booming economy, while the country’s oil and gas resources finance its tremendous growth. The nation consumes almost twice as much power per capita as the average high-income OECD country. Only Kuwait consumes more within the GCC, with countries like Bahrain consuming less than two-thirds the amount. Qatar produces a total of around 31,000 GWh of electricity each year, the vast majority of which is generated with natural gas.

The local and international private sector has played a central role in developing the water and electricity supply, though the government has been and will remain the main investor in the sector. Major investments in developing the power supply have resulted in excess capacity in the domestic market, but forecasts suggest demand will begin to outstrip supply by 2018 at current capacity.

Cost & Consumption

Water production and consumption has also kept pace with the energy sector, rapidly increasing over the last decade. The total capacity of potable desalinated water in Qatar has almost doubled since 2000, but demand too is rising very quickly. Total freshwater withdrawals vastly exceed renewable resources, indicating that the country will need to turn to other sources of water to sustain its economy. Water desalination is the most obvious source. While the process is expensive, desalination plants in Qatar can leverage the country’s cheap energy feedstock to drive down the cost of producing clean water.

High energy production and consumption has a cost beyond money, and in Qatar it has resulted in the highest levels of carbon dioxide emissions per capita in the world. However, emissions rates have been falling steadily over the last decade. While desalination is one of the only realistic sources of water for the country, the technology produces a significant amount of environmentally hazardous residue. The government has acknowledged these issues and is investing in developing clean energy facilities, solar power plants and more efficient desalination options, as well as in deploying cleaner technologies across the economy.

Water Resources

Water is a strategic economic, social and political priority for countries across the Middle East, and Qatar is no exception in this regard. Soaring demand and limited natural reserves combined with poor conservation have led to water scarcity. Water-intensive industries, a tremendous amount of construction and development, and a growing and affluent population put immense pressure on infrastructure and services.

Freshwater supplies are extremely limited and the level of extraction far exceeds natural replenishment, leading to contaminated reserves and a dropping water table. Total renewable freshwater per capita has dropped from 89 cu metres per person in 2002 to only 29 cu metres per person in 2011.

This is largely a function of population growth but it nevertheless illustrates the pressure on the country’s limited water resources. Data from the World Bank suggests that Qatar, which lacks rivers or major streams, extracts almost 800% of its renewable water resources each year.

However, the data also shows that Qatar is using this water to drive economic growth. Water productivity, measured in US dollars per cu metre of freshwater withdrawn, has improved from only $136 in 2007 to $236 in 2011. This compares to $20 in Saudi Arabia, $53 in UAE and $100 in Kuwait.

Institutional Setup

Qatar’s formal water and electricity networks were established in the 1950s, when the country was still a British protectorate.

The British established Qatar’s first desalination plant in 1953. Almost a decade later, the first diesel power station was followed by the Ras Abu Aboud steam power station, which began operation in 1963.

Clean water was stored in reservoirs and distributed by water tankers. After Qatar’s independence, the government shifted management of the sector to the new Ministry of Electricity and Water. During the 1970s, the government started using natural gas to generate power instead of diesel. The ministry built the first water distribution network in the 1980s, and both the network and production capacity were expanded through a number of investments over the next decade.

In 2000, the government shifted management of the sector to the newly established Qatar General Electricity & Water Corporation, known as KAHRAMAA. KAHRAMAA is a public entity established under Emiri Decree No. 10 with capital of QR4bn ($1.1bn). It is the main organisation responsible for meeting the country’s water and electricity supply needs.

The state separated production from transmission and distribution in 2002. The Qatar Electricity and Water Company (QEWC) was given the responsibility of handling production, while KAHRAMAA maintained control of transmission and distribution. Since then several other smaller power and water producers have been established in the country, but KAHRAMAA still maintains a regulatory role and controls supply to consumers. KAHRAMAA produced a 30-year power and water master plan in 2008, which serves as the sector strategy for the foreseeable future. This strategy is shaped within the broader framework of Qatar National Vision 2030, the long-term development plan released in 2008.

The Public Works Authority, known as Ashghal, is the main state entity charged with overseeing construction in the sector. Ashghal manages a large portfolio of projects, including all roads, hospitals and infrastructure. It is expected that the authority will oversee projects valued at more than QR100bn ($27.4bn) over the next seven years. The Ministry of Energy and Industry oversees the utilities industry, although the Ministry of Municipality & Urban Planning also plays a role in the water sector.

Supply & Demand

According to QEWC, total power requirements have increased from 3550 MW in 2007 to 6412 MW in 2013. Demand for water in the same period has increased from 160m imperial gallons per day (MIGD) to 338 MIGD. Total capacity in 2013 is estimated to be 8761 MW of electricity, implying a current excess capacity of 2348 MW, and 327 MIGD of water – already projected to fall short by 11 MIGD. The gaps will increase very significantly by 2020 without investments to increase supply.

Data from the World Bank shows that agricultural activities account for 60% of freshwater withdrawals, while domestic supply accounts for 39% and industry for the remaining 1%. This does not include demand for water from Qatar’s desalination plants. Taken together, agriculture and construction account for over 70% of demand in the country.

Despite significant investments aimed at increasing capacity, Qatar is currently facing a shortfall in water supply and could face one in electricity as well by 2020 unless it makes additional investments. QEWC estimates that the shortfall in electricity will reach 883 MW and that in the water supply will hit 141 MIGD by the next decade. Although the supply of renewable freshwater is very limited in Qatar, the country has been able to meet its residents’ needs by investing heavily in water desalination plants.

Qatar Electricity & Water Company

QEWC is the main producer of electricity and water in the country and is the second-largest utility in the wider Middle East. The government owns 43% of the company, while the remainder is held by other stakeholders. The president of the Administrative Control and Transparency Authority chairs its board.

The company owns and operates a number of power stations and desalination plants and has a total production capacity of 5518 MW of power and 258 MIGD of water. The company’s latest financial reports indicate it has a market share of 62% in the electricity sector and 79% in the water sector. QEWC increased profits by 10% in 2012, posting total revenues of QR4.8bn ($1.31bn).

The company currently operates five power generation and water desalination plants, including: Ras Abu Fontas-A, which has a capacity of 497 MW of electricity and 55 MIGD of water; Ras Abu FontasA1, which has a capacity of 45 MIGD of water; Ras Abu Fontas-B, which has a capacity of 609 MW of electricity and 33 MIGD of water; Ras Abu FontasB1, which has a capacity of 376.5 MW of power; and finally Ras Abu Fontas-B2, which has a capacity of 567 MW of electricity and 30 MIGD of water.

Other Producers

QEWC is also a major investor in the country’s other power and water production plants. It holds an 80% stake in the Ras Laffan Power Company, which has a capacity of 820 MW of electricity and 40 MIGD of water per day. AES International initially owned 50%, which was acquired by QEWC, and the remainder is owned by Qatar Petroleum (QP) and the Gulf Investment Corporation.

The Ras Laffan Power Company, established at a total cost of over $700m, started production in 2003 and currently supplies KAHRAMAA with 750 MW of electricity. The firm was the first independent water and power project (IWPP) in Qatar. Phase two will add a further 1020 MW of electricity and around 60 MIGD of water. QEWC has full ownership of the Ras Laffan Operating Company. QEWC has also invested in the Qatar Power Company (Q-Power), a joint stock company, with GDF Suez Energy International and Japan’s Chubu Electric Power. QEWC owns 55% of the $1bn power and water firm, which has a total capacity of 1025 MW of electricity and 60 MIGD of water. The plant, which is based in Ras Laffan Industrial City, is the largest IWPP in Qatar, with three gas turbines, two steam turbines and four distillers. The 25-year power and water purchase agreement with KAHRAMAA was initiated in 2006, which secures revenues for the firm for the next two decades.

A 40% stake in the Mesaieed Power Company, which has a capacity of 2007 MW of electricity, and a 45% stake in the Ras Girtas Power Company round out QEWC’s local investments. A production capacity of 2730 MW of electricity and 63 MIGD of water built at a total cost of QR14bn ($3.83bn) makes Ras Girtas the largest power generation project in the region. According to the firm, the Ras Girtas plant can supply around 30% of the country’s total electricity needs and 20% of its water needs. The plant operates under a 25-year power and water purchase agreement with KAHRAMAA. In addition to QEWC, the other shareholders in the Ras Girtas Power Company include QP (15%), Suez (20%), Mitsui (10%), Chubu (5%) and Yonden (5%).

Transmission & Distribution

According to KAHRAMAA, it invested more than $9.6bn in upgrading the electricity network between 2000 and 2008. Qatar’s National Control Centre (NCC) is the unit within KAHRAMAA that is tasked with managing and monitoring electricity transmission, while the Distribute Control Centre (DCC) oversees distribution.

The network has been expanded significantly over the last decade, catering to a booming population and a growing industrial base. “KAHRAMAA is continuing to invest in the transmission and distribution network. With population expansion and other infrastructure developments, there is a trend of residents and businesses moving to the outskirts of Doha, which requires building additional substations and developing the transmission and distribution network for electricity and water. This presents opportunities in the electricity and water sector for investment and future works,” Ghassan Barghouth, the general manager of Schneider Electric, told OBG.

Transmission and distribution losses in the electricity sector are very low. According to data published by the World Bank, Qatar averaged losses of 2% of total output in 2011. The efficiency of the network has improved significantly since 2000, when losses averaged an estimated 7% of total output.

The water network, which measured 1926 km in 2000, was expanded to over 4500 km between 2009 and 2012 at a total investment cost of up to $3bn, according to KAHRAMAA.

The network currently includes 23 storage reservoirs and transports 259m gallons of water each year. Unaccounted for water, or water that is lost in transmission and distribution as a result of leaks or because of illegal connections stands at around 30-50%. Efforts are under way to reduce this, however, and in 2009 alone, KAHRAMAA invested more than QR212m ($58.1m) to improve network monitoring and reduce losses.

Private Sector Participation

Qatar is increasingly tapping into the private sector’s financial and technical capacity to build its desalination and wastewater plants. Five project finance deals in the water sector worth more than $8bn were completed between 2005 and 2010. State-owned KAHRAMAA has invested in excess of $15bn in the water and power sector to deal with increasing domestic demand, which has grown by more than 10% each year since 2005. Total desalination capacity more than tripled from 61 MIGD in 1997 to 215 MIGD in 2009, and was estimated to have reached 327 MIGD as of 2013.

Metito, a global water and wastewater company that is headquartered in Dubai, also has huge investments across the MENA region. In Qatar, Metito developed a seawater reverse osmosis desalination plant that produces some 35,000 cu metres of water per day for The Pearl-Qatar development.

Wastewater & Solid Waste Management

According to the “Global Water Market” report for 2011, an estimated 90% of households in Doha are connected to the main sewerage network. This figure drops to about 70% on a nationwide basis because many smaller communities in rural areas use septic tanks or other on-site technologies as an alternative. According to the Ministry of Development Planning and Statistics, 50% of wastewater is collected.

The “Global Water Market” report estimates that 60% of this is treated to a basic level, while Ashghal puts this figure at almost 100%.

Qatar currently has a total of six wastewater treatment plants. Doha West, with a capacity of around 135,000 cu metres per day, was upgraded in 2005 under a design-build-operate contract with France’s Degremont and Japan’s Marubeni. The plant treats wastewater, which is then used for municipal and agricultural irrigation. Additionally, Degremont and Marubeni are part of another consortium with a local firm, Mushrif Trading and Construction Company, that won the contract for the $195m Lusail wastewater treatment plant. Capable of treating around 60,000 cu metres of wastewater per day, the project was also tendered on a design-build-operate basis with a 10-year timeframe.

Veolia is another major player in the sector. It won a seven-year operations and maintenance contract for the Doha South wastewater treatment plant in 2009. The plant has a capacity to treat 112,000 cu metres per day. It also runs Doha’s Industrial Area treatment plant, which is managed as a seven-year operations and maintenance contract. The plant has a capacity of 12,000 cu metres per day. The Al Khor and Al Thakihira treatment plants are managed by local companies, with a total capacity of 4860 cu metres and 30,000 cu metres per day, respectively.

Private Treatment

Finally, there are a few private treatment facilities, such as the $12.5m wastewater treatment plant built on-site at the new Hamad International Airport, built by Metito. QP and other smaller companies also operated wastewater treatment plants at some of their facilities.

According to the “Global Water Market” report, at present not all the sludge from these treatment plants is treated. The Ministry of Municipality & Urban Planning built the Al Khiraana dumping site, which handles most of Doha’s sludge. The facility is operated by Qatar’s Power Waste Management and Transport Company under a QR3.75m ($1.03m) contract to transfer 160,000 cu metres of sludge from Doha West, Doha South and the Industrial Area treatment plants. Doha North is currently building its own sludge treatment facility.

Tariffs

Qatari nationals do not currently pay water and electricity tariffs. However, expatriates form the vast majority of Qatar’s population and are required to pay for water and electricity. Wastewater and sewerage services are currently free for all residents.

While QEWC does not deal directly with most customers, the company has published the tariff structure, which essentially charges a flat rate of QR4.4 ($1.21) per cu metre of water for residential households. Electricity is charged in two blocks of QR0.08 ($0.02) per KWh up to 4000 KWh of electricity and QR0.1 ($0.03) beyond that for residential consumers. Government accounts are charged the highest rate of QR0.15 ($0.04) per KWh, while charges for commercial, industrial and hotel clients range from QR0.09 ($0.02) to QR0.14 ($0.04) per KWh. According to the “Global Water Market” report, these prices are roughly 35% of the actual cost, which suggests that all consumers benefit from an implicit subsidy.

Conservation

Artificially low tariffs have resulted in extremely high consumption of water and electricity. Electricity consumption in Qatar, averaging 15,755 KWh per capita in 2011, was second only to Kuwait within the GCC region. The average in high-income OECD countries, by comparison, is 9284 KWh per capita. In addition, low energy prices have also led to the growth of water- and energy-intensive sectors, such as the metals industry, that might not thrive in Qatar without subsidies. This places a tremendous strain on Qatar’s scarce water resources.

However, the small Gulf nation has one of the more explicit national strategies to reduce its dependence on energy-intensive water resources and has enshrined the goal of improving resource efficiency in its series of National Development Strategy plans. Qatar is using its revenues from natural gas to diversify its economy and is funding programmes to drive innovation within the water sector as well. KAHRAMAA is leading the government’s efforts to reduce water and electricity use levels. The Tarsheed campaign, led by KAHRAMAA, is a national effort to reduce electricity consumption by 20% and water consumption by 35% over five years. The year 2013 marked the first anniversary of the programme.

“The water sector is also open to investment. As KAHRAMAA expands the distribution network and given the Tarsheed programme, there is room to invest in sustainability, especially to reduce water leakages in the network,” Barghouth told OBG.

Many private sector organisations are also developing conservation strategies. For many companies, limiting the use of water is an operational strategy that helps to reduce costs. QP and Shell, for example, adopted a commitment to zero liquid discharge at their Pearl gas-to-liquid joint venture. The water efficiency component was developed and implemented by France’s Veolia Water and included an effluent treatment design that ensures water produced in the gas-to-liquid process is treated and reused. The treatment plant has the capacity to handle 45,000 cu metres a day, with treated water being entirely used within the factory. Treated wastewater is also currently being reused for irrigation.

QP has several water-use efficiency initiatives that seek to engage with citizens. The energy giant recently hosted the QP Environment Fair, at which it advocated for water conservation, using the slogan “Be Water Wise – Every Drop of Water Counts”. The event also showcased water-powered cars as part of the company’s outreach strategy.

Outlook

The country’s utilities sector is dominated by government agencies or government-controlled companies. QEWC is partially owned by the private sector, but it is not subject to direct competition. However, there is still broad scope for private sector participation in areas like designing, building and operating water and electricity infrastructure. Enhanced regulation will likely be key to encouraging greater participation from the private sector going forward. However, the presence of companies such as GDF Suez, Veolia, Degremont, Marubeni and Metito, the current set of international players active in the market, is a positive sign. It is likely that major investments in the sector will attract greater interest from global utilities firms in the years to come.

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The Report: Qatar 2014

Utilities chapter from The Report: Qatar 2014

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