Water security is an economic, social and political priority for the Middle East. Soaring demand and limited natural reserves have pushed the region toward severe water scarcity. The GCC countries are particularly vulnerable; indeed, Bahrain, Qatar, Kuwait and Saudi Arabia are ranked as the most water-stressed countries in the world, and yet they are facing soaring demand from their water-intensive industries. The population growth rate in the region, estimated to be among the highest in the world, is also putting immense pressure on water infrastructure and service delivery. Furthermore, analysts have long identified access to water as a potentially contentious issue in the Middle East.
These problems are not unique to the GCC and MENA region, however. Many other countries in South Asia, sub-Saharan Africa and parts of Latin America continue to struggle with providing access to water for their citizens and industries. Climate variability and global warming are further exacerbating the supply problem by placing tremendous pressure on existing water resources. GCC countries, however, are in the unique position of being able to leverage their considerable wealth to invest in developing technologies and innovations with the aim of gaining a competitive advantage in the global water sector.
Most of the water supplied in the GCC is produced through desalination. Freshwater supplies are extremely limited and are being stretched to their limit as population growth in the region has been reaching levels of more than 3% per year. A recent report by the consultancy Booz & Company highlighted the fact that Saudi Arabia and the UAE consume 91% and 83% more water per capita than the global average, respectively. The UAE is also the world’s largest consumer of bottled water, with consumption estimated at around 260 litres of bottled water per person a year. For comparison, Mexico, the second-largest consumer, uses 205 litres per year.
Despite significant subsidies, the GCC’s water demand is expected to grow significantly over the next decade as countries invest in new facilities and infrastructure to supply their growing populations. The UAE’s water and wastewater market alone generated revenues in excess of $2.75bn in 2011 and is anticipated to grow to more than $5.6bn in 2015, according to data from international marketing firm Frost & Sullivan.
Water extraction far exceeds natural replenishment, leading to contaminated reserves and a dropping water table. The UN’s Food and Agriculture Organisation (FAO) reported that, while total renewable water resources per capita in Bahrain were only 160 cu metres per year, the country was extracting more than 506 cu metres per year in 2003. This level of over-extraction is destroying already limited reserves as seawater and other contaminants seep into the country’s aquifers.
Desalination is therefore one of the only options for producing water currently available to governments in the GCC. Indeed, the GCC already accounts for 57% of the world’s desalination capacity. The UAE has some 70 desalination plants that produce almost 14% of the world’s desalinated water. Nearby, Saudi Arabia also operates more than 30 desalination plants and produces 24m cu metres of water per day.
GCC countries are home to a number of projects that are being implemented in the water sector.
Between them, they are poised to spend more than $100bn between 2011 and 2016 on developing more efficient desalination technologies, investigating solar energy options to reduce energy costs, undertaking wastewater recycling initiatives and building water treatment facilities.
Saudi Arabia, for example, is developing several desalination plants, including the $5bn Ras Al Zour power and desalination plant, the $1bn Yanbu power and desalination plant, and $220m Jeddah RO desalination plant. Together, these plants are expected to produce a combined total of over 1.3m cu metres of water per year. Oman is also developing two major projects: the $5bn Manadhif plant and the $2.7bn Sail Village plant, which will produce a combined total of 700m cu metres of water annually.
Qatar, one of the fastest growing GCC countries, depends almost entirely on desalinated water, with an average per capita consumption of 310 litres per day. Agriculture and construction, which are booming in part due to preparations to host the FIFA 2022 World Cup, account for more than 70% of demand in the country. Qatar is currently developing substantial storage facilities and is in the process of building a $2.75bn water reservoir project that will have storage capacity for seven days of water. The facility will connect several desalination plants across the country and will store a total of 1.9bn gallons of water. The UAE, Kuwait, and Bahrain all have similar investment projects that are set to significantly expand the GCC region’s desalination capacity.
Scope For Investment
Investments in the sector are not limited to the six GCC countries. Reports published by the Zawya Projects Monitor indicate there are almost 60 water-related investment projects with a combined value of $27bn already under way in the Middle East as of June 2012.
The Jordan Red Sea Project is an immense $10bn plan to provide the country with 1bn cu metres of water by 2022. The project will draw over 2bn cu metres of raw water from the Red Sea, with roughly half to be desalinated for domestic supplies and half to be used to replenish the Dead Sea. The project is expected to have significant impact on the economy through related ventures to develop real estate, industry and other economic sectors that depend on a steady water supply.
Despite its benefits in a water-scarce region, desalination is an expensive, energy-intensive technology that often produces waste that contaminates existing water resources. Water in the areas around the desalination plants now contains up to eight times the normal level of salt. In terms of expense, Booz & Company estimates that in spite of all the technological advances, it still costs $1 to desalinate 1 cu metre of seawater.
Dependence At A Price
Further, it is estimated that desalination accounts for 10-25% of energy consumption in GCC countries. The cost of this dependence is not trivial even in the energy-rich Gulf countries: the Kuwait Times has reported that Kuwait burns through nearly 300,000 barrels of oil every day to generate electricity and desalinate seawater. This could account for up to 20% of the country’s oil production by 2017.
Similarly, a recent Global Water Intelligence report estimated that the UAE spends $800m annually on building, operating and maintaining desalination plants. The report indicates this will increase by 300% to over $3.22bn over the next six years as the country brings more desalination plants on-line. These factors point to the need for new technologies that are more sustainable in the long term.
Governments in the GCC are aware of these issues and are gradually developing other strategies to mitigate the effects of the water crisis. Oman is building reservoirs outside the capital city of Muscat to deal with shortages. Kuwait is also exploring the use of reverse osmosis and is building two plants that will produce 50m gallons of water per day that way.
Qatar has one of the more explicit national strategies to reduce its dependence on energy-intensive water resources and has enshrined improving resource efficiency in its National Development Strategy. The country is using its gas revenues to fund programmes to drive innovation within the water sector. For many companies, limiting the use of water is also an operational strategy to reduce costs.
Metito, a global water and wastewater company that is headquartered in Dubai, also has investments across the MENA region. In Qatar, for example, Metito developed a seawater reverse osmosis desalination plant that produces 35,000 cu metres of water per day. Fady Juez, managing director at Metito, said the Middle East is playing an important role in adopting these new technologies.
“The biggest desalination plants in the world are here,” Juez told OBG. “The first multi-stage flash plant in the world was built in Kuwait. The first reverse osmosis plant outside the US was done by us in a small village in Libya, and people in the region are receptive to using new technology.”
Other globally recognised brands are also active in the region. GE, for example, is also developing sustainable technologies that can be tested and implemented in the GCC countries, and has invested $1.8bn globally in research and development of clean technologies for its “ecomagination” initiative. Further, Suez Environment recently signed a $46m contract to develop a wastewater treatment plant in Doha through its subsidiary, Degrémont.
Companies like Metito are also starting to utilise solar-powered desalination plants to produce water. Abu Dhabi has already developed 22 solar desalination plants that will generate 1050 KWh of energy and 6600 gallons of clean water per day. The emirate has plans to build another 30 plants after the pilot phase. Abu Dhabi’s solar-powered plants will be used to create watering holes and irrigate natural vegetation for an initiative to rehabilitate the Arabian oryx, a breed of antelope.
Dow Chemical Company is also investing in research and development and has signed a commercial agreement with Saudi Arabia’s Saline Water Conversion Corporation (SWCC) in September 2012. The two organisations will develop and test new desalination technologies that can be implemented in countries surrounding the Gulf. SWCC produces all of Saudi Arabia’s desalinated water and accounts for some 18% of the world’s desalination capacity. It is the largest desalination company in the world and is thus well positioned to invest heavily in research and development in the sector.
Many of these projects have tapped into private sector expertise and finances. The GCC region has used a variety of project finance models to build its desalination and wastewater plants and is now expanding the use of public-private partnerships (PPPs) to other sectors. Dubaibased MEED Research estimates that there have been more than 100 PPP projects in the region with a total investment of more than $50bn. The research institution expects this value to continue growing as Dubai and Kuwait also adopt the model.
Dubai is also considering PPPs for its waste-toenergy and water transport projects and Qatar is increasingly partnering with the private sector. Of the six project finance deals worth more than $8bn that were completed between 2005 and 2010, five were in the power and water sector. State-owned Kahramaa has invested more than $15bn in the water and power sector to meet increasing demand, which has growth by more than 10% a year since 2005. Total desalination capacity has more than tripled from 61m gallons per day in 1997 to 215m in 2009.
Technology, construction and operations of water projects, however, are just half the solution as they only address issues on the supply side. Public and private utilities across the region are developing outreach programmes to engage with customers who often lack knowledge on water conservation. These efforts are designed to reduce consumption per capita and therefore to drive down the cost of providing water to consumers. Furthermore, easy access to cheap water and electricity has led to growth of several water-intensive industries in the GCC region. Agriculture and heavy industries such as aluminium smelting, for example, account for almost 50% of the UAE’s water demand. The subsidies that support these activities are not sustainable.
GCC countries are increasingly turning to treated wastewater reuse for agriculture and other needs such as gardens, toilet water and recharging aquifers. A recent report on GCC water resources by NCB Capital estimates that treated wastewater now accounts for 16% of total municipal demand, though just 2% of total demand.
Many companies are also developing conservation strategies. Qatar Petroleum, for example, has several water-use efficiency initiatives in the country that seek to engage with citizens. The energy giant recently hosted the QP Environment Fair at which it advocated for water conservation at home using the message “Be Water Wise – Every Drop of Water Counts”. The event also showcased water-powered cars as part of its outreach strategy.
Future Of Partnerships
While GCC governments lead and regulate the water sector, private enterprise is actively involved across the water industry. All six countries are already using PPPs to develop and manage water and wastewater solutions. The private sector’s role within the region is likely to continue growing. Innovation in developing new technologies to reduce costs and improve efficiency will be critical and is likely to come from private enterprise. GCC countries offer the private sector a unique “laboratory” in which to test new innovations as governments form partnerships and invest in new technology. Partnerships with European, American, and Asian companies bring together global expertise and will also help facilitate a transfer of knowledge into the region as the GCC looks to build on its niche within the water industry.
Metito’s Juez highlighted the region’s potential in the industry. “With the region becoming more and more industrialised and the tourism developing, the stress on our water will increase,” he told OBG. “So we need to come up with more smart technologies to ensure supply, and we’re doing it. We’re recycling more, treating more, satisfying industrial needs from wastewater recycling to leave the desalinated water for personal use, and even importing virtual water.”