Sasidhar Chidanamarri of Frost & Sullivan sums up the key trends in the region’s water and wastewater sector in 2012
As economic development gains speeds up, Middle East governments are moving aggressively towards promotingwater conservation/storage, wastewater recycle and reuse and desalination of sea water in order to meet the burgeoning water consumption needs of all sectors. The region is also investing heavily in water and sewerage networks to ensure 100% connectivity to the growing population.
The region is at a very sensitive stage where it is trying hard to balance the three Es, namely Energy, Environment and Economy. This strenuous act is shoring up business opportunities in the environment sector. On the energy side, the Gulf Cooperation Council (GCC) is expected to add more than 140,000 MW of new power generation capacity in the next decade. The Kingdom of Saudi Arabia (KSA) will alone invest $80-100 billion in adding 75,000 MW by the year 2020 from current capacity of 46,000 MW.
Economically, the GCC region is making brisk developments and is anticipated to be a $2 trillion economy by the year 2020, supplying 25% of the world’s oil. Contribution of non-oil sectors to the Gross Domestic Product (GDP) is expected to go up from 35% in 2010 to 40% in the year 2020, as economic diversification gains pace.
Such rapid growth is undoubtedly straining the already scarce and stretched water resources in the region. Water requirements by all the three sectors, namely, agriculture, domestic and industrial are set to grow from 35 billion m3 to 49 billion m3 by 2020 in the GCC. Whilst, the sewage collection rate in the GCC is 52% of the total sewage generated; however, contribution of recycled water to total water withdrawal is between four to eight per cent. All the GCC countries are water-stressed with the per capita renewable water resources much below the critical level of 1,000 m3/day. Over drafting of groundwater aquifers has led to deterioration of groundwater quality, further constraining groundwater supplies.
The GCC region mirrors the trend followed by emerging economies like India, Brazil, and China where up to 80% of the water withdrawals are meant for agricultural purposes. However, in case of developed economies like the United States, industries consume the majority. The industrial growth in the GCC region, though aimed at de-risking the economy from frequent shocks of Oil & Gas sector, is expected to unfold opportunities for advanced water and wastewater treatment solutions.
Urbanisation is another mega trend severely impacting the already low levels of available water resources pegged at 1,200 m3/per person/ per year as against the global average being 7,000 m3/per person/ per year. In the Middle East, urbanisation levels are about 50%, but the urban growth rate is about four per cent. Urbanisation levels are expected to touch 70% by the year 2020. Hence, the real challenge lies in continuing economic growth, eradicating poverty and preserving the environment.
Provision of water and wastewater treatment infrastructure is vital to make the Middle Eastern cities viable, liveable and competitive, in order to attract foreign investment, increase employment and economic growth. Investments in clean technologies and environment friendly practices through the implementation of advanced treatment technologies not only solve water issues but also promote green growth and sustainable living.
The region is facing an uphill task of meeting the growing demand for water by industries, improving water supply and sanitation to the growing population, planning to prevent depletion and contamination along with optimisation of available water resources. In its path towards meeting these challenges, opportunities are unfolding for the water sector particularly in the areas of recycle and reuse technologies such as Membrane Bioreactor (MBR) and sea water desalination.
The Water and Wastewater Treatment Equipment Market in the GCC region is pegged at $1.3 billion in 2011 and is expected to reach $2 billion by 2016 growing at a Compound Annual Growth Rate (CAGR) of seven per cent over the next five years. Desalination is expected to continue playing a critical role in the overall water supply in the MENA region. Across the Middle East, a total of 39 million m3/day of desalination capacity is expected to be added between 2010 and 2020. This translates into an approximate investment of $45-50 billion in the desalination sector. Frost & Sullivan, in a recent study, estimated the MBR market in the Middle East at $120 Million in 2010. The MBR market represents just nine per cent of the overall treatment equipment market, which is pegged at $1.3 billion. The MBR market is slated to grow at CAGR of 17.7%, most of the revenue will again be anchored by the GCC region.
THE CEO’s PERSPECTIVE
In desalination, Reverse Osmosis (RO) technology is expected to garner greater market share than thermal technologies, especially in the small-capacity plants market. With technical advancements resulting from various researches, RO is gaining importance in the market for its lower energy consumption. The GCC region is also witnessing newer developments such as RO or Multi Stage Flash (MSF) hybrid desalination plants that offer significant advantages such as small seawater intake facilities, optimisation of feed water temperature of the RO plant by using cooling water from the heat rejection section of the MSF, extension of the life of the membranes and low water production cost. Another technological trend likely to gain a foothold in the GCC region is the solar-powered desalination market. Solar energy received on each square kilometre of the desert land is sufficient to desalinate an amount of 165,000 m3/day. Realising that desalination consumes vast amounts of energy, implementing solar technologies in desalination would lead eventually to cost reduction, lower operating expenses (OPEX) over the concession period and help earn carbon credits. These advantages translate to lower water tariffs for consumers in the long term.
The GCC region is witnessing installations of large capacity MBR plants. Muscat in Oman, has recently commissioned a 76,000 m3/ day MBR plant that treats sewage to low levels of suspended solids, biological oxygen demand (BOD) and colour, for use in irrigation and other industrial applications. These developments are revealing signs of a more expansive market for MBRs in the Middle East.
The ageing water and wastewater infrastructure of the developed regions coupled by the increasing stringent legislation will catalyse replacement opportunities as well as advanced and efficient treatment systems. Rapid increase in populations both in developing countries as well as major urban centres will influence major investments for water and wastewater treatment needs. Growth markets include the Middle East, Africa, Latin America, and APAC, which are characterised by high population density lacking adequate drinking water and sanitation.
The cumulative global desalination capacity was 68 million m3/day in 2010. The Middle East and North Africa region contributes to more than 50% of the world’s desalination capacity. Saudi Arabia is now the largest producer of desalinated water in the world, accounting for 17% of the global desalinated water capacity, followed by the United Arab Emirates (UAE) at 14%. The world’s desalination capacity is expected to double from 60 million m3/day to 120 million m3/day by 2020. Much of the expansion is anticipated to occur in the Middle East.
On a global scale, Middle East’s MBR market represents 20% of the global MBR market. It has the potential to grow at a remarkable rate of 18% CAGR in the next five years as compared to the global CAGR of 13.9% over the next four years.
The GCC is a market where most end users are now seeking performance over price. As opportunities in recycle and reuse grow, the market is seeking innovation and newer technologies like MBR to treat and reuse wastewater. The growing numbers of Build, Operate, Transfer (BOT) projects indicate an increase in adoption of energy-efficient systems. The use of energy recovery devices (ERDs) and variable frequency drives (VFDs) are making RO desalination a cost-effective and energy efficient solution. With growing number of BOT projects in the region, industry participants must also have the capability to finance the projects. The ability to secure funding will play a key role in the market. Apart from the above, improved project management skills are also being sought to prevent time and cost overruns. Services market is another area of great opportunity where end users, industries in particular, are outsourcing the operations and maintenance (O&M) of water and effluent treatment plants so that they can focus on their core competencies.
Municipalities form the major chunk of end users for water and wastewater treatment equipment. In order to augment the water and wastewater infrastructure, governments of Middle East countries are using Public Private Partnerships (PPPs) wherein the risks are shared optimally between the public and private sector for sea water desalination. There is also a need for institutional capacity building such as dedicated agencies, availability of sufficient skilled staff and detailed policy planning. Most importantly, the private sector has to ensure efficient delivery of services over the concession period without unreasonable hikes in water tariffs. Both Public and Private sectors have to bear in mind that water is still considered a “free” resource in most of the developing nations. In order to bring improvements in efficiency and quality of service, the PPPs representing huge stakes for both private and public sector agencies have to be a mutually rewarding.
The Commercial segment has driven the demand for MBR systems, mainly on account of urbanisation and development of the real estate sector in the MENA region. Oil & Gas sector has also been at the forefront in developing and adopting advanced treatment systems for the wastewater treatment.
The competition is intense in less technologically intensive water treatment systems. When it comes to complex systems like MBR and desalination, the market is concentrated in the hands of few players of global repute. However, the competitive landscape in MBR and desalination is changing with the entry of new participants from regions like India, Asia Pacific and China. The competition for components such as membranes is also increasing due to new entrants from China. However, as manufacturing quality standards for systems and discharge standards for effluent become stringent, players with the capability to treat multicomplex contaminants are certainly going to have an advantage over other low-cost manufacturers.
Strategic outlook for the year 2012
It is widely known, and fully documented, that the Middle East, despite the severe water crisis, has been at the vanguard of embracing new technologies. Whether it is the new eco-friendly solar powered desalination plants or forward osmosis desalination or the large capacity MBR systems, the region is making maximum attempts to shore up infrastructure to tide over the water scarcity issue. The region holds significant potential for industry participants mulling a foray into the development of water and wastewater infrastructure including desalination, water and wastewater treatment, water transmission, and wastewater collection network. The Middle East region has the potential to drive the market for membrane-based systems such as reverse osmosis, MBR and ultra-filtration (UF) on the treatment side. Additionally, the Middle Eastern countries are keen to allow the private sector to tackle critical water and wastewater issues. In its quest for sustainable and green growth, the region is expected to be the testing ground for advanced and newer treatment technologies.
(The author is Industry Manager, Environmental and Building Technologies Practice, Middle East, North Africa and South Asia, Frost & Sullivan)