How water sector PPP model attracts FDI into Saudi Arabia

In wake of shifting economic trends, diversification and non-oil trade development, the Saudi government has opened various forms of private sector investments such as full or partial assets sale, IPOs, management buyouts, PPPs and outsourcing in the water industry of the Kingdom.

KPMG’s latest report titled Success factors for Public Private Partnerships in the water sector delves into the prospected increase in water demand, as the Saudi population (37.27 million-2021) is expected to increase to 40.1 million by 2030, combined with a GDP growth of 2.6% per year. The population growth will also have a profound impact on wastewater to a potential 50% increase.

KPMG study subtly covers most of the UN’s Sustainable Development Goals (SDGs), especially, SDG-6 (clean water and sanitation) and SDG-17 (partnerships). It encapsulates that strong projects governance model, transparency, qualified team, strict monitoring, effective risk mitigation and investor-friendly regulations are key enablers to institute a successful privatization process.

The Saudi National Water Strategy (NWS), aligned with the Vision 2030’s Privatization Program, sets forth objectives for privatizing the government assets. The other sectors targeted for Public-Private-Partnerships (PPPs) include primary and extended healthcare, renewable energy generation and public transport. Ports are planned to be corporatized for subsequent privatization.

The water strategy adopts a sustainable approach to the water sector committing to safeguarding the vital natural resources, environment of the country and cost-effective and high- quality services. It ensures water sector competitiveness, contribution to the national economy through effective governance, private-sector participation, localization of capabilities and innovation in Kingdom’s water sector.

Private sector involvement remains key focus of National Water Strategy to improve the water and wastewater sector in Saudi Arabia. Due to the socio-economic benefits, the Public-Private-Partnerships (PPPs) in water and wastewater have driven FDI, employment creation and domestic capacity development. Investment and participation by international investors such as Spain’s Acciona, Veolia and Marubeni were important factors in developing domestic capabilities.

Kingdom’s privatization initiative in the water sector aligned with wider privatization program is launched by Saudi sub-cabinet Council of Economic and Development Affair (CEDA) to achieve the objectives of Vision 2030.

The key players in public water sector are Ministry of Environment, Water and Agriculture (MEWA), Saudi Water Partnership Company (SWPC), National Water Company (NWC), Saline Water Conversion Corporation (SWCC), Water Transmission and Technologies Company (WTTCO) and National Center for Privatization and PPP (NCP).

Case Study

KPMG refers to a case study of Saudi Water Partnership Company (SWPC), which has emerged one of the leaders among PPP grantors in the GCC region. SWPC successful PPP model is suited for infrastructure sectors and for foreign firms’ keenness of investing in Saudi water sector.

SWPC’s privatization success model has been received positively by regional and international investors who are interested in infrastructure asset acquisition and investment in Saudi Arabia.

The lessons derived from the SWPC experience provide valuable insights into incentivizing the private investments in traditionally government-operated services. In addition, effective procurement governance and contract frameworks, which are appropriate for assets and asset bundles will deliver low-cost capital, affordability, efficiency and service quality.

The Vision 2030’s privatization targets would require similar open-minded and international approach by all stakeholders in the water and other sectors, which will attract larger individual and institutional investments into the Kingdom.

— head of Advisory at KPMG in Saudi Arabia