Providing Water and Electricity in a Growing Economy

—

The Perspective of the

Saudi Saline Water Conversion Corporation

US - Saudi Business Opportunities Forum, Atlanta - USADecember, 2011

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بسم اهللا الرمحن الرحيم

In the name of God, Most Gracious, Most Merciful

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The water sector in Saudi Arabia faces the dual challenge of high water demand and depleting non-renewable water resources

Main Challenges in the Saudi Water Sector

High Demand for Water

� High municipal water consumption,

estimated at 250 liters per capita per day

due to a lack of awareness vis-à-vis water

scarcity issues and limited price signaling

� High rural usage (agriculture accounts for

more than 80% of the total water consumed)

� High water demand growth, estimated at

2.1% annually for 2010-2014, driven by:

– Population growth

– Increasing urbanization

– Industrialization and economic growth

Depleting Natural Water Resources

� More than 60% of the total water consumed

(not just municipal) comes from depleting ancient water aquifers

� Groundwater abstraction rates are unsustainable, estimated to be 10 times

higher than yearly replenishment rates

� The quality of surface and ground water is

deteriorating due to pollution and the overexploitation of resources

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SWCC was established in 1974 with a main purpose to support natural water resources by means of seawater desalination

Late King Abdulaziz ordered the first 2 desalination units with a capacity of 300 m3/day (80,000 gallons) for Jeddah to serve the Pilgrims and Jeddah population.

1928

1974The present SWCC is established by Royal Decree. Its main purpose of SWCC is to support natural water resources by means of seawater desalination in addition to electric power generation depending on technical and economic conditions

Overview of SWCC Establishment and Purpose

Vision Pioneering the Seawater Desalination Production and Transmission

MissionTo Meet the Kingdom’s Desalination Water Demand and Contribute to Economic and Social Growth through Effective Investment in Human and Physical Asset Resources

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SWCC is engaged in water production and transmission, power generation, and R&D in desalination

Desalinated Seawater Production

� Main activity: Planning, construction, operation and

maintenance of seawater desalination plants

� Process: Production of water either through dual or

single purpose plants (MSF, MED, RO)

� Existing assets: 27 plants in 16 locations with 3.3M

m3/day installed water capacity

Water Transmission

� Main activity: Planning, construction, operation and

maintenance of water transmission pipelines

� Existing assets: More than 5,000 km of pipelines,

29 pumping stations, 158 storage tanks (capacity: 9M

m3) and 17 blending stations

Power Generation

� Main activity: Planning, construction, operation and

maintenance of electrical power plants

� Process: Dual purpose plants

� Existing assets: 12 cogeneration plants with around

5,000MW of power generation capacity

Research and Development

� R&D Institute: Largest Middle East R&D center

pioneering in seawater desalination technologies

� Training Center: Ensures continuous transfer of

knowledge to the sector

N

EW

S

AL-KHAFIJI

AL-KHOBARDUBA

AL WAJH

UMLUJ

RABIGH

JEEDAH

Al-SHOAIBA

Al-BIRK

AL-SHUQAIQ

FARASAN

Aِl-AZIZIA

BURAIDAH

AL ZU

LFI

ALQAT

SHUQRA

MAJM

UA

SUDAIR

AL

HU

SI

RIYADH

MADINA MUNAWARA

MAKKAH MUKARAMA

TAIF

ABHA

KHAMIS MUSHAYAT

AL-JUBAIL

HAQL

YANBU

HAFUF

Large Plants

Satellite Plants

Water Transmission

Systems

Regional Reservoirs

Al-LEETH

Al-QUNFIDHAH

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Saudi Arabia is currently the largest producer of desalinated water in the world, accounting for 18% of total production

UAE

33%

KSA

41%

BAHRAIN

3%

QATAR

7%

OMAN

3% KUWAIT

13%

KSA Desalination Share in the GCC (2010)

KSA

18.00%

KUWAIT

6.46%

OTHERS

27.36%

OMAN

1.38%BAHRAIN

1.32%

SPAIN

7.64%

USA

17.80%

UAE

16.66%

QATAR

3.39%

KSA Desalination Share in the World (2010)

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The Saudi Government is committed to expand desalination to meet national demand for water and electricity

The Share of Desalination in the Kingdom Municipal Water Supply is Expected to Rise

34(1)27.2

KSA Population (In Millions)

63%

(5.2 Million

m3/day)

53%

(3.3 Million

m3/day)

Desalination Share in Water in KSA

8.5(2)6.8(2)

Water Demand(In Million m3/day)

20252010

(1): Assuming an average annual growth rate of 1.5%

(2): Consumption rate per capita is 250 liters/day

Cogeneration is Adopted as a Strategy for Increasing Desalination Capacity Efficiently

� Cogeneration plants combine water

production and power generation which

maximizes economic efficiency when large

investments in both power and water

supply are required to meet local demand

� In 2011, Royal Decree M/45 stipulated that

the adoption of cogeneration is compulsory in desalination projects and

coastal electricity generation projects,

except in cases where there is proof of

economic unfeasibility or no demand for

power or water

� Cogeneration currently accounts for around

20% of electricity generation in KSA

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SWCC is focusing on five key dimensions to meet water and electricity demands and ensure effectiveness and sustainability

� Integrated resource planning

� Timely expansion of desalination capacity

� Private sector participation in the Saudi desalination sector

� Restructuring and commercialization

� Innovation and global collaboration

1

2

3

4

5

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Integrated Resource Planning

Matrix of Resource Planning Approaches

Efficiency

Effectiveness and Flexibility

High

Low

Low High

Integrated Resource Planning (IRP)

�Demand and supply-

side

�Engagement of all

stakeholders

�Minimum costs

�Reliability of

supply, taking

demand for

granted

Traditional Resource Planning

�Lowest cost

options to meet

demand

Least-Cost Resource Planning

Integrated Resource Planning (IRP)

� The main aim of IRP is to maximize economic

efficiency while guaranteeing supply reliability

� An integrated planning for water resources is

required, notably desalination and groundwater

(balancing cost, national interest, availability)

� An integrated planning for the water and

electricity sectors is required so that the timing,

location and size of cogeneration facilities is

optimized (taking into account interrelation

between demand and supply)

� A prime example is the case of Ras-Al-Kheir

plant in KSA where the SWCC cogeneration

plant was expanded by 1,350MW to include

the industrial power needs of a local

manufacturer, which was planning to build its

own plant

Integrated resource planning for water and power maximizes value for the economy

1

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SWCC is currently constructing major plants and pipelines – Ras Al-khair is the largest cogeneration project of its kind in the world

2013 / 20142,4001,025,000

2012-240,000Jeddah - RO

Ras Al-Kheir

Expected DatePower Capacity(Megawatts)

Water Capacity(m3/day)

Plant

2014913565,000Shuqaiq (Phase 2)

210369,000Al-Laith

2013 / 2014344790,000Mekkah / Taef / Jeddah

201429,000Farasan

Expected DateLength

(Kilometers)Capacity(m3/day)

Pipeline

160,000

1,000,000

350

900 2013Ras Al-Kheir / Riyadh

2013Ras Al-Kheir / Hafr El

Batn

16.8 Billion Saudi RiyalsTotal Cost of Projects Under Construction:

USD 4.48 Billion

SWCC Plants & Pipelines – Under Construction

2

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SWCC is also tendering several projects including a large cogeneration plant and transmission system in Yanbu

20142,500550,000Yanbu 3

2013-9,000Dhuba 4

2013-9,000

2013-9,000Rabigh 3

Haql 3

Expected DatePower Capacity(Megawatts)

Capacity(m3/day)

Plants

Expected DateLength

(Kilometers)Capacity(m3/day)

Pipeline

5,000

560,000

19

597 2015Yanbu - Madina (Ph 3)

2015Rabigh - Khulais

2

SWCC Plants & Pipelines – Under Tendering

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SWCC’s expected future capacities includes commissioning seven large plants by 2024

2023102100,000Yanbu 5

2021307300,000Yanbu 4

2017250250,000

2015175175,000Shuqaiq 3

Khobar 4

Expected DatePower

(Megawatts)Water(m3/day)

Plant

220,000

650,000

320,000

220

665

320 2017Jubail 4

2024Khobar 5

2019Shoaiba 4

SWCC Plants & Pipelines – Proposed Future Capacities

2

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Total Capital and Operational Investments until 2020

Desalination Sector Capex and Opex(2010 – 2020) – USD Million

Total = US$ 24.3 Billion (SR 91 Billion)

Power and water

Transmission

2,422

CAPEX OPEX

2,337

2,051

6,811

17,453

11,651

Transmission

5,802

Power

Water

Note: 1) Assuming constant ground and water supply

Source: Technical Advisor Estimation Report

2

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KSA has committed to increase private sector participation in key government assets to achieve the following strategic objectives

Source: Governmental Decree Number 60 of 1/4/1418 H and Number 175 of 27/6/1424 H, Supreme Economic Council Resolution 5/23

Government’s Strategic Objectives

� Enhance competitiveness of national economy

� Encourage/increase private sector participation

� Expand the ownership of productive assets by

Saudi nationals

� Encourage investment of domestic and foreign

capital in KSA

� Create employment opportunities for nationals

� Provide quality services in a cost effective

manner

� Reduce the burden on the government budget

� Increase government revenues

Sectors Covered by KSA Privatization Program

� Water and wastewater

� Desalination� Telecommunications

� Air Transportation and related services

� Railways

� Highways

� Airport Services

� Postal Services

� Wheat Mills and storage facilities

� Port Services

� Industrial Cities Services

� Government’s shares in Public companies

� Government’s shares in the Arabic and Islamic

common investment companies

� Government Hotels

� Sports Clubs

� Municipal Services

� Education Services

� Social Services

� Agricultural Services

� Health Services

3

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Status

� Commercial Operations started by

February 2009

Project InformationProject Name

Shoaiba III(West Coast)

Shuqaiq II (West Coast)

� Commissioning started by end of April

2009

� Project started operating in December

2010

� Estimated total cost: USD 1.87B

� Total Capacity: 212,000 m3/day

� 60% owned by the private sector

� 20 years BOO scheme

� Estimated total cost: USD 2.69B

� Total Capacity: 1,030,000 m3/day

� 60% owned by the private sector

� 20 years Build, Own, Operate

(BOO) scheme

Action to date: 2 Independent Water Power Producers launched 3

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The strategy for Private Sector Participation in SWCC was approved in 2008 and offers several investment opportunities

Strategy for Private Sector Participation in SWCC

Significant investment

opportunities for private

sector

*) Due to the present economic situation and the difficulties in ensuring financing, Yanbu -3 and Ras Al-Kheir are tendered as an EPC contract by SWCC

Old Production Plants: Jeddah-3, 4, RO1 and RO2, Jubail-1, 2 A and 2 B, Birk-1,

Haql-2, Khobar-2, Rabigh-1+TR1, Wajh-2+TR1-3, Farasan-1+TR1, Umlujj-2, Duba-

3, Azizia-1

Public

Ownership

Public/Private

Ownership Full Ownership

Partial Ownership

SWCC Holding

Trans-mission

Shoaiba-1,2

Shoaiba-4

Shuqaiq-1Shuqaiq-3

Yanbu-1,2,ROYanbu-3*

OtherR&DT, …

Khafji-2 Khafji-3

OldProductio

nPlants

Incorporate as government-owned holding

company and then possibly float on stock

exchange

Duba-4 / Haql-3 Wajh-3 Wajh-4 Umlujj-3

Jubail RO Jubail-4

Khobar-3 Khobar-4

Leith-1

Farasan-2

Qunfutha-1

Rabigh-2

Azizia-2

Introduce PSP in value creating priority

assets, following “IWPP model”

Yanbu ProdCo

RaKProdCo

KhafjiProdCo

ShoaibaProdCo

Shuqaiq ProdCo

KhobarProdCo

Jubail ProdCo

Trans-mission

OldProductionPlants

abc Existing / Built by SWCC abc To be Implemented by PPP

Ras Al-Kheir*

SatelliteProdCo

3

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Preparation Steps and DetailingStudies

ApprovalsExecution of Privatization & Restructuring

Holding Company Privatization

(Completed)From 8/2004 to 8/2006

24 Months

(Completed)From 1/2007 to 7/2008

18 Months

(On-going)Started in 1/2009

≈5 Years

PHASE I PHASE II PHASE III PHASE IV

SWCC has embarked on a long and ambitious privatization, commercialization and restructuring program

Phases of the SWCC Restructuring & Privatization Program

� Prepare a report on the requirements to develop SWCC’s privatization strategy and organization restructuring

� Develop and detail privatization options and select the preferred option

� Develop privatization and restructuring plan

� Submit Privatization Strategy and Restructuring Plan reports and conduct stakeholder presentations

� Obtain approval from the SWCC Board of Directors and Supreme Economic Council – issuance of the SEC resolution no. 2/29 (29/6/1429H)

� Finalize all preparations for the launch of the execution phase

� Introduce private sector participation in the Holding Company, either through management contract(s) or through an Initial Public offering (IPO)

� Transform Transmission Business Units into a company then introduce private sector either through an IPO or through long term strategic partnership (Optional)

� Organization detailing, HR Readiness and BPR

� IT strategy and implementation

� Rollout of the new organization structure and processes

� Commercial agreements development and enactment

� Submission of the documentation required for the Royal Decree

� Creation of the Holding Company and Production Companies

� Introduction, through a phased approached, of private sector participation in Production companies

Long Term

4

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� SWCC established its Research Institute in

1987 at Al-Jubail, KSA, as part of the Saudi

American Cooperation Agreement

� The Institute focuses on applied research in

chemistry, corrosion, environment, reverse

osmosis and thermal desalination

� The Institute has state-of-art labs and pilot

desalination plants

� It provides consulting, testing and

troubleshooting services to local and

regional customers

� The strategy of the Institute focuses on

promoting global collaboration to drive

advancements in desalination technology

Brief Overview of Our Research Institute

SWCC plays a key role in innovation and global collaboration in the desalination industry

Glance of SWCC Innovation and Collaboration

� 6 patents in desalination technologies.

Example:

– Patented, in the USA, a process using nano-filtration (NF) membranes to eliminate scaling and fouling, increasing production by 33% and decreasing energy usage by 30%

� 12 awards and several accreditations such

as ISO9001

� Collaboration with several universities and

main players in the global desalination

industry

� Consultant on a 30,000 m3-a-day solar-

powered desalination plant that will be the

largest in the world

Examples of Achievements in Innovation and Collaboration

5

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Summary

� The Saudi Water Sector is growing, benefiting from the full support of the government

to meet the strategic aims of supply security and reliability, production efficiency and

private sector participation

� The water sector presents real opportunities for private sector participation – Potential

local and international investors can look for a reasonable return, flexible payment

terms, well defined risk allocation, clearly defined responsibilities & obligations of both

parties (stakeholders & the private sector), through a fair and a transparent bidding

process

� The Saline Water Conversion Corporation is committed to national and global

collaboration and private sector participation in the desalination sector – Private sector

local and international participation in the desalination sector benefits the broadest

range of players: investors, financing institutions, operators, EPC contractors,

equipment and materials providers etc.

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