Structural Changes Needed in GCC Water Sector

Dubai (2 May 2010) —  The water sector in the GCC could save up to 40 percent of its cost through structural improvements and operational excellence, according to A.T. Kearney, one of the world’s leading consulting firms. Considering the continuous annual demand growth of 3 to 4 percent and the significant state subsidies, addressing these options could represent major savings for the sector. “The structure of the GCC water sector is expected to change dramatically by the year 2020. Non-core activities will be outsourced, private sector participation and internationalization will increase and innovative multi-utility business models will evolve.” commented Christian von Tschirschky, Head of A.T. Kearney’s Utility Practice in the Middle East.

The multi-utility business model is characterized by utility companies offering water and electricity at the same time. Multi-utility companies can materialize synergies in operations, maintenance, customer services and pricing. As electricity is the major cost for water desalination, a multi-utility model will enable companies to produce electricity for own consumption at a lower cost than now, especially in deregulated markets. European multi-utilities have proven a synergy potential between electricity and gas of more than 15 percent. A. T. Kearney envisages electricity-water opportunities to be around the same magnitude in the Middle East. To achieve these potential savings regional GCC water companies need to implement a number of key structural changes which essentially focus on two areas.

The first area concerns implementation of a stronger demand management system facilitated through smart metering systems. This could be combined with the introduction of advanced water tariffs designed to impact consumers’ demand by creating transparency of what customers pay for unnecessary consumption. The potential performance of demand management systems can be illustrated by the immense variance in current water consumption rates per capita within the GCC countries. Consumption varies between 380 and 980 cubic meters, depending on price and customer habit. More specifically, the municipal water consumption in the GCC varies between 50 and 240 cubic meters per capita.

The second opportunity for savings lies with treated waste water, which could be used more widely for non-potable purposes.

“Currently, only 50 percent of the waste water is captured in the GCC, representing a significant opportunity to expand the infrastructure for collecting waste water,” said von Tschirschky.

In addition to the structural business modeling opportunities, improving operational excellence may add to the cost saving potential of the GCC water sector. Water loss in the GCC exceeds 20 percent, which means every fifth cubic meter of water is currently desalinated without creating any revenue. Furthermore, savings could be achieved through improved asset management. The depreciation of water assets typically represent 20 - 40 percent of the total costs of the assets, depending on age. Professional asset management presents a cost saving opportunity by improving the way water companies plan and maintain their desalination plants and transport networks. Finally, strategic sourcing of spare parts, service providers as well as new facilities are believed to represent savings for GCC water companies alongside effective bundling of administrative work and IT through shared services.

“The future that lies ahead for water companies in the GCC needs to incorporate structural changes as well as streamlined operations to improve revenue generation, cost reduction and efficiency gains,” concluded von Tschirschky.

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About A.T. Kearney

A.T. Kearney is a global management consulting firm that uses strategic insight, tailored solutions and a collaborative working style to help clients achieve sustainable results. Since 1926, we have been trusted advisors on CEO-agenda issues to the world’s leading corporations across all major industries. A.T. Kearney’s offices are located in major business centers in 37 countries. From our fast growing Middle East offices in Abu Dhabi, Bahrain, Dubai and Riyadh, A.T. Kearney actively contributes to the operational excellence and profitable growth of the private sector industries and services in the region as well as the agility of governments. For more information, visit www.atkearney.com or follow A.T. Kearney Middle East on Twitter profile: AT_Kearney_ME.

About Christian von Tschirschky

Christian von Tschirschky
Principal
Utility and Process expert with extensive experience in strategy development, pre- and post-merger situations and to increase operational effectiveness in the fields of renewable energy such as solar as well as electricity, gas and water. He has extensive project experience along the whole value chain from generation to distribution including all support processesin large scale developments, innovation, operational efficiency and services.