Water wars

As much as $120bn is expected to be invested in water projects across the Middle East over the next decade and now European water giants are jostling for position as their domestic markets start to stall.

Europe's water giants fear work is drying up fast - at least at home. Not so in the Gulf, which is fast becoming an oasis of contracts for utilities giants such as Suez, Veolia and now Germany's Berlinwasser - all of them now scrambling for position.

Gulf economies seeking to ensure they have enough water to sustain a regional building boom in one of the most arid places on earth, are looking to Europe's water giants to fund and build some of the largest projects being procured anywhere in the world.

Surging demand for wastewater and desalination plants is attracting an influx of Europe's utility majors at a time when tightening credit has made it more challenging to structure the type of privately financed deals through which major water plants are increasingly delivered.

These are worrying times for European companies that rely on raising finance for so called public-private-partnership, or ‘PPP' deals amid the worse financial crisis in 80 years.

Unlike traditional procurement where local government or water authorities advertise projects on a low bid wins basis, PPP deals often involve complex financing arranged by bidding consortia that either own or operate water-related infrastructure over a concession period.

In recent weeks, the freezing of global credit markets has made it difficult to close such deals that rely on raising project finance from banks.

Berlinwasser CEO Dieter Ernst says that the company's interest in operating in the Arabian Gulf pre-dated the ongoing credit crisis by more than a year and was not triggered by the recent slowdown.

But he acknowledges that the ongoing turmoil in global credit markets raises potential problems for the PPP dealmakers.

"Things might become more difficult in terms of credit financing and there also might be an impact on the costs side," he says.

Ernst last week signed a deal with UAE-based water specialist Metito that could lead to as much as $1bn in water-related investment over the next three years across the region.

His opposite number at Metito is more upbeat on the outlook for attracting project finance on water projects in the Gulf.

"Water and wastewater are so essential, they get priorities when it comes to financing. We expect a lot of positive response when it comes to financing water and wastewater projects here," says Metito CEO Mutaz Ghandour.

Privately-owned Berlinwasser is among the largest utility groups in Europe, running 45 water supply and treatment plants and generating sales of about $1.65bn. Now it's turning its attention to the Gulf where it has formed a joint venture with Metito.

The new company, called Metito Berlinwasser, will focus on long-term government projects as regional economies move towards opening their water industries to increase private sector involvement with the aim of improving efficiency and meeting the rapidly growing demand for services that has been created by the region's burgeoning population.

The new company is 60 percent-owned by Metito Utilities while Berlinwasser International holds 40 percent. The firm is headquartered in Dubai.

Within the UAE, the PPP market is primarily established in Abu Dhabi - where Abu Dhabi Water and Electricity Authority has its own privatisation unit that procures privately financed power and water plants.

"Dubai hasn't got an active PPP programme yet," says Metito executive director Rami Ghandour. "But we are also seeing it develop in Bahrain and Oman, and in a different style in Egypt and Jordan."

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