Water, water everywhere, but...

The Middle East nations, with some of the highest birth-rates in the world, are concerned about how to find enough water to sustain urban growth and to meet the needs of agriculture.

All the countries of the region depend on either the three great river systems which have an average renewal rate of between 18 days to three months, or on vast underground aquifers some of which could take centuries to refill.
While the region is home to five per cent of the global population, it has just one per cent of the world’s renewable fresh water. This the reason why the Middle East and North Africa countries are committed to spending in excess of $24 billion on desalination, with Saudi Arabia and the UAE together investing close to $13 billion. But desalination is not without its handicaps – it is energy-hungry and leaves a brine mountain for disposal.
According to the UN, by 2025, more than two billion people are expected to live in countries that find it difficult or impossible to mobilise the water resources needed to meet the needs of agriculture, industry and households.
Population growth, urbanisation and the rapid development of manufacturing industries are relentlessly increasing demand for finite water resources.
The amount spent on water and water-related infrastructure globally has now reached $350 billion per year and growing at a rate of eight per cent to 12 per cent.
In the Middle East, the world’s most severely water-stressed region, more than 90 per cent of usable water crosses international borders.
Outside oil, the most precious resource in the region flows in the River Jordan, or resides in the aquifers that link Israel and the occupied Palestinian territories.
In recent years, GCC countries, including Saudi Arabia and Oman, have embraced Public Private Partnership (PPP) as a highly viable alternative economic solution to meet the rising demand for safe water. It offers benefits such as cost savings, efficient facility management and environmental safeguarding.
It has also created huge business opportunities throughout the region, with major global companies expanding their operations in the Middle East. Among these, General Electric, which has project commitments worth billions of dollars, is building a 24,600 sq ft facility in Dammam, Saudi Arabia.
Besides, the region is set to spend over $120 billion on water investments during the next 10 years as without this investment, experts estimate that by 2050 the Middle East could face a severe water shortage.
Water is also essential to the continued development of the tourism industry, which is becoming ever more vital to the economies of many Middle East countries.
Furthermore, it is estimated that the Middle East’s many building projects alone will consume in excess of 112 billion litres of potable water over the next two years, thus putting further severe pressure on groundwater reserves and existing desalination facilities.
To make matters worse, water costs in some Mena countries are up to three times higher than average costs in Europe, but the average Mena tariff-to-real cost ratio is 15 per cent, compared with nearly 100 per cent in Europe.
Tariffs for an average consumption (as a percentage of GDP per capita) can reach as low as 0.03 per cent – a tenth of what is charged in developed countries – even as actual cost recovery is very little because of low revenue collection rates, less than 50 per cent in many Mena countries, says Booz Allen’s Ahmed Youssef.
The problem is compounded with many Mena countries having some of the highest consumption rates per capita in the world. Consumption per person in the UAE, for example, is among the highest in the world, standing at around 570 litres per person a day, more than three times the world average.
Privatisation of water assets have long been mooted as a solution to the Middle East’s water issues.
Privatisation of water utilities would not be disastrous but it is important not to pursue the policy simply because it’s fashionable, and history suggests that creating a win-win for all parties over the long term is far from assured.
The private operator has few economic incentives to promote water conservation because a corporation’s chief goal is to maximise profits, which often means encouraging increased consumption.
Private water companies also have little reason to leave sufficient water for ecological needs, endangered species and other downstream uses.
Privatisation agreements may also result in reduced water quality because private water companies make decisions based on profitability rather than public health. Especially in the case of asset sales, there is concern about land that may be subject to development.
When a private operator purchases a municipality’s water-related assets, they may include the municipality’s watershed areas as well as industrial equipment.
Since preservation of watershed lands does not generate revenue, the operator may either want to develop the watershed area or sell it off to others for development.
In many US communities where water has been privatised, there has been an increased risk of rate hikes, inadequate customer service and reduced local control.
Therefore, governments in the Middle East embracing the path of privatisation should ensure that the terms include employing clear and consistent standards, strong public oversight and strict scrutiny of any deals by independent organisations.

Talking Business
K S Sreekumar
sreekumar@tradearabia.net