Tariff levels for water projects nearing lower limit - says Acciona exec

Spanish firm part of consortium to achieve financial close on Shuqaiq 3 Saudi desal plant

Shuqaiq 3 Independent Water Project (IWP) in Saudi Arabia achieved financial close last week. Photo used for illustrative purpose only.

Shuqaiq 3 Independent Water Project (IWP) in Saudi Arabia achieved financial close last week. Photo used for illustrative purpose only.

Acciona Agua handout via Thomson Reuters Zawya

22 May 2019
Further reductions in water tariffs from current levels would not be beneficial for project developers, off-takers or the water industry in general in the Gulf Cooperation Council (GCC) region, the regional head of Spanish water infrastructure company Acciona has said.

Acciona was part of the winning consortium for the 450,000 cubic metres per day (m3/day) Shuqaiq 3 Independent Water Project (IWP) in Saudi Arabia, which achieved financial close last week.

Middle East managing director Jesús Sancho told Thomson Reuters Projects by email on Tuesday that water tariff levels achieved in recent IWP/IWPP [Independent Water and Power Plant] projects in the GCC during the last few years are close to reaching reasonable lower limits.

While he didn't elaborate on the tariff for Shuqaiq 3 in his emailed responses to questions, the consortium with Acciona had bid the lowest levelised tariff of 1.9521 Saudi riyals/m3 ($0.52/m3), which was only 0.0117 riyals (0.0031 US cents) lower than the second-lowest bid by the Saudi consortium of ACWA Power, Saudi Brothers Commercial Company (SBCC) and Al Babtain Contracting, according to a December 2018 statement on the website of the state-owned Saudi Water Partnership Company (SWPC), previously known as the Water & Electricity Company (WEC).

Incidentally, the ACWA Power-SBCC consortium last year had bid a then record low tariff of 1.92 Saudi riyals/m3 (US Cents 0.53 /m3), which was only US cents 0.01 higher than second lowest bid, to win the 600,000 m3/day Rabigh-3 IWP, press statements issued on the SWPC site within the last year showed.

But the Saudi records were eclipsed by the $0.49/m3, or 8.25 dirhams ($2.25) per 1,000 gallons bid received for the 909,000 m3/day Taweelah desalination project in Abu Dhabi, a November 2018 report by Reuters showed.

Sancho said that further "drastic reductions" in the tariffs from the current levels is not expected to happen in the near future. "Otherwise, it would represent a remarkable stress to the present state of technologies, the manufacturing capabilities of the specialised equipment suppliers and the favourable bankability of the upcoming IWP projects," he cautioned.

Acciona owns 10 percent of Shuqaiq Three Company for Water, the special purpose company (SPC) developing the Shuqaiq 3 IWP, which is 45 percent owned by Marubeni, 30 percent by Abdul Latif Jameel Commercial Development Company and 15 percent by Rawafid Alhadarah Holding, according to a Marubeni press statement on the financial close issued last week.

The Marubeni statement said a limited recourse financing loan agreement of approximately $500 million for the project was signed with a lending group of six commercial banks that included MUFG, Norinchukin Bank and Sumitomo Mitsui Banking Corporation from Japan, Crédit Agricole Corporate and Investment Bank from France, and Saudi-based National Commercial Bank (NCB) and Samba Financial Group.

Acciona had said in its press statement that the financial close for Shuqaiq 3 was achieved three months after the signing of the 25-year Water Purchase Agreement (WPA) with the WEC. The statement said the project, located on the Saudi Red Sea coast, would be one of the largest Sea Water Reverse Osmosis (SWRO) desalination plants in the world when completed in the fourth quarter of 2021.

Sancho said in his emailed responses that the IWP is the fourth large/very large SWRO desalination plant awarded to Acciona in Saudi Arabia within the last six years but the first awarded under a 25-year BOO [Build-Own-Operate] scheme.

Last year, the Spanish company was awarded engineering, procurement and construction (EPC) contract for the 210,000 m3/ day Al Khobar 1 desalination plant and in 2012, it was awarded the EPC contract for the 100,000 m3/day Al Jubail seawater desalination plant.

Sancho didn't respond to specific questions on the project's equity-debt mix and pricing of the loan but the Acciona press statement said the financial close was achieved for the project "for a total value of over $600 million".

(Reporting by Anoop Menon; Editing by Michael Fahy)


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