Transformation for Privatization

Business Transformation


Strategic context

Saudi Arabia's rapid population growth has meant increased demand for fresh water, and the Saudi government has repeatedly called for greater private sector involvement in water desalination and water treatment. One of the means of achieving this has been the privatizing municipal water networks and created the National Water Company (NWC) to gradually take over water and wastewater responsibilities from the Ministry of Water and Electricity. In 2008, NWC signed two Build-Own-Operate PPP contracts worth more than $60 million each with private companies to manage Riyadh’s and Jeddah’s water networks. This management contract for Riyadh’s water and sanitation sector is the biggest of its type in the Middle East.

Since this time NWC have been able to evaluate the strategic yield and performance of the contracts and are intent on improving the approach in new tranche of partnerships as well as developing their existing PPP operational contracts.

Programme Objectives

The programme has been time-boxed into an annual privatization portfolio (Emtyaz) of projects. This year the portfolio contains the following categories, each comprising several projects which are arranged to minimise dependencies. They are:

  • Creation of a new business unit for Treated Sewage Effluent
  • Enhancing existing privatization strategies
  • Preparing privatization plans
  • Improving delivery to support privatization readiness

How it was done

Creation of a new business unit for Treated Sewage Effluent

The strategic plan was developed through PEST and SWOT analyses into a detailed marketing plan and a communications plan which the Business Units would then implement. Three separate projects were undertaken to achieve this. Working with executive management a business case and initial privatization plan was prepared for this initiative, from inception through project initiation, change management for asset, operational and support services.

  • Enhancing existing privatization strategies through an improvement programme

Since the start of the PPP contracts NWC been able to evaluate the strategic yield and performance of the contracts and are intent on improving the approach in new tranche of partnerships as well as developing their existing PPP operational contracts.

The PPP contracts provide for continuous improvement and the implementation of strategic asset investment. Specific drives were undertaken with each of the three PPP operators to negotiate changes to the operating contracts to achieve this. In addition to the three separate contract improvement projects, a further 12 Customer Service improvement projects and 5 asset systems improvement projects were undertaken to achieve this.

  • Preparing privatization plans for each new offering

Acting as client-side transaction advisers overseeing legal and financial teams in the scoping and procurement of three management contracts covering water and wastewater services in Madinah/Yanbu, Dammam/Khobar and Makkah/Taif.Detailed resourced programmes were developed and implemented to guide the NWC corporate and Business Unit activities through procurement, marketing and reorganization in preparation for the Medina PPP offering. Each offering was supported by a commercial analysis, detailed business plan, a financial and organizational restructuring together with a “make ready plan”. Plans for transferring plant assets and personnel were drawn up, with rulings and working practices for its operation worked out.

With the plan sanctioned at ministerial level, and leading the programme management office, he supported the preparation invitation for, and evaluation of, expressions of interest. Following due diligence, review with sales and customer services the business case was re-confirmed. A thorough risk and compliance audit and review satisfactorily completed, he worked with lawyers to prepare an appropriate contract.

Working in turn with procurement and the asset management team in the business unit, he coordinated the preparation of a request for proposal and the tender invitation for the operational and asset management of water and wastewater systems across a major city.

In parallel with these a business process improvement project systematized back-office activities. This extended to the Capital projects and assets department in both corporate and Business units to provide a robust and standardized approach and to create a project management directed organization.

  • Improving delivery to support privatization readiness

By developing and applying adaptive techniques to troubled projects including 2 mega-projects, with a planned-finish by end of 2012 or which had previously been delayed ($663M) a significant improvement in assurance of timely completion was achieved. A 50% completion of delayed projects had been achieved by mid-year.

These measures achieved an improvement in the delivery of the national asset investment programme with shortened capital appropriation and contract award times.

Financial case

A financing model was also developed with a concept for inviting tenders for the services. The documents for two requests for tenders under a BOT scheme were drawn up and support provided during bid evaluation and negotiations with bidders.

The current strategy of NWC is a three-tier process consisting of creating revenue, improving infrastructure including green projects, and funding to profit and give back to the shareholders.

The private sector has achieved major improvements in major cities such as Riyadh, Jeddah and Mecca in providing improved water and waste-water services.

 Benefits realized

  • Achieving Quick-Wins in the early part of the project which contributed a real benefit to the operation and gave momentum to the remainder of the project creation of a new business unit
  • Completion of outstanding asset investments and improved service provision
  • Uplifting the capital investment capacity and capability
  • Creation of unified engineering standards, policies and procedures;
  • Effective scope management;
  • Risk and value management;
  • Change management
  • Implementation of enterprise wide IT applications to support a project environment
  • Implementation of enterprise wide document control application
  • Master-planning future investment and cash-flows