Public-Private Partnership Impact Stories Saudi Arabia: Desalination Photo © Terry J Alcorn/iStockphoto The King Abdulaziz International Airport Desalination Project is IFC’s first advisory project in the desalination sector. The airport is the main international gateway and hub for Saudi Arabian Airlines and in 2010 served more than 18 million passengers. IFC was the lead adviser to Saudi Arabia’s General Authority of Civil Aviation (GACA) to help structure and implement a public-private partnership (PPP) for the develop- ment and operation of a new 30,000 cubic meters (m³) per day desalination plant to supply potable water to the airport. The concession was signed in June 2007. Com- mercial production started in March 2010. The winning bidder quoted a water price of SAR 3.47 ($0.92)/m3, a precedent-setting price for desalinated water in the Middle East. This series provides an overview of public-private partnership stories in various infrastructure sectors, where IFC was the lead advisor. Increased water production capacity has enabled GACA to meet IFC Advisory Services in current water demand, with over 11,000 residents served by the Public-Private Partnerships 2121 Pennsylvania Ave. NW new plant. Washington D.C. 20433 ifc.org/ppp BACKGROUND established and funded a credit enhancement through an escrow The city of Jeddah, where the airport is located, had a population of account of $2.5 million to secure payment obligations to the investor. approximately 2.8 million in 2006 and faced severe water shortages. GACA is responsible for providing electricity to the project. The city lacked adequate water production and distribution systems around the airport, so GACA had relied on its own (captive) BIDDING desalination plants, which it had funded and operated. These plants, Bidding was organized as a two-envelope procedure whereby the however, were outdated, inefficient and were approaching the end technical bid was evaluated first, and only those bidders who passed of their economic life; and although GACA had three of them with the technical evaluation were invited to the commercial bid opening. a total capacity of 33,000 m³ per day, only one, with a capacity of 25,000 m³ per day, was operational. Four Saudi and international groups submitted technically compliant proposals to the commercial bidding process in December 2006. Sete GACA is responsible for constructing, managing, operating, Energy Saudia submitted the lowest price (as well as the strongest maintaining, and developing airports and air navigation infrastructure technical proposal) and was awarded the bid. The special purpose in Saudi Arabia and is in the process of restructuring to achieve company established to undertake the BOT contract is Qatarat Saqia full commercialization by 2015. Its objectives for this project were Desalination Company, with lead investors Sete Energy Saudia Ltd to concentrate on its core activities of airport operation, increase (part of the Latsis Group of companies of Greece) and Haji Abdullah water production to meet projected growth in demand, and improve Alireza of Saudi Arabia and technology companies Aquatech Easterner service quality and reliability while lowering production costs. GACA (a subsidiary of Aquatech Inc, USA), specialists in reverse osmosis and also aimed to avoid incurring capital costs, to reduce its reliance WTD, mineralization specialists, Italy. on subsidies from the Ministry of Finance, and to develop a viable public-private partnership model that could be replicated for future POST-TENDER RESULTS transactions. Design and construction was completed by Sete Energy under the fixed price EPC contract. IFC’S ROLE IFC was appointed as the lead financial adviser to help structure and • Sete has invested a total of $39 million, in line implement the PPP for the new desalination project. IFC’s technical with original projections. due diligence examined the benefits of refurbishing the existing plants compared with constructing a new plant and concluded that the most • Fiscal impact as of 2010 was $20,000 (in line with origi- cost-efficient option was a new seawater reverse-osmosis desalination nal projects), with total fiscal impact by the end of the plant. The benefits of a new plant were expected to be: project expected to be $10.1 million in tax revenues. • The savings directly to GACA resulting from the lower • Improved reliability. unit cost of water is between $8-10 million per annum. • Reductions in energy consumption. • Increased water production capacity has enabled • No atmospheric emissions and no thermal pollution of GACA to meet current water demand, with over seawater. 11,000 residents and airport users served by the new • Flexibility to increase capacity through modular construction. plant. IFC supported the bidding process, including preparation of bid • Benefits to 18 million annual passengers of King documents and evaluation of bids. Abdullah International Airport (expected to rise to 24 million by 2020). TRANSACTION STRUCTURE The selection process for GACA’s private sector partner began with • Other benefits as reported by GACA include: (i) an initial prequalification of prospective bidders based on certain increased reliability of water supply with no plant technical and financial criteria that included experience with Build- breakdowns or other unplanned outages to date; (ii) Operate-Transfer (BOT) projects and private sector participation, significant cost savings, attributed to cheaper reverse experience with operating and designing reverse-osmosis desalination osmosis desalination technology and the competi- plants, and minimum revenues and net worth. tive procurement process; (iii) operational benefits to The winning bidder was selected through an international competitive GACA of no longer having to directly manage this part bid process based on the lowest water price offered and technical of its business. expertise and experience. GACA and the investor signed a 20-year * Unless otherwise stated, monetary values are presented take-or-pay water purchase agreement under a BOT arrangement. in 2010 US dollars. Results are from a post-completion The investor financed, designed, constructed, operates, and maintains a new desalination plant with an initial capacity of 30,000 m³ per This story was originally published in 2007, and updated on 08/2013 day of potable water, increasing to 35,000 m³ per day in year eight. The investor also decommissioned the old plant and rehabilitated and beautified the site. Off-taker commitment was guaranteed through GACA’s reliance on the project for 100 percent of its water demand. Moreover, GACA