governor's presentation - swcc privatization and restructuring 20100622 1400

Overview of the SWCC Privatization and Restructuring Program

Presented ByABDULRAZZAG A. HIJAN

Saline Water Conversion CorporationDirector, Privatization and Restructuring Program

Presented in the 2010 Singapore Water Week

July 1, 2010

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بسم الله الرحمن ,In the name of Godالرحيم

Most Gracious, Most Merciful

3

Content:

Introduction to SWCC

Privatization of the Desalination Sector

SWCC Restructuring: Implementation and Roadmap

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SWCC was established in 1974 with a main purpose to support natural water resources by means of seawater desalination

SWCC in Brief

SWCC Vision and Mission

SWCC Activities

Source: SWCC(*) SWCC bylaws approved by Royal Decree

Main Purpose

Support natural water resources by means of seawater desalination in addition to electric power generation depending on technical and economic conditions(*)

1974 - Establishment of Saline Water Conversion Corporation (SWCC) by Royal Decree

1928 - First Distillation Plants (Kindasa) imported to Kingdom of Saudi Arabia by His Majesty King Abdul Aziz Abdurrahman Al-Saud

Establish-ment

The Start

SWCC General Objectives

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SWCC aims at meeting Saudi Arabia’s growing water needs while pioneering the desalination production and transmission sectors

VisionPioneer the seawater desalination production and transmission

Mission

Meet the kingdom’s desalination water demand and contribute to economic and social growth through effective investment in human and physical asset resources

SWCC in Brief


SWCC Activities


6

SWCC’s objectives are local and international

Worldwide Cutting edge R&D: Follow-up on all innovations and changes

in research and desalination technologies to maintain leadership

Kingdom Level

Maintain high quality water availability and reliable distribution to all Saudi consumers on a consistent basis

Comply with environmental safety regulations and standards Promote private sector investments in seawater desalination

SWCC Level

Increase efficiency and reduce costs without affecting quality and continuity

Develop human resources and build and invest in national resources

Ensure safety of personnel and assets

SWCC in Brief


SWCC Activities


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SWCC is engaged in power and water generation activities as well as research activities in the desalination sector

Water Desalination Production

Other Activities

Water Transmission

Power Generation

SWCC in Brief


SWCC Activities


Main activity: Planning, construction, operation and maintenance of seawater desalination plants

Process: Production of water either through dual or single purpose plants (MSF, MED, RO)

Main activity: Planning, construction, operation and maintenance of water transmission pipelines

Main activity: Planning, construction, operation and maintenance of electrical power plants

Process: Generation of electricity through dual purpose plants

R&D: largest Middle East R&D center pioneering in seawater desalination technologies (nanotechnology, etc.)

Training: Ensuring continuous transfer of knowledge to the sector

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SWCC: current and planned operations

Production and Transmission Assets

N

EW

S

AL-KHAFIJI

AL-KHOBARDUBA

AL WAJH

UMLUJ

RABIGH

JEEDAH

Al-SHOAIBA

Al-BIRK

AL-SHUQAIQ

FARASAN

3Al-AZIZIA

BURAIDAH

AL ZULFI

ALQAT

SHUQRA

MAJM

UA

SUDAIR

AL HUSI

RIYADH

MADINA MUNAWARA

MAKKAH MUKARAMA

TAIF

ABHAKHAMIS MUSHAYAT

AL-JUBAIL

HAQL

YANBU

HAFUF

Large Plants

Satellite Plants

Water Transmission Systems

Regional ReservoirsAl-LEETH

Al-QUNFIDHAH

Source: SWCC

Current Water Production / Power Generation

30 plants in 17 locations 3.3M m3/day installed capacity More than 5,000MW power generation capacity

Current Water Transmission

More than 4,200 km of pipelines 29 pumping stations 158 storage tanks (capacity: 9M m3) 17 blending stations

New Projects

Jeddah RO 3 (200,000m3/day) Ras Azzour (2,400MW and 1,025,000m3/day) Yanbu 3 (1,700MW and 550,000m3/day) Other small projects such as Umluj, Wajh,

Rabigh are under construction (6 plants with a total of 63,000m3/day)

Various pipelines under construction from Shuqaiq, Shoaiba, and Jubail

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Kingdom of Saudi Arabia is the largest producer of desalinated water in the world, accounting for 18% of total world production

UAE33%

KSA41%

BAHRAIN3%

QATAR7%

OMAN3% KUWAIT

13%

Source: SWCC

KSA Desalination Share in the GCC

KSA18.00%

KUWAIT6.46%

OTHERS27.36%

OMAN1.38%BAHRAIN

1.32%SPAIN7.64%

USA17.80%

UAE16.66%

QATAR3.39%

KSA Desalination Share in the World

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Content:




11

3.00

2.210.70

0.95

2025

8.34

3.25

1.93

2008

6.19

2.49

Water Shortage

Supply - SWCC

Supply - IWPP

and Private Producers

Supply - Ground &

Surface Water

Main Challenges in the Saudi Water and Desalination Sector

High per-capita consumption (~220 liters / capita / day)

Rapid increase in water demand driven by population and GDP growth

Increased pressure to mitigate environmental impacts resulting from the conventional exploitation of water resources

Increasing cost burden and the challenge of identifying the optimal solutions to close a widening supply-demand gap

The Saudi Water and Desalination Sector: facing the challenges

Source: SWCC Studies and Projects

Water Demand vs. Planned Supply in KSA(Million m3/day)

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Total Capital and Operational Investments until 2020

Desalination Sector Capex and Opex(2010 – 2020) – USD Million

Total = US$ 24.3 Billion (SR 91 Billion)

Power and water

Transmission

2,422

CAPEX OPEX

2,337

2,051

6,811

17,453

11,651

Transmission

5,802

Power

Water

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KSA has committed to increase private sector participation in key government assets to achieve the following strategic objectives

Source: Governmental Decree Number 60 of 1/4/1418 H and Number 175 of 27/6/1424 H, Supreme Economic Council Resolution 5/23

Government’s Strategic Objectives

Enhance competitiveness of national economy

Encourage/increase private sector participation

Expand the ownership of productive assets by Saudi nationals

Encourage investment of domestic and foreign capital in KSA

Create employment opportunities for nationals

Provide quality services in a cost effective manner

Reduce the burden on the government budget

Increase government revenues

Sectors Covered by Privatization Program

Water and wastewater Desalination Telecommunications Air Transportation and related services Railways Highways Airport Services Postal Services Wheat Mills and storage facilities Port Services Industrial Cities Services Government’s shares in Public companies Government’s shares in the Arabic and Islamic

common investment companies Government Hotels Sports Clubs Municipal Services Education Services Social Services Agricultural Services Health Services

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Formation Supreme Economic Council

Saudi Electricity Company (SEC)

1999 2002 Formation

Saudi Arabian General Investment Authority (SAGIA)

Initial Privatization of 20 Economical sectors

Formation of ECRA

Approved IWPP projects

2000

2004 Formation of the

Ministry of Water and Electricity (MOWE)

Established the single off-taker, the Water and Electricity Company (WEC)

Modified the Electricity Regulatory to Regulate Co-generation

Provide full Credit Support

2006

2003

SWCC’s BoD approval of Privatization Strategy of SWCC

Forward to Supreme Economic Council, (30/12/2006)

Initiates implementation of privatization & restructuring of SWCC

2007

Formation of National Water Company (NWC)

Approval of Privatization Strategy of SWCC (3 July 2008)

2008/09

Government steps for private sector participation

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Status

Commercial Operations started by February 2009

Project Information

Source: SWCC Studies and Projects

Project Name

Shoaiba III(West Coast)

Shuqaiq II (West Coast)

Commissioning started by end of April 2009

Project expected to start operating by November 2010

Estimated total cost: USD 1.87B

Total Capacity: 212,000 m3/day

60% owned by the private sector

20 years BOO scheme

Estimated total cost: USD 2.69B

Total Capacity: 1,030,000 m3/day

60% owned by the private sector

20 years Build, Own, Operate (BOO) scheme

Action to date: 2 Independent Water Power Producers launched

16Source: SWCC Studies and Projects

Strategy for Private Sector Participation in SWCC

Strategy for Private Sector Participation in SWCC

Significant investment opportunities for private

sector

*) Due to the present economic situation and the difficulties in ensuring financing, Yanbu -3 and Ras Azzour will be tendered as an EPC contract by SWCC

Old Production Plants: Jeddah-3, 4, RO1 and RO2, Jubail-1, 2 A and 2 B, Birk-1, Haql-2, Khobar-2, Rabigh-1+TR1, Wajh-2+TR1-3, Farasan-1+TR1, Umlujj-2, Duba-3, Azizia-1

Public Ownership

Public/Private Ownership Full Ownership

Partial Ownership

SWCC Holding

Trans-mission

Shoaiba-1,2

Shoaiba-4

Shuqaiq-1Shuqaiq-3

Yanbu-1,2,RO

Yanbu-3*

OtherR&DT, …

Khafji-2 Khafji-3

OldProductio

n Plants

Incorporate as government-owned holding company and then possibly float on stock

exchange

Duba-4 / Haql-3 Wajh-3 Wajh-4

Umlujj-3

Jubail RO Jubail-4

Khobar-3 Khobar-4

Leith-1 Farasan-2

Qunfutha-1 Rabigh-2Azizia-2

Introduce PSP in value creating priority assets, following “IWPP model”

Yanbu ProdCo

RaZProdCo

KhafjiProdCo

ShoaibaProdCo

Shuqaiq ProdCo

KhobarProdCo

Jubail ProdCo

Trans-mission

OldProduction

Plants

abc Existing / Built by SWCC abc To be Implemented by PPP

Ras Azzour*

SatelliteProdCo

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Content:




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8 Months 18 Months3 Months 4 Months 5 Months 17 Months ~5 YearsToday

Selection of implementation teams and committees

Development of information center

Completion of bidding process

Selection of consultants and finalization of contracts

Preparation of a report on requirements to develop SWCC’s privatization strategy and organization restructuring

Strategy and organization

Technical requirements

Financial requirements

Legal requirements

Change management

Reports submittal

Stakeholder presentations

Strategy approval from SWCC Board and Supreme Economic Council

Rollout to the new org. and processes

Creation of the Holding Company

Creation of Production Company

PSP in Production Companies

Organization detailing and HR readiness studies

Commercial agreements

Documentation required for Royal Decree

Tender preparation

Prepare Report on

Requirements to Develop

Privatization Strategy

Complete Internal

Preparations

Finalize Consultant Contracts

Develop Privatization Strategy and Restructuring

Plan

Obtain Approval from Board of

Directors & Supreme Economic

Council

Complete Detailed

Restructuring, Commercializat-

ion and Transaction

Studies

Rollout Restructuring,

Create ProdCos and Introduce

PSP

Phase 1: Preparation Steps and DetailingStudies

Phase 2: Approvals

Phase 3: Execution of Privatization & Restructuring

Management contracts

IPO (long term) Potential PSP in

Transmission

Introduce PSP at the Level of the

Holding Company

Phase 4: Holding Co. Privatization

SWCC Privatization and Restructuring Program Steps

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For the past 17 months SWCC has been conducting a 3 stream restructuring exercise encompassing 9 modules

Source: SWCC Privatization Program

Lead Advisor

Execution Advisor

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17months

Pro

gra

m a

nd

C

ha

ng

e

Ma

na

ge

me

nt

Change Management & CommunicationsChange Management Program, Awareness and Communication, Change Training, Change Monitoring

Program Management and LeadershipStrategic Alignment, Leadership and Implementation Master Planning, PMO

Module 8

Str

ea

m I

II

Module 9

Strategy Advisor

Strategy Advisor

Change Management

Advisor

Commercialization Prep. and Implem.Financial, Legal and Technical Restructuring

Transaction PreparationPreparatory Technical Studies, Incorporation of BU’s, Tendering Process

Co

mm

erc

iali

-za

tio

n a

nd

P

riv

ati

zati

on

Str

ea

m I

I

Module 6

Module 7Investment

Banking Advisor

Accounting

Legal

Technical

Advisors

Strategy Advisor

BPR and System ReadinessIT and ERP Implementation, Business Process Baseline,

Business Process Reengineering

Strategy Implications on Regulatory RequirementsRoyal Decree Detailing, Coordination with

External Entities, Executive Government Regulations

HR ReadinessDetailed Job Descriptions & Job Families, Grading & Compensation, HR Policies

Str

ate

gy

Ba

se

dT

ran

sfo

rma

tio

n

Management and Organization RestructuringOrganization Structure, Manpower Plan and Redeployment, Management Processes, Authorities, Governance, Grievance

Str

ea

m I

Module 1

Module 3

Module 4

Module 5

IT StrategyIT Architecture,

Implementation PlanMod. 2

Strategy Advisor

Strategy Advisor

HR Advisor

Strategy Advisor

IT Advisor

Strategy Advisor

Legal Advisor

IT Advisor

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Main achievements and immediate priorities

SWCC Privatization and Restructuring Program - Main Achievements and Next Steps

Main Achievements Key Next Steps for 2010 Module


Draft Royal Decree for the creation of SWCC Successor and send for approval

Draft Holding Company and ProdCo by-laws Legal arrangements for assets and staff transfer Opening balance for Holding Company Establishment of commercial agreements

Follow up on and facilitate the issuance of the Royal Decree

Finalize legal and commercial agreements Finalize financial requirements of the Holding

Commercialization and Privatization

Strategy BasedTransformation

Detailed design of organization & manpower plan for the Holding Company

Main business processes, policies & procedures Employees redeployment approach Governance structure for the Holding Company New compensation plan and review of HR enablers IT strategy

Complete redeployment of all employees Rollout the new organization structure Develop employee performance management

system Finalize BPR for the whole company Implement new processes in ERP system

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SWCC organization restructuring involves setting up of a corporate core and business units

Transmission Business Units

Sh

uq

aiq

-Ass

ir-

Jiza

n

Sh

oai

ba-

Jed

dah

-M

akka

h-T

aif

Yan

bu

-Mad

inah

Jub

ail-

Riy

adh

-Qas

sim

Eas

tern

P

rovi

nce

Production Business Units

Headquarters

East Coast

West Coast

SWCC (As Is)

Corporate Core

R&

DT

Bu

sin

ess

Un

it

SWCC (To Be)

Yan

bu

Sh

oai

ba

Sh

uq

aiq

Jub

ail

Jed

dah

Kh

afji

Kh

ob

ar

Sat

ellit

e

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Critical items need to be addressed in the institutional setting and commercial relations for SWCC to operate on a commercial basisFuture Institutional Setting and Commercial Relations

Notes: (*) Includes Marafiq (**) Agreements with Direct Purchasers to be transferred to privatized ProdCos as may be applicable

MaintainedAgreements

RevisedAgreements

New CommercialAgreements

Cash Flow

ECRA Regulation

Ministry of

Finance

Direct Water Purchasers*

Consumers

MOWE/ NWC

Saudi Aramco

Privatized ProdCos

Saudi Electricity Company

WEC

IWPPs

SWCC Successor HoldingPower on-sale

Agreements(IWPPs & ProdCos)

PWPAs / ECAs

FSAs for IWPPs & ProdCos

PWPAs / ECAs

Power Purchase Agreements

Consumer Tariffs

Water on-sale Agreements

Water Sale Agreements

Transmission Service

Agreements

Yearly budget

Financial Support

FSAs for retained plants

Water Purchase Arrangements**

ECA: Energy Conversion AgreementFSA: Fuel Supply AgreementPWPA: Power and Water Purchase Agreement

Credit Support

23

A preliminary timeline for the creation of production companies was developed by SWCC

201320122011Production BU’s/ Companies

Shuqaiq

Khobar

Khafji

Jeddah

Satellite Plants

Shoaiba

Jubail

Ras Azzour

Yanbu

2010

Creation of Production Companies2010 - 2013

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The first private sector participation transaction is scheduled for 2012

Private Sector Participation in Production Companies

Source: SWCC Privatization Program, Estimation Report

3,291Total Expected

Capex

New Plant 2010 2011 2012 2013 2014 2015Estimated Cost

(M USD)

Shuqaiq-3

Khobar-4

Jubail-4

Shoaiba-4

722

446

810

1,313

Shuqaiq Transaction

Khobar Transaction

Jubail Transaction

Shoaiba Transaction

Time span for Transaction tendering and award

Legend

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Summary


The Saudi Water Sector is attractive and growing, benefiting from the full support of the government to meet the strategic aim of production efficiency and private sector participation

The water sector benefits from the continuous support of SWCC to the private sector in key areas of production, transmission and R&D

The sector presents real opportunities for private sector participation

Potential local and international investors can look for a reasonable return, flexible payment terms, well defined risk allocation, clearly defined responsibilities & obligations of both parties (stakeholders & the private sector), through a fair and a transparent bidding process

Private sector local and international participation in desalination sector benefit the broadest range of players: investors, financing institutions, operators, EPC contractors, equipment and materials providers etc.

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For further information please For further information please contactcontact::

Abdulrazzag A. Hijan Abdulrazzag A. Hijan director ofdirector of

Saline Water Conversion Corporation Privatization and Restructuring program

P.O.Box. 5968P.O.Box. 5968 Riyadh – 11432, Saudi ArabiaRiyadh – 11432, Saudi Arabia

Tel : +966 1 2174721Tel : +966 1 2174721

Tel : +966 505767055Tel : +966 505767055Fax : +966 1 4160177Fax : +966 1 4160177E-mailE-mail : [email protected]: [email protected]

CONTACT DETAILSCONTACT DETAILS

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THANK YOU

governor's presentation - swcc privatization and restructuring 20100622 1400

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