Published on IDRA Global Connections Spring 2021 Issue
By Ms. Lydia Whyatt, Managing Director of Resonance Asset Management
Value and price of water has been a major topic of debate at many global water related conferences. This theme is very closely linked with water reuse. For us, in finance, value and price are not philosophical or ethical issues, but very practical ones. Water reuse (like desalination) would only make financial sense, and hence worth investing in, if it can be delivered at a price the buyers are willing to pay for it. Of course, many governments may choose to subsidise the price of water, but this significantly distorts the market for water reuse. The government financial help can support water reuse and work from a finance prospective if the subsidy is placed to in the right way, but this level of granularity is often missed when government policy is developed.
When we devised the strategy for our water fund, we felt that in those geographies where water is in short supply, the hierarchy of demand (from drinking water to agriculture to industry, with the exception of Taiwan at the moment, where semiconductor industry is currently prioritised at the expense of local agriculture) will mean that the industrial users will be the key target for water reuse, and this is where we chose to focus with our first water fund at Resonance. The other reason for industrial water reuse is that the re-used water is more “predictable” than the surface water whose salinity and turbidity can change with seasons. Here we have a situation where price and “value” of water are not always the same. Even if it might be cheaper for the industrial companies to use surface water, the value of that water is lower than that of the more controllable sources of water – their own wastewater re-use or reused wastewater from other industrial or municipal sources.
The other reason for industrial water reuse is that the re-used water is more “predictable” than the surface water whose salinity and turbidity can change with seasons.
Over time this has proven correct, and a large portion of our fund, particularly in China and South East Asia is focused on industrial wastewater reuse, both of our clients’ own wastewater and also municipal wastewater. Predominantly, where we invested in water re-sue opportunities, they involved outsourcing of the design, build and operations of the wastewater treatment plants to our technology partners. The key reason outsourcing is so widespread in water re-use applications is that technology used in the solutions requires engineering and operating experience that many industrial clients do not have, at least at the operating plant level. As the availability of the plant can significantly affect the top line of our clients, if water is not delivered to enable the production process, the industrial clients prefer to insure that this does not happen due to the lack of technical knowledge in client’s own operations team. The challenge, however, in developing the right commercial structure where the clients fully benefit from the expertise of external service providers, but do not feel that they are handing over the complete control of their water supply. The division of responsibilities and operating risks in such an arrangement is also a very complex topic, to say the least. It requires depth of experience that can be built only over many years This is one of the roles we play as a financier of the outsourced solutions in the discussions with our partners and clients. Our team consists of senior partners with over 20 years of experience in this area.
The challenge, however, in developing the right commercial structure where the clients fully benefit from the expertise of external service providers, but do not feel that they are handing over the complete control of their water supply.
