For the first time, the International Desalination and Reuse Association (IDRA) World Congress 2019: Crossroads to Sustainability, to be held on October 20-24 in Dubai, United Arab Emirates, will feature the IDRA Leaders Summit. This special feature offers attendees the opportunity to explore current issues and opportunities with some of the world’s foremost experts in water reuse and desalination. In an interview with Pamela Wolfe, Editor-in-Chief of World Water, IDRA Secretary General Shannon McCarthy elaborates on current trends in the sector and the ways in which this bi-annual event will address them.

World Water – Has IDRA’s growing network of regional associations inspired the decision to expand, recognizing the importance of sharing experiences and approaches from different regions?

Shannon McCarthy – We actually have two new initiatives built into the World Congress, the IDRA Leaders Summit and the IDRA-Affiliate Majlis Forums. Both add an exciting new aspect to the World Congress. The Affiliate forums take place on October 23-24 during the general
program and are open to all registered delegates. They provide an opportunity for IDRA’s growing network of members and affiliates to explore what is going on in the water sector both regionally and globally.

The inspiration for these forums is the popular concept of “majlis” in the Middle East. The word majlis, literally means “a place to sit and discuss,” and in an effort to bring that spirit to the World Congress, IDRA is creating a space for conversation among experts and colleagues within the program. This collaboration is a renewed effort to provide value to our members, affiliates, and community-at-large. Our partnership with the Dubai Electricity and Water Authority has inspired this theme and it is with their support that we offer this exciting new platform.

World Water – What are the most challenging issues that public utilities must contend with in regards to mega water projects?

McCarthy – There are many challenging aspects to mega water projects. It’s not enough to focus on the cost of water production, although that may be the most obvious challenge. There’s also the increasing need to optimize energy efficiency, especially in regions where water scarcity is relatively high. And to top it all off, we can no longer ignore the need to enact solutions that are sustainable, incorporating renewable technologies into the infrastructure providing people with water. There are lot of challenges to balance — for both the private and public sectors.

I think the challenge specific to public utilities is how they’ll utilize tariffs to their advantage. In order for the commercial market to maintain development, public utilities must set tariffs at a sustainable rate. That way, stakeholders can conduct business across
regions and sectors, benefiting from the latest developments in their industry. Our Leaders Summit, Majlis and Corporate Sponsor Forums are designed to foster this exact kind of cross-pollination, which we hope will mutually benefit all participants.

Right now, many public utilities have set their tariffs at too low a rate. As a result, EPCs (engineering, procurement contractors) are assuming high-risk projects but with low margins. Consequently, lenders and banks are receiving very low returns, and developers are assuming high-risk projects with very minimal benefits. If the public sector continues to minimize tariffs, then stakeholders will simply lose interest in participating in the further development of new projects.

The panel discussion “Public Utilities 2.0 More with Less” will tackle these questions, examining what public utilities are doing to proactively address the challenges their regions face — and the question of tariffs will be front and center in the discussion. The conversation will take stock of where we are a quarter into the 21st century and how public utilities can effectively respond to issues, such as rapid population growth, urbanization, industrialization, and climate change.

World Water – Is the public private partnership (PPP) model increasingly being adopted in the water industry?

McCarthy – PPPs are quickly becoming the future of the water reuse and desalination industry. Only 15 years ago, just a few (3-5) desalination projects were classed as PPP. Now, about 60 percent of recorded desalination projects adhere to a PPP model — an astounding
amount of growth for so short a period. Globally, we’re seeing about 20 percent of projects in the water reuse industry using BOT (build, operate, and transfer) contracting models to draw on resources from both the public and private sectors, and these collaborations have incredibly successful results.

But that doesn’t mean there isn’t room for growth. Generally, public utility budgets are very restricted, especially for infrastructure. Even 16 years ago more funds were allocated to the kinds of projects we’re working on today. Governments today have different priorities, which unfortunately means infrastructure issues – like the production of new, clean, and accessible fresh water – do not receive the attention they desperately need. But it’s because of these budgetary challenges that PPPs are emerging as a fresh path forward. Public utilities are relying on the BOT contracting model to afford them capital at a relatively low-risk. And, in turn, they receive new water with state-of-the-art technology. Many financial institutions are looking for niche markets to enter, and the market for water is one of the fastest growing markets today, lowering the risk of the private institution’s investment. Under these conditions, the partnership is a win-win for both parties.

Of course, the market for PPPs is still slow in comparison with more established avenues of securing funding for utilities. But this trend of BOT contracts supporting public private partnerships is definitely on the rise. We’ve designed the Leaders Summit so representatives from both sectors will be present, and our panel on PPPs features executives from private companies, such as Acciona (Spain) and BESIX (Belgium), as well as government officials from countries who rely on desalination, which include Oman and Singapore. I think it’s important for the delegates of the Congress to have the opportunity to hear experts in dialogue about PPPs and witness this particular crossroad to sustainability in action. One hope I have for the Summit is an increased awareness of how fruitful these partnerships can be, so more organizations can take successful steps toward advances in water reuse technologies.

World Water – What are the competitive changes in the EPC market that are making it difficult for EPCs to maintain a competitive advantage?

McCarthy – As any market grows, competition increases. And the water market is growing at unprecedented rates. According to the IDRA Water Security Handbook, as of June 2018, the total global installed desalination capacity stood at 98.2 million cubic meters per day (m3/d), while the cumulative contracted capacity was 105.3 million m3/d. By 2030, those numbers are expected to double. In a less mature market, EPCs may have held monopolies on certain services, like the design and construction of industrial treatment plants. But that kind of control is just not possible in light of the market’s rapid growth.

EPCs are often established experts in the water reuse and desalination markets, carrying credibility that new market players may not possess. The question is how EPCs will continue to distinguish themselves as the market expands. The way forward for EPCs seems to be by taking advantage of their unique position in the market: it’s precisely their established presence that gives them the edge. EPCs have to expand the size and scale of their projects, specializing in truly risky endeavors and at the same time be very aware of how lower tariffs will impact quality and profit.

The Leaders Summit EPC panel comes at an exciting time. It’s unclear how EPCs will fare under the pressure of the new market; bold strategies need to be established quickly.

World Water – How “bankable” are mega water projects and what are some of the challenges in securing more funding for water projects? What is driving the growing trend toward using non-traditional banking? 

McCarthy – Project funding sources from non-traditional banking is a rising trend. Traditionally, these projects found their capital from international and regional banks that would provide finances in the local currency, or a public utility that would promise to pay tariffs in US dollars to lower the currency exchange risk. These ways of securing money provide a stable environment for mega water projects to blossom.

Sovereign warranty also presents a thorny problem, and the reluctance to invest in mega water projects means these endeavors often cannot receive the capital they need to get off the ground, which in turn, limits innovation. Generally, these projects are game changers for the industry due to their scope. When you need a facility to operate at such a large capacity, you’re forced to develop the industry’s technology further, pushing its limits and finding new methods that can work. So often it’s a real detriment to the market that these projects can’t get off the ground due to questions of funding and bankability.

Islamic Banking has become popular in the Middle East and North African region. This method requires a borrower to give the bank a share in their profits rather than paying interest – so both the bank and the borrower have tangibly invested in the success of the mega water project, which is always a good predictor of success.

Our panel on bankability includes executives from both sides of the tables – investors and borrowers – to give delegates a real sense of what launching a mega water project looks like today, with these new means of securing capital.

World Water – Many water-intensive industries are making great progress in reducing water use, operational costs, and carbon footprints. However, what challenges are hindering further progress? How will the IDRA Congress address these concerns?

McCarthy – The question of sustainable solutions in water-intensive industries is at the heart of IDRA and what we do. The reality is that even if the industry makes intense efforts to reduce, and are relatively successful in doing so, if the industry needs water, we must generate
water – and that’s where the challenge arises. To a large extent, industrial demand for water is inelastic, and as a result, the way forward won’t only be through regulations or unrealistic reduction plans. Instead, it has to be through smart water planning, which consists of innovative and environmentally sustainable technologies that can effectively respond to the need for water.

Ultimately, it’s the level of scarcity in a particular region that determines the solutions for water generation. In regions with higher levels of scarcity – for example, Dubai, the location of the World Congress – we see an incredible infrastructure dedicated to reliably producing quality water. In regions with lower levels of scarcity, we see less innovative solutions, simply because the need is not as urgent. Striking that balance is a challenge industries continue to face, and there’s no blanket solution. During the Leaders with Community part of the Summit, the panel “Survival or Sustainability” examines the role of advanced water treatment solutions considering major factors, such as environmental challenges, clean water demands, institutional regulations, and regional needs.

A few keynote speeches will also address the issue of sustainability. The global water economist Dr. Gonzalo Delacamara will discuss the “Circular Water Economy,” highlighting the need for institutional sustainability. We’re hoping one of the undercurrents running through the Leaders Summit will be this exact question of walking the line between industry needs and sustainable solutions.