Planned improvements: New opportunities arise for water resource management firms

Water resource management was thrust to the forefront of the nation’s collective conscience following disastrous floods in 2011. Although the economic impact of the floods has been substantial (amounting to BT1.44trn [$45.93bn] in losses and damages, according to World Bank estimates), participants in the water management sector and the government are already busy repairing the damage and making contingencies for the future. The floods and the memory of severe drought in 2006, which affected the eastern seaboard and created water shortages throughout the industrialised region, has given new urgency to the subject.

RESPONSE: In response, the government has rolled out a series of panels, committees, roadmaps and strategies to both rebuild flood-stricken areas and prevent future extreme events from having the same impact again. Led by the Strategic Committee for Water Resources Management, chaired by Prime Minister Yingluck Shinawatra, water management plans include a variety of solutions ranging from forest and ecosystem restoration to developing major dams, embankments and drainage systems.

The government’s new water management master plan was unveiled in January 2012, and addresses both short- and long-term targets with the objective of minimising and preventing loss and damage; improving the capacity of flood prevention, flood management and warning systems; and increasing national income while sustainably managing water, land and forest resources. This sense of urgency to reform the country’s water management system may also serve as a catalyst for the ongoing natural evolution of the sector, which has been moving in fits and starts for the past few decades.

BY THE NUMBERS: The average 1426 mm of precipitation per year is distributed over 25 separate basins with a total primary river length of 87,200 km, according to the Metropolitan Waterworks Authority (MWA). This translates to some 732,975m cu metres of runoff each year, of which 519,672m cu metres is lost through evaporation and infiltration, and a further 76,131m cu metres is stored in irrigation projects, leaving 213,303m cu metres of surface water. Of the catchment area of just more than 514,000 sq km, roughly 7.5% is classified as wetlands. Average available annual water consumption is a healthy 3413 cu metres per capita.

PIPING UP: Fresh water distribution is managed primarily by the government through local municipalities and entities responsible for national distribution. The two principle providers of piped water are the MWA, which serves 96% of the population in Bangkok and the surrounding area, and the Provincial Waterworks Authority (PWA), which provides water to approximately 88% of the population of 73 provinces.

Serving some 10m inhabitants in the provinces of Bangkok, Nonthaburi and Samut Prakan, the MWA has a daily water production capacity of 5.5m cu metres. Water supplies are sourced from the Chao Phraya River (70% from the Bhumibol and Sirikit dams), and to a lesser extent from the Mekong Dam (30%), with a loss ratio of 26%, which is significantly lower than the 40% registered a decade ago. These losses are expected to be further reduced to 20% within six years as the company invests in loss reduction measures, such as making improvements to pipe lining. According to estimates by the MWA, water sales are expected to increase from 3.64m cu metres in 2012 to 3.89m cu metres by 2017, resulting in annual growth rates of between 1.3% and 1.37%. In the same period, raw water supplies and production of potable water are predicted to go up, from 5.92m cu metres and 4.88m cu metres, respectively, to 6.32m cu metres and 5.1m cu metres.

With a network of 230 offices, the PWA’s primary work includes conducting surveys, developing water resources and treatment facilities, and production and distribution. The utility draws about 91% of its supplies from surface water and 5% from groundwater, with the remaining 4% sourced from a combination of the two.

Because these public sources account for some 78% of total water consumption, according to the PWA, cross-subsidies are present in the sector, which lessen the burden on lower-income residential customers and put up the tariffs on larger industrial consumers. A progressive scale of rates sets the lowest cost for residential users, with prices rising on a graduated scale for both the amount of water consumed and for end-use categorisation, including residential, state enterprises, industrial firms and commercial firms.

SEA OF CHANGE: The most significant recent changes in the sector began to take place in the 1990s, when the government moved forward with liberalisation plans and opened the door for more private sector participation. Seeing new opportunities for expansion, a host of international utility firms, including Thames Water, Veolia and GE Water jumped at the opportunity to come into the Thai market and compete for new water supply contracts for incumbent transportation and distribution companies PWA and MWA.

Unfortunately for the larger internationals, the bulk of the contracts were subsequently awarded to local players, leaving foreign outfits with little to show for their efforts. As a result, nearly all of these companies are no longer operating in Thailand, with the lone exception of Veolia, which has a supply contract with the Industrial Estate Authority of Thailand.

Local water supply firms led by the EastWater Group and Thai Tap Water Supply (TTWS), have prospered under privatisation. Due to the favourable conditions of long-term contracts, these firms are able to purchase water at BT12 ($0.38) per cu metre and then sell it off for up to BT30 ($0.96). EastWater, originally a fully owned subsidiary of the PWA, mainly serves the industrialised east coast via contracts with the PWA, while TTWS works with the MWA in greater Bangkok. While these margins are quite profitable for existing contract holders, these conditions also make it unlikely that further contracts will be issued under the same system, and public resources still account for roughly 78% of all water consumed. As such, the main opportunities for private water management companies now exist primarily in the fields of wastewater management.

Operating mainly through turnkey projects with large industrial corporations or industrial parks, these companies primarily build and operate wastewater reclamation plants, desalination facilities and other projects. These firms include Environmental Care Management (ECM), which operates 23 water treatment plants for blue chip firms, including Sumitomo; PTT; SCG; Indorama and UBE; and Hydrotek, which has fulfilled a number of engineering, procurement and construction contracts for desalination and wastewater treatment plants for major clients, including PTTGC, Amata and PWA.

NEW OPPORTUNITIES: Growth opportunities are cropping up for water management outfits as the government pours resources into tackling the problem of droughts and floods. In addition to existing infrastructure enhancement, water resources expansion is also expected on the eastern seaboard and in the north due to firms relocating from the flood-prone central region, giving rise to new industrial estates along the Myanmar and Cambodian borders. Additional investment avenues are also opening up outside the country, particularly through piggy-backing opportunities as current clients expand overseas into states such as Laos, Malaysia, Singapore, Myanmar, Egypt, the UAE, Morocco and Madagascar. ECM has already moved forward on this front, signing on with Amata to provide services for industrial parks in both Myanmar and Vietnam.

CONSOLIDATION: One of the more complex and often politically charged challenges standing in the way of overhauling the water management infrastructure is fragmented supervision. Under the current system, no fewer than 30 agencies in nine ministries work in water resources development in addition to the seven national committees involved in this field, according to a Thai National Committee on Irrigation and Drainage report.

These convoluted and overlapping responsibilities have at times led to conflicting priorities, delays in key strategic waterworks projects and other incongruities, which reached their pinnacle during the 2011 floods. For this reason, the new comprehensive plan for water management will also focus on the interaction and coordination, or lack thereof, between the numerous federal, provincial and local bodies all tasked with water management responsibilities. One solution that has been floated by the private sector for years is the creation of a single oversight body, such as a new Ministry of Water, which could coalesce all policies into a single unifying message, and would have the power to delegate and overrule other competing interests. Whether or not this will be the solution, or whether such an entity would even be more effective than the current system, will for the time being remain a matter of debate.