Vertical disaggregation of water and wastewater management in SEQ

South East Queensland ran out of water recently, triggering a multi-billion dollar infrastructure program, but also some serious governance reform. Concerned that the current model, with 25 different providers of water and wastewater services, was not even delivering water security, the state government seized control.

The management of water and sewer was taken from the local government councils in the area, and given to a number of new regional level entities created by the state government. The engineered part of the water cycle was divided into a number of sections, and a different authority given responsibility for each section.

There are now two “Bulk Supply” entities, responsible for maintaining water sources (dams, groundwater supply etc.) and water and wastewater treatment plants in the two catchments. There is a bulk transport authority, that is responsible for maintaining and operating large regional pipelines. A water-grid manager, that contracts between the different parties and takes ownership of regional water security, does not own any assets. A water and sewer reticulation business is responsible for the reticulation for the region, and three retailers will take care of the customer end. Local government will retain responsibility for stormwater management.

This looks like an attractive model for the State government. Water resources would be managed at catchment level, specialised agencies would be more efficient in accomplishing their core task. The natural monopoly elements (bulk supply and reticulation) are seperated out and given to state authorities, making room for new market entrants in supply and retail.

My question is, is how does a more decentralised, local water and wastewater management fit within this picture. Can councils feed stormwater back into the system?

Skills shortages, water shortages, salaries and the price of water

The skills shortage, particularly for civil design and construction engineers, puts inevitable inflationary pressure on salaries as firms compete for talent. However as a professional you should not automatically expect a dramatic increase in salary when you next change jobs.  The main factor influencing salaries is actually the price of water and wastewater services.

In an increasingly corporatized water sector, the amount of money that will be invested in water and wastewater is largely determined by the potential revenue streams from the investment i.e. the price of water and wastewater services. The cost of supply is one factor, as is level of demand, but they all are all trumped by political imperatives and the decisions of regulatory authorities.

South East Queensland recently faced the prospect of running out of water, and as result engaged in the construction of a massive network of pipelines and reuse plants. The cost of capacity from this scheme is in the realm of US$5000/m³/d according to the October Global Water Intelligence report, as compared to $1333/m³/d for the average global desalination scheme.  The alliance contracting model and tight timelines on the scheme meant that professionals needed to be (and could be) hired whatever the cost. Consequently we saw a significant inflationary effect on salaries for design and construction engineers, making Australian salaries some of the highest in the world. I suspect it will also result in staff being laid off in the future because they will just be too expensive to be deployed on projects where cost is more important than timeliness.

The shortage of water created the political will to spend more on infrastructure, and that will be reflected in water prices down the line. That political will to spend more on infrastructure and charge more for water is only galvanized in the face of a crisis…so if you are looking to make the big dollars, don’t assume the global skills shortage will be enough to push up your salary…look for where the next crisis will be, and head there!

Attracting and retaining staff in emerging markets

I have to confess to being a Harvard Business Review junkie…but for good reason. It is always packed with good quality content.

November’s issue is no exception, with a great article on retaining talent in emerging markets titled “Winning the Race for Talent in Emerging Markets”. This is highly relevant for water businesses looking to maintain or build a business in the BRIC economies.

Research shows that even strong and established international brands cannot coast on their existing brand value. This ties in with a conversation I had recently with an engineer, originally from China. He said that in China the salaries offered by local companies were now comparable to those offered by multinationals. There was not a strong financial imperative to move to a foreign firm, and staying in a domestic firm offers a lot by way of comfort, stability, and not having to do three am conference calls.

 So how can you attract these people to your business? You have to leverage all the strengths you have as a multinational business. Professionals in emerging markets feel a tremendous sense of opportunity, and to attract and retain those professionals you need to provide Brand, Purpose, Opportunity and Culture.

Brand

Your public brand must be strong enough that potential employees want to be associated with it, but your employer brand must be for providing insirational leadership, and challenging employees to excel.

Opportunity

You must provide a career fast-track option. Provide employees with stretch assignments and give rapid promotions to those who succeed. Remember that there is a sense of opportunity, and top employees don’t want to miss the boat.

Purpose

In developing markets, your employees will have often experienced poverty and social injustice themselves. Having a higher purpose as part of your organisation’s mission is even more important than in developed economies.

Culture

Your brand must be authentic, your organisation must “walk the talk”. You must also have a meritocratic culture, where a graduate entering your business in Dalian must be able to believe they can end up in the executive suit in New York or Paris.

Of course, setting up systems and processes that allow you to deliver on these promises is costly and demanding, but promising then not delivering is disastrous…and doing nothing is not an option if you want to hire the best people.

The looming water talent crunch

I am president of the NSW Young Water Professionals (YWPs) in Australia. The YWPS are a specialist interest group within the Australian Water Association (AWA). We encourage AWA members under 35 years of age to register. Nationally our membership represents around 13% of total AWA membership. This is a fair indicator of the percentage of water professionals under 35 in the broader Australian water industry, and the story is similar in developed nations across the world.

In Australia we are expecting 20-30% of water engineers (and closer to 50% of operations staff) to retire in the next 5-10 years. The next generation of water industry professionals just doesn’t exist.

Firms are reluctant to train the large number of graduates required to replace them, because training is costly in the short term, and because retention is so difficult they are unlikely to reap the full benefit. To lapse into eco-speak, there is a definite market failure present here…training young professionals results in positive externalities and so training tends to be under delivered by a free market.

However the user-pays philosophy is so ingrained that industry bodies find it difficult to look past it and see what has to be done.

This is of course great news for young water professionals globally. Your professional future is assured…but you might find yourself doing the work of three people…if you aren’t already!

The water business in Japan

With all the excitement about the rapid growth of China, people forget that Japan is the second biggest economy in the world. It is a difficult market for foreign firms to enter, but prices are kept high by the lack of competition, meaning there is a lot of money to be made there.

The water industry is no exception. Apart from the equipment and chemical suppliers, that largely sell through local distributors, Veolia is the only firm that has managed to make an impact. After significant up-front investment and the acquisition of multiple local firms they have won a number of short operations contracts.

The rest of the water industry can benefit from this effort, as local authorities and institutions become more accepting of foreign businesses operating there. As far as I know, only one multinational design firm (Arup) has any presence in Japan whatsoever, and they do not have a water business there.

While Japan has a lot of rainfall, the density of population (everyone crammed onto the coastal river plains) and the intensity of rainfall events mean that they have plenty of water and environment issues to be addressed. Indirect potable reuse is already the norm in Japan, because many water treatment plants are drawing from rivers below wastewater treatment plants.

If I was running an engineering firm or water treamment business I would be looking very closely at potential acquisition targets in Japan right now.

How globalised is the market for water professionals?

On one level, the water sector is clearly highly globalised. Multinational firms supply equipment around the world. Multinational design firms have global footprints, and French, Spanish and British firms provide design, build and operate services on every continent.

But how easy is it for water professionals to move internationally?

Even though the global design firms have a presence on every continent, in most countries domestic design firms are dominant…certainly in Australia the home-grown firms take away the bulf of the work.

I see a lot of movement on the UK-Gulf-Australia-New Zealand axis, and between the subcontinent and the gulf, and of course the European water giants like to have their people on the ground in every country they operate in. Beyond this I don’t see too much liquidity between countries. There is mysteriosly little flow of engineers into and out of United States, perhaps partly because of the largely closed-shop engineering certification system they run there.

Beyond the English speaking world, the language barrier starts to kick in. I am interested to hear how much movement there is between Spanish speaking countries and across countries within the Mandarin speaking world?

I think that the major factor in increasing the level of international movement will be the infrastructure cycle. Most governments will not spend significant money on infrastructure until there is a crisis, as we have seen in Australia. As countries around the world run into trouble with climate change, they will look to suck in talent from other parts of the world.

For those that are looking to develop a skill set that will take them around the world to different employers, I would say first of all you have two choices. Firstly engineering design is much more transferable than any other area. From where I am sitting, civil design engineers with pumps and pipes experience are highly employable and have good transferable skills. The other alternative is to develop a very specific skill set a high level in a particular technology or process which is increasing in popularity. The skill shortage in your area will then justify the effort of importing you from overseas.

Barriers like immigration regulation, local regulations and language mean that the globalisation of water is still in its infancy…but things may look very different in ten years time.