The political after-effects of drought

Australia’s crazily stochastic rainfall is having serious political fallout, one to two years after a major east coast drought turned to catastrophic floods almost overnight. As climate change begins to replicate Australia’s climate in other continents, our lessons may be relearned by others.

Australia’s east coast states  spent something like AU$15-20b on drought mitigation infrastructure in the 2005-2010 period, including large desalination plants for every major city and a very extensive network of reuse plants and pipelines for Brisbane.

The dam water supply levels in every major city had reached critical levels in spite of severe water restrictions and in the case of Queensland, the state government had been planning for trucking water into the centre of the capital, Brisbane.

In every east coast city’s case the rain began shortly after the drought infrastructure was complete (sometime before in the case of Melbourne’s gigantic desal). Water utilities and state governments were left with huge bills for now unnecessary infrastructure.

The fun really began when people started to hear how much their water bills were going to increase to cover the cost of the capital works. Society’s collective memory is very short, and people hearing that their water bill is going to go up 15-20%+ a year for the next few years has caused a lot of political difficulty.

This has been particularly interesting in South-East Queensland, where a major restructure of the water sector for the purpose of increasing water security in the region was attempted during and after the drought. The result has been a rash of finger-pointing and political maneuvering between State and local government as both sides try to blame the other for cost increases. The fall-out could well bring down one or more local or state governments.

I think there are a few lessons here.

It is very important to avoid infrastructure lock-in if at all possible. Large scale solutions may be more efficient, but a modular and scalable response to water supply threats is likely to be less costly in the long-run. Moving early to manage potential threats before they become critical will leave more options on the table. Having a now unneccessary $3b desal plant operating on a take-or-pay contract can be  very politically awkward.

Expect people to forget their previous support for decisions made in-extremis…particularly when they get the bill.

 Don’t miss the chance to set up a more resilient system when the status-quo is threatened by a crisis…but make sure your alternative approach makes sense under both rainy and dry scenarios.

China’s desalination boom

H2Otalent anticipates a major boom in the desalination industry in China,  as demand for water increased and alternative supply options fall away. H2Otalent’s Isa Cruz attended the Qingdao Desalination Conference last month, attended by representatives from all over the world positioning for a piece of the action.

Isa Cruz at the Qingdao Desalination Conference
H2Otalent’s Isa Cruz at the Qingdao Desalination Conference

This excellent Circle of Blue report documents a proposal by a respected Chinese engineering professor to build a desalination complex that will pump water 3,400 kilometres to Inner Mongolia and provide the water supply to exploit a massive coal field.

 
While this proposal in controversial, the fact that it is being proposed at all does show how seriously China needs more water.
 
The South-to-North pipeline project, which was going to effectively take water from the Himalayas to Beijing is bogged down in construction challenges, and expected to yield less water than originally planned.
 
Desal seems like the only remaining option to stop Beijing drying out. The government agrees, with a substantial increase in desal capacity specifically stated in the latest five-year plan.
 
Desalination is also one of the more obvious niches where multinational EPC firms looking to make their mark in China can be competitive. Domestic firms have their hands full delivering less complex and risky wastewater and industrial water treatment plants, and few domestic firms have the capability to deliver a large desal plant.
 
Companies like Aqualyng and Befesa are already delivering plants.  A local JV partner will definitely be required, and non-recourse finance is now obtainable for China projects.
 
A word of warning though, local engineers with desalination experience are still thin on the ground, and in great demand so be prepared to pay top dollar for local talent. Feel free to contact Isa Cruz on isa.cruz@h2otalent.com for further information on entering the China market.

Managing Change – The Power to the Edge approach

If you are a senior executive in a large organisation, you are unlikely to have the knowledge required to make major strategic decisions for your organisation.

This is a challenging idea for traditional hierarchical managers, but it is now pretty much accepted wisdom amongst management theorists. I have just been reading an article in the HBR titled Adaptability: The New Competitive Advantage . It makes the excellent point that in a rapidly changing and complex world, rapid adaption is itself a source of competitive advantage…if you can move faster than your competitors then you can beat them to new opportunities.

The article suggests a few different organisational competencies required for rapid adaption, but one of the key requirements is the shifting of authority in your organisation to the people on the front-line. This follows very closely the thinking of US military strategist John Boyd. He proposed that the military force that can adapt most rapidly to circumstances can outmaneuver an opponent. The critical point is that the individual on the front-line has the best knowledge of how to respond at a tactical level, and should be empowered as far as possible to make decisions themselves. Too much time is wasted referring decisions up a command-chain and the opportunity is lost.

That is fine as far as tactical decision-making is concerned, but how about strategic decisions? Strategic decisions must certainly be made by management, but the information that informs that decision-making must be collected from the front-line in the form of quantitative or qualitative data. The pathways for information to flow upwards in the organisation are even more critical than the pathways for information to flow downwards.

In summary, transferring the power in your organisation to the edge is the best way to create an organisation that can respond rapidly to external changes.

Leadership has to be performed at all levels of the organisation.

Unfortunately I come across very few organisations that do shift power to the edge. Most large organisations have heavily centralised decision-making and frustrated employees who see opportunities pass-by and are unable to act on them.

 To create an adaptive organisation, it is critical that individuals at all levels of the organisation have leadership qualities. Check out my post on leadership qualities for the water sector here.

You can find the US Command and Control Research Program publication Power to The Edge here

Build global talent shortage into planning

The global water talent market looks increasingly constrained, with a shortage of mid-level talent even in countries with high levels of unemployment. I cannot emphasise enough that you should build high salaries and talent-shortages into your business planning.

We are observing the most severe talent shortages in Brazil and China, where it is very difficult for global companies to identify English speaking talent with a reasonable level of techical knowledge and relevant experience. I will reiterate that companies should not expect to pay substantially lower salaries for high-impact professionals in China than they would in Europe or North America.

In Brazil they can expect to pay more.

Australia continues to lead the world on water industry salaries, with another resources investment boom working its way through the economy; mine infrastructure construction is sucking up the tiny amount of spare capacity that was there previously. Expect to pay between 1.5x and 2.5x what you would pay in Europe or North America for junior-mid-level Engineering talent.

For high-impact, strategic hires (H2Otalent‘s specialty) you should be prepared to offer both competitive salaries and a compelling organisational structure and strategy. See my earlier post on attracting leaders here.

Even more critically you should have a policy in place for opportunistically hiring and utilising water leadership talent even when you do not have a formal vacancy in your organisation. The alternative is to make-do with whoever happens to be available when you have a vacancy, which could mean the best people going to your competitors.