We have customers?

I am blogging from the Australian Water Association annual conference, Ozwater, in Sydney. It has been a relatively quiet conference, as the local water industry is in a bit of a hole. Sydney Water has spent all its capex budget on a big desal( which will be mothballed in a couple of months) and is not releasing much work while they go through yet another round of restructuring.

The interesting narrative I am taking away from the conference is an increasing focus on customer value. In his keynote address the new MD of Sydney Water, Kevin Young, placed the focus of his organisation squarely on generating value for the customer.

Australian East coast water utilities have as much as doubled their customer tariffs to pay for the emergency drought infrastructure they built in the latter part of last decade. Customers were not too thrilled to be paying so much for drought infrastructure while they were trying to deal with floods (welcome to Australia).

In one case community anger actually compelled the struggling Queensland government to reverse the amalgamation of three local government utilities into one more sensibly sized entity. Watching one senior water executive being (figuratively) torn down by an angry mob seems to have really got the attention of the rest. Cochabamaba style civil insurrection seems just around the corner (okay…i am dramatising a bit for effect here).

At previous Ozwater conferences it would always amuse me how little the word customer would come up. If you were to do a word cloud with the different words appearing in the conference proceedings customer would be microscopic. At this conference it would still come a long way down the list after asset, corrosion, disinfection etc. but after having front row billing in the keynote speech of the MD of one of the country’s biggest utilities, you can bet it will pop up a lot in 2013.

Sydney city recycled water network to employ ASR

A recent article in the Sydney Morning Herald reported that the City of Sydney plans to utilise an aquifer to the south of the city for storage in the operation of a city-wide non-potable water network. The network will be integrated with a  decentralised trigeneration  network.

The most interesting thing about this is that the corporatised water utility Sydney Water provides water and wastewater services to Sydney City, and the City of Sydney local government entity has no experience with operating water and wastewater systems. In fact the terms of the original design tender specified that the system should be able to constructed under a PPP arrangement, where presumably a private entity will operate the system.

This will be complicated from a governance perspective, let alone an engineering one, and I will be watching progress with interest. The introduction of the aquifer storage solution introduces a lot of additional complexity from an environmental perspective. 

Certainly if it gets off the ground, this will be a project of sufficient size to be well and truly on the global water radar, and the global water majors will be interested. I wonder who will have the capability and the appetite to take on the risk profile of a large unconventional system like this one?

Water industry opaque to outsiders

I was excited to see a full length article about the water industry in the Financial Times hit my inbox this morning. For a large industry, water gets very little coverage in the world’s premier financial publication. Water stories generally appear under Energy in the iPad version.

I was unsurprised then to find the analysis shallow, and while making a valid point, largely wrong.

The drive of the article is the industry must globalise further to meet the challenges of water shortages. I am inclined to agree, although the inherently local nature of water related challenges limits the traction global firms can get.

The authors claim that ” few water companies operate outside a confined geographical area”. Even by the narrowest definition there are many global water players, and if you broaden the definition to include technology firms there are hundreds.

They also claim that European  firms have not been involved in developing water supplies for India, China etc., which is completely wrong.

Where they are correct is that from a British perspective the general trend seems to be against globalisation. Most of the regulated UK utilities have sold their overseas interests over the past 5-7 years.

However the Middle East remains a playground for major infrastructure providers from all over the world. North Africa, the Philippines and India are all trending towards increased foreign participation in their water markets.

While China has seems to be less excited about foreign participation in their water sector, there has been an interesting increase in globalisation inside the chinese speaking countries, with Singaporean firms significantly increasing their mainland China presence. Also in Asia, the Japanese trading houses are developing their water DBO capability as fast as they can through international acquisitions.

Finally the Spanish water DBO firms are expanding internationally at breakneck speed, achieving significant wins in South America, North Africa and Australia.

I think we can safely say that the trend is towards globalisation, and the pace is just about as fast as is politically possible.

We can also say that the water industry is still an enigma to the broader business world.

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.

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

China and Point-Of-Use

Could China be bypassing the centralised potable water treatment paradigm and skipping straight to POU?

I recently attended Aquatech China in Shanghai, the biggest water technology trade show in China. There were hundreds of Chinese membrane manufactures present, with both high-pressure and low-pressure membrane solutions.  Most were targeting the domestic market, and it was clear that the government endorsed strategy to grow a domestic membrane industry is working.

More interestingly though, at least half, and perhaps two thirds of the exhibitors were selling  point-of-use products. Over the years I have heard many  people argue that it is ridiculous to send potable quality water through the network for all household use, when only a tiny fraction of the water consumed is actually for human consumption. Third-pipe systems are an alternative, but require costly duplication of infrastructure.

The alternative is to send partially treated water down the network and have consumers treat their own water at point-of-use. This idea is an anathema to those steeped in the John Snow school of taking control away from the consumer for their own good, and seems unlikely to get anywhere in developed countries.

In China however, where the availability of high quality potable water out of the tap is far from universal, but a relatively wealthy and educated middle-class is growing rapidly, demand for high quality potable water is resulting in a high demand for point-of-use treatment solutions.

I wonder if the bulk of China’s cities may bypass the John Snow paradigm and move straight to consumer control of their own water quality.

Decentralised solutions gaining momentum

In a small suburban development on the far western outskirts of Sydney’s urban sprawl, the city’s first suburb-wide, privately owned decentralised wastewater reuse scheme is about to start construction. The development is Vermont, in Pitt Town.

The privately-run scheme will collect sewerage from 900 houses and deliver third-pipe recycled water back to the same homes for a slightly lower price than the state-owned utility currently provides drinking water. The scheme will operate under a new regulatory frame-work specifically designed to encourage new market entrants, and I would imagine that it could be highly profitable, given that they will be collecting sewerage rates on top of the price of the recycled water but only have to run one plant. I suspect that the cost of constructing and maintaining a third-pipe is not dramatically higher than maintaining two.

No doubt the recycled water will be plumbed directly into the toilets and gardens of the homes before purchase, so they have a captive market.

Small scale reuse schemes seem likely eat away at the market of major utilities by providing decentralised solutions to outlying suburbs and small communities. The major utilities are vulnerable in the locations where pumping distance and geography erode the efficiencies of large centralised plants.

 If the population ever accepts recycled sewerage as potable water then the decentralised business model becomes dramatically more compelling. If you can bundle in stormwater harvesting then you are really talking.

It seems to me that if the major utility business are able to create divisions that specialise in operating and maintaining decentralised schemes, then there is no need for them to lose that market share to smaller players. For better or worse I think that they are unlikely to do this. Large utilities tend to be big, lumbering, heavily unionised beasts that are impossible to steer and which crush innovation.

A smart utility executive interested in entering a more lightly regulated market might see an opportunity to create a 100% owned subsidiary with a separate management structure to target these potentially highly profitable opportunities. It would require a far less hierarchical management approach and very lean and very smart operations. They will need to select executives and management who know water and sewer well, but who also have an entreprenurial mind-set and the ability to rapidly innovate.

If they don’t, then they can kiss that market share goodbye.

The Next Big Thing

I am confident now that the Next Big Thing in water in Australia will be urban stormwater harvesting for potable water supply.

 Why do I think this?

We recently heard here that our population is forecast to almost double in the next 40 years. Australia’s most densely populated south east corner has already experienced dramatic falls in average rainfall, and this is expected to worsen with climate change. Perth has already experienced this http://andrewkable.com/2009/06/19/step-change-next-decades-key-concept/ .

Meeting the water demands of population growth with declining rainfall will require every water supply and demand management option available.

Desalination will of course remain a growth area in spite of its challenges, but the big desal boom is already well underway and the market is already highly competitive. Potable  Reuse faces such high levels of societal pushback that it is politically very tricky.

As we have seen in Perth, conventional catchments experience dramatic falls in yield under climate-change conditions. Because of increased evapotranspiration and drying soils, the reduction in run-off far exceeds the fall in rainfall. Much less water gets to dams. Also our dams tend to be 100kms or so inland, and those catchments are very vulnerable to geographical shifts in rainfall patterns.

Our major cities however are all immediately next to the ocean, and get reliable rainfall. Urban impermeable surfaces are not effected by the evapotranspiration and dry soils effects, so urban water harvesting is a climate-change resilient option for water supply.

For the past 10 years or so, capacity to deliver stormwater harvesting solutions has been increasing, and Australia’s first potable stormwater harvesting scheme was commissioned last year in Orange, NSW, last year.

Delivering urban stormwater harvesting solutions requires water providers to go far outside their traditional scope. The only way to make it cheap and effective is to build your urban area around water sensitive urban design principles. This means that everyone has to get involved, from the urban planning phase onward.

If you are going to be involved in the Next Big Thing, how will you respond to the challenge of stormwater harvesting and WSUD?

Water management crisis – victims of our own success

Watching a video on Circle of Blue recently, one comment jumped out at me.

Paul Reiter, Executive Director of the IWA made the point that in industrialised countries, engineers have been so successful in solving two of the main water issues (providing potable water to the home and removing wastewater from the home), that water is no longer front-of-mind for most people; in fact it is completely taken for granted.

In countries without these sophisticated and costly engineering solutions, water and sanitation management is time consuming, and often takes much of their time and energy.

Removing water and sanitation from urban people’s conciousness has had serious repercussions.

Firstly they abuse the service because they are not stakeholders in its management, they are simply end-users who bear little or no cost of that abuse. They now believe it is their right to have unlimited potable water come out of the tap at their house.

During the water supply crisis in Brisbane, Australia, people were temporarily prepared to cut back their use, tolerate large expenditure on infrastructure, and support innovative solutions like planned potable reuse, but as soon as the immediate crisis was over they returned to the passive user role, demanding water on their terms.

Successful water managers are going to have to somehow get the community to participate in planning decisions. This will involve getting through to people that getting hundreds of  litres of  potable water piped to their house everyday is actually a massive challenge, which has been accomplished to-date at significant economic, environmental and social cost. If they want to continue getting this service in a changing climate they are going to have to make compromises, and pay more!

Australia Water Jobs Market Update

Things are a bit grim in the water jobs market in Australia currently. The GFC effect has combined with a significant but unconnected drop-off in the volume of infrastructure projects. With $9b Western Corridor project and Gold Coast Desal  wrapping up in Queensland, and design work on Sydney Desal largely complete, the engineering consultancies and construction firms suddenly have a lot of free staff on their books.

With skill shortages fresh in their memories, firms have been reluctant to lay off good people, but are certainly not hiring. This has been compounded by the GFC related slow-down in mining, and overseas markets. Consultancies are moving people across from mining into water projects, and from slow markets overseas into Australia. Consequently large projects like Perth2 Desal and Adelaide desal have not resulted in significant new job creation.

This has been compounded by the situation in regional NSW, where stalled governance reforms have basically stopped all infrastructure work while local governments wait to see what the outcome will be.

Looking on the bright side, there is still some significant treatment plant work on the horizon in Queensland, with governance reforms being finalised. Tasmania, suffering from a changed rainfall regime and run-down infrastructure, has just completed their water and wastewater governance reforms, which will release plenty of work there. Melbourne’s dams sitting at 27% as I write, and with another El Niño on the way, I can see a major  infrastructure round coming up.

On the subject of Melbourne, everyone is waiting with bated breath to see which shortlisted alliance will win the $3b desal project. Depending who wins, this may actually produce fewer new jobs than expected. The Veolia/John Holland Alliance has recently completed the Gold Coast and Sydney Desal plants, and should be reasonably well resourced if they win Melbourne, but substantially over resourced if they don’t. Degremont/Theiss will have some ramping up to do.

My forecast is that things will get worse in the water job market before they get better.

So where are the jobs? There is always a steady trickle of opportunities outside the major cities, particularly with regional water authorities, and for civil water & wastewater engineering consultants willing to work outside the major cities. Most consultancies are still willing to bring on board people who they know will win them business, i.e. locals with an established network and reputation for good work…there is still a shortage of  experienced wastewater and water treatment process engineers for example. Some firms that missed the boat on the 2007/2008 boom are not over-resourced, and are more open to hiring than others.

The longer term prospects are good for water work here. Australia will continue to be a case-study for climate change, and much of the talent in the industry is still due to retire in the next 5-10 years. Watch this space.