Opportunities abound…step up!

I see some massive opportunities in the global water industry right now, but who is stepping up to the plate?

Anyone who has been in the industry for a while understands that the water industry is all about process risk.

Everyone from the consumer to the biggest industrial player wants water to “just work”. This means they want to pay for water of a particular quality and have the vendor take risk for the whole process.

Whenever a big industrial conglomerate tries to play in the water space (think GE and Siemens), they find that only the lowest margin, most commoditised equipment can actually be treated like a pure-play product. Everything else is actually a unit process, and has to be provided with a guarantee that it will work. Given that every feed-water is different and highly variable, this means you have to offer an engineering service.

Suddenly the scale-based advantages you get from being a massive industrial based conglomerate is working against you as you try to manage the engineering risk for thousands of customised global projects via an elaborate hierarchy.

For me Veolia Water is the barometer for the industry. To me they had two major advantages. They have water people all the way up the organisational hierarchy who instinctively understand the nature of the water industry. Secondly they have traditionally not needed to impose a traditional management hierarchy because everyone went to the same few Grandes Écoles and understood each other implicitly.

These days Veolia trying to manage project risk by putting thousands of small projects through a lengthy approvals process of the type preferred by the Securities and Investments Commission…and it is not working well.

So come on. Bring your start-up capital, come to us to find you some BD, commercial and process talent…set up a sensible risk management process, then all you have to do is grab some project finance and you are away.

Infrastructure Australia Report


In my previous post I mused on the possibility of governments selling or leasing brownfield infrastructure. Infrastructure Australia, a Federal Government peak body influencing infrastructure policy in Australia, just released a report on this topic.

The report promised to identify assets suitable for sale, but sadly it was  devoid of much juicy detail. It did however aggregate the asset base value of all publicly held water infrastructure in Australia, working at an equity value of 1.1x the asset base.

Australia has AUD96 billion dollars worth of water assets, but is carrying 36 billion dollars of debt over those assets, leaving a net balance sheet value of 60 billion dollars.

There is definite interest in offloading some of these assets, and the metropolitan areas of Sydney and Melbourne were singled out as geographical regions where the regulatory structure is already in place to allow it to occur.

You can find the report from Infrastructure Australia here: Infrastructure Australia Report.

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.

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.

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.