It has been encouraging to see the increasing profile of water risk over the past few years, particularly in the corporate world, and I thought I would do a listing post with four amazing online resources. Links at the bottom of the post.

1. The WRI map, Aqueduct, has a heap of data behind it and quite an amazing interface to allow the easy extraction of meaningful data. A non-technical planning executive in a large multinational firm could plug in the locations of 20 production facilities and get a decent overview of the basin level l water risk profile of those facilities inside an hour, which is quite a staggering achievement.Of course water risk cannot be fully quantified for a specific facility at basin level, but it is a very good start.
2. Other great ways to understanding water risk are by following the Circle of Blue, an amazing source of water risk related journalism, which does not just set the bar for journalism related to water, but offers a much higher quality of reporting than you will find in all but a few newspapers or websites.
3. China Water Risk is an investment industry sponsored site raising the profile of the critical state of water in China.
4. Finally Waterfootprint.org is a great resource for understanding the water impact of your actions, as an individual or a corporation.

World Resources Institute – Aqueduct

Circle of Blue

China Water Risk

Water Footprint.org

It is clear that US and European companies that still have much of their cost-base and mind-set in the developed world are increasingly struggling to compete with emerging businesses in asia with international capability and a developing world cost-base. Interestingly Spanish firms, with skilled labour costs that look more similar to China than to the UK seem to lie more in the latter camp than in the former.

You don’t have to look any further than the recent award of the Al Ghuburah Integrated Water & Power project to see the possibilities.

Sumitomo corporation, with deep pockets and a strong appetite for global water projects and supported by a Japanese government mercantilist strategy, led the winning consortium.

They partnered (based on an existing strategic relationship) with Malakoff, a Malaysian contractor with extensive experience in the IWP space to own & operate the plant.

On the design and construct side Sumitomo has pulled in VA Tech Wabag (in which they have a stake) an engineering all-rounder with a cost-base firmly in India along with Cadagua to provide the desalination design engineering expertise.

Of course Asia centred consortiums have been successful in the Middle East for some time, but I suspect the break-out into international markets is not far off.

On paper it looks like there should be synergies, but if you can’t find a way to get the products you want to synergise across within a single P&L then from an organisational perspective it is difficult to make it happen. Your water treatment sales guy is never going to try and sell drives unless he (or his manager) has some incentive to do so, and vice versa.

Like GE Water, I believe Siemens also struggled with the idea of taking process risk. I am sure Siemens senior management has a very good idea of the risks involved with automation and control, but I very much doubt they were comfortable with taking whole-of-process risk, which is what you really have to do if you are going to try and derive some scale benefits from holding a range of process equipment.

So Siemens is on their way out of treatment, and I am pretty sure that GE now has water sitting firmly in the cash-cow section of their Boston Matrix…milk the strong technology portfolio they acquired in the most low-risk, low-cost way possible until it becomes commoditised then let it pass slowly away.

So good old Veolia and Suez, what ever you may think of them, remain pretty much the only game in town when it comes to global water process firms. Given the kind of overhead these firms have to carry in Paris, I think that there is a huge opportunity for another player to move into the global water & wastewater process space.

They way to do it though is not to go out and buy technology. Technology is important but secondary. Now is the perfect opportunity to put some money behind a global team of experienced process engineers and specialist sales people and create a new global water process brand. Anyone who is interested give me a call…the talent is there and waiting.

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.

The clear alternative is for the private sector to step in. Retirement and sovereign wealth funds are still in need of long-term, high security  investments, but in most cases the water sector has not been able to find a way to unlock these funds.

One way to do this is to sell or lease water infrastructure. In Sydney, Australia the large municipal desalination plant was recently leased to the private sector. The plant was commissioned and operating, so had been de-risked from a construction perspective. The off-taker arrangement is with the AAA rated New South Wales state government.

The lease price was 300 million dollars in excess of the regulated asset base value.

It makes a lot of sense for governments to construct water assets under Design and Construct agreements where they have procurement expertise and are the best party to take the construction risk. Once the asset is commissioned then the government can lease or sell the asset to the private sector with the off-take contract in place, and take the risk dividend.

Where there is a monopoly water distributer owned by the government it is a much more attractive investment opportunity, from an off-take perspective, than a toll road.

How many water assets around the world are suitable for this kind of arrangement? More on that later.

Not very much is my response, which is the point of my post.

Mayer is 37 years old and has 13 years total experience in the workforce, and is taking the CEO role of a company that does 5 billion dollars a year in revenue.

The first question that sprang to my mind is how someone could build up the level of management experience in such a short time, even within Google, required to take on the CEO role of a large listed corporation.

I watched an extended interview with Marissa in a public forum conducted in January this year. She told the interviewer that “Larry and Sergey threw us in over our heads and shouted at us until we became the people they needed us to be”.

It is a fundamental truth that smart, capable people learn best and fastest when they are given responsibilities (and the corresponding authority) well beyond their existing capability and experience.

The water industry as whole tends to be bad at this and there is a real shortage of young people in senior executive roles in water.

Whether Marissa succeeds or not at the Herculean task of turning Yahoo around, just her selection for the role is an impressive achievement.

I would love to see more young water professionals given the opportunity to overacheive like this. The industry will be better for it.

Interestingly though, the mood in the trade hall was relatively sombre. The major players we spoke to who depend on market growth to grow were somewhat bearish on the rest of 2012.

However new entrants are definitely seeing opportunity to take market share…particularly in industrial water treatment throughout Asia. They seem particularly interested in industrial wastewater, with strengthening environmental regulation in China and SEA forcing industrial customers to clean up their game. Everyone has their eye on Indonesia, trying to judge whether now is the time to jump into that market with both feet. In the meantime domestic EPC players continue to prosper.

In other interesting news Lanxess was pushing their new RO membrane range pretty hard, evidence of the true commoditization of polymer RO membranes for the mid-market. They seemed to have nothing much new to offer from a technology perspective…and seemed to be just hoping to leverage their resin sales network.

Mann +Hummel also had a big presence in the SIWW trade hall, with the UF products they acquired with the Singapore membrane business Ultra-Flo in 2010 on display. They have an active strategy to diversify out of automotive filtration and it will be interesting to see whether they find water as attractive a market as they hope.

With all this activity, as usual there will continue to be a huge demand for bilingual technical sales professionals in growth markets. In water the good sales guys tend to be a barometer for the relative strength of different technology businesses.

Only around 30% of Indonesian’s have access to a reticulated water supply and there is almost no fully potable reticulated water. There is almost no reticulated sewer in the whole country; Jakarta, a city of nine million people, is only 4% sewered.

Given that Indonesia is the fourth most populous country in the world with 240 million people there is plenty of work to do.

The Indonesia federal government is keen to attract private sector investment into infrastructure and is bending over backwards in putting together the governance structures and guarantee organisations required to attract investment. Indonesia’s recent credit rating upgrade mean that now would appear to be the time to get busy building water infrastructure in the big archipelago under PPP contracts.

What the catch you say? Well it turns out that in most of the country the provision of water services is the right and responsibility of local governments or PDAMs. Many PDAMs are effectively bankrupt and have very limited organisational capacity. Tariffs are set by local politicians and are nowhere near cost-recovery. They do not make promising partners.

The federal government and a number of semi-government financial institutions are currently in the process of pushing through a couple of complex bulk water supply projects under a PPP framework. These seem unlikely to go smoothly.

One of these SPAM projects  (SPAM is the abbreviation in Bahasa Indonesia for a drinking water supply project) in Bandar Lampung has now moved to the second stage of the tender process. The tenderers are a curious blend of Korean, Japanese, Philippines and Indonesian financiers and engineering firms. Interestingly Manila Water’s local partner is one of the world’s largest pineapple producers, the Great Giant Pineapple Co. with a plantation in Lampung…presumably also  looking to also be an offtaker for the water produced.

Watch this space…I believe there are huge arbitrage opportunities for parties that can truely understand and manage the very real risks in the Indonesian PPP market. Those that nail this will have the pick of the most lucrative projects as Indonesia builds out its basic infrastructure.

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.

Okay, so this is a great product wrapped up in a very smart business model. It provides an important piece of the puzzle for creating a truly adaptive organisation…real-time information distributed to front-line individuals in a manner which is easy to understand and respond to. The SaaS model means that TaKaDu does not have to give away their core IP, the algorithms that translate the raw data into useful information.

The thing that really jumped out at me from the interview however, was something the CEO, Amir Peleg, mentioned as an aside. None of the people involved in TaKaDu at start-up stage were from the water sector.

TaKaDu was taking a well established technology/business approach, SaaS, which has been around for about 15 years now, and using it to revolutionise the way another established field…network modelling…is applied, in a way that is completely transformative.

The fact that this idea emerged from outside the sector makes me wonder whether the existing water community will be able to be sufficiently innovative and adaptive to remain relevant as the nature of the industry changes…or will many of us be left behind by step-change. Seeing large, dominant organisations brought to their knees by radical change is no longer unusual. Will the water majors be next?

At H2Otalent we believe that the water professionals who will thrive in the next decade will be passionate, innovative, visionary and inclusive. Is that you?