Guy Ledger is a Client Director within SNC-Lavalin’s Atkins business. In an interview with World Water-Tech, Guy gives his insight on direct procurement, both in the UK and internationally.
Until now, UK water companies have themselves raised finance for their major projects and investments. But that’s changing as Ofwat starts to drive more competition into the sector. What new and innovative partnerships are emerging as a result?
In my role as client director for Atkins, a member of the SNC-Lavalin Group, and having seen 25 years of change within the water industry, I’d say something of a revolution is now underway. We’ve seen competition in the water retail sector go live, giving businesses across England the option to switch suppliers and consolidate their water and wastewater services. The next step is direct procurement. This means we’ll see water companies going to the marketplace not just for design and construction of very large projects with a value of £100 million or more, as they’ve always done, but also for project financing. This will no doubt open up the opportunity for new consortia to deliver the industry’s biggest and most exciting projects. For me, raising project-specific finance from new investors and consortia could really change the dynamics of the market, leading to commercial innovation and ultimately better value for end users.
Where are we seeing direct procurement already being used?
It’s a model already being used in the £4.2 billion Thames Tideway ‘super-sewer’, London’s second biggest infrastructure project after Crossrail, which is being funded through a combination of increases in Thames Water customers’ bills together with a £2.8 billion investment from Tideway, whose investors have invested £1.2 billion of equity.
Is it a viable option for water utilities outside of the UK?
We can also look to the Middle East for inspiration. In the emirate of Ajman, construction of a state-of-the-art wastewater treatment facility, along with a centralised waste water network – the first Emirate-wide centralised piped drainage system in the whole of the UAE – is complete and providing high quality service. Atkins were involved in our capacity as the lender’s engineer. This type of project took a different funding and operating model: build, own, operate, and transfer (BOOT). Funding was raised through a private finance consortium to pay for design and construction costs. Now that the facility is in operation, the loan gets repaid through revenue generation, i.e. billing individual customers.
What can we learn from this type of funding model?
When it works well –the results mean successful delivery of ambitious, large-scale infrastructure projects that otherwise would have never got off the ground.
Will it raise investor interest in the water sector? What advice would you give to companies looking at direct procurement?
Back in the UK, if a mechanism should come into play that forces larger projects through to direct procurement – such as big reservoir projects that cut across water companies’ boundaries – it may well be the case that we’ll see plenty of lenders prepared to take project finance risk. From an investor’s angle, direct procurement will see the opening up of new and attractive propositions, and even a raft of inter-sector investment opportunities could come to the forefront within a few years. One thing we know for certain is that there are early signs of significant change ahead. And market participants need to be planning for these changes now to ensure that the Ofwat vision can be delivered.
Join Guy Ledger from Atkins at the upcoming World Water-Tech Innovation Summit where he will be chairing the session “Getting Deals Done with Innovative Procurement Models” on February 20.
Guy will be joined by the following experts on the panel:
Wim Drossaert, Chief Executive Officer, Dunea, Netherlands
Jon Loveday, Group Commercial & Transformation Director, Thames Water, United Kingdom
David Tyler, Associate Director, Water & Wastewater Sector Specialist, European Bank for Reconstruction and Development, United Kingdom
See full agenda at: worldwatertechinnovation.com/agenda