VZCZCXRO6391
PP RUEHDE RUEHDIR
DE RUEHDH #0150/01 1740644
ZNR UUUUU ZZH
P 230644Z JUN 09
FM AMCONSUL DHAHRAN
TO RUEHC/SECSTATE WASHDC PRIORITY 0176
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEHDH/AMCONSUL DHAHRAN 0227

UNCLAS SECTION 01 OF 02 DHAHRAN 000150 
 
SIPDIS 
 
PLEASE PASS TO NEA/ARP JOSHUA HARRIS 
 
E.O. 12958: N/A 
TAGS: ECON SENV ENRG PGOV SA
SUBJECT: PUSHING WATER UPHILL - - SAUDI WATER SECTOR CHALLENGES 
 
REF: 08 JEDDAH 184 
 
DHAHRAN 00000150  001.2 OF 002 
 
 
¶1. (U) SUMMARY.  Saudi Arabia's per capita fresh water 
consumption is nearly double that of the European Union average. 
 These high consumption rates stem from low water tariffs, 
leaking water distribution infrastructure, and agricultural 
subsidies.  Water sector reforms have begun, though a 
long-awaited water regulatory authority has not yet been 
identified by the SAG.  Between 20% - 40% of Saudi Arabia's old 
desalination facilities will need to be replaced or refurbished 
within 10 years.  END SUMMARY. 
 
 
 
Water and electricity conference 
 
-------------------------------- 
 
 
 
¶2. (U) On June 8 & 9, CG, PolOff, and the Commercial Officer 
attended the Fifth Saudi International Water, Electricity and 
Power Generation Conference and Exhibition in Dammam. 
Representatives from the government and private sector spoke at 
the conference covering water and electricity privatization 
efforts, regulatory reform, new technological advancements, and 
broader demand and supply trends in the Kingdom.  In the Gulf 
region, water and electricity are often inextricably linked due 
to the energy-intensive desalination process and the tendency 
for those facilities to be co-located with power plants.  (Note: 
 Water and electricity issues both fall under one ministry, the 
Ministry of Water and Electricity.  End Note.) 
 
 
 
Rising fresh water consumption 
 
---------------------------------- 
 
 
 
¶3. (U) Most estimates put Saudi per capita water consumption at 
about 240 liters per day, much higher than the wetter European 
Union average of approximately 150 liters per day.  The CEO of 
Saudi's National Water Company (NWC) said at the conference that 
urban areas receive 60% of their water supplies from 
desalination and 40% from ground water.  However, the 
agricultural sector, which represents more than 80% of total 
water usage in the Kingdom, relies largely on nonrenewable 
underground aquifers.  The SAG recently repealed income 
subsidies for water-intensive wheat crops, a widely criticized 
food-security policy (ref A), but the even more water-intensive 
alfalfa crop that feeds Saudi Arabia's large dairy industry has 
increasingly gained favor among farmers.  Demand for all water 
sources is expected to climb rapidly, reflecting Saudi Arabia's 
burgeoning population and rapid industrial growth. 
 
 
 
¶4. (U) The NWC is seven months young.  It is an effort to 
consolidate the numerous smaller and less efficient companies 
throughout the Kingdom, as there are Water Directorates in each 
city. The NWC currently operates in Jeddah and Riyadh with plans 
to expand to another 15 cities in the Kingdom.  Its goal is to 
improve supply and demand management, improve infrastructure, 
and increase the level of services and to become a world class 
regional utility in the Gulf.  Many challenges will have to be 
overcome once the smaller companies are amalgamated into the 
NWC, among the most daunting will be changing the work culture, 
attitude, and behavior of the more than 6,000 employees 
transitioning from a government bureaucracy to a 
customer-oriented organization.  There are also 10 different 
authorities that presently regulate wastewater. 
 
 
 
Low water tariffs, leaky infrastructure 
 
--------------------------------------- 
 
 
 
¶5. (U) Several conference speakers noted substantial 
opportunities to conserve water through a handful of policy 
changes.  First, the exceptionally low water tariff, roughly 
$0.10 per cubic meter on average, is among the cheapest rates in 
the world and does not reflect the $.80 to $1.20 cost per cubic 
meter to desalinate the water (which excludes substantial 
transportation costs and greatly subsidized fuel for power 
generation).  A higher tariff, they believe, would change 
behavior and incentivize conservation leading to substantial 
water savings.  Second, nearly a third of total water produced 
 
DHAHRAN 00000150  002.2 OF 002 
 
 
is lost between the source and the end user due to leaky pipes 
and inefficient infrastructure.  Third, the agricultural sector 
currently uses outdated irrigation methods that lose almost half 
of the water taken from aquifers through leakage and evaporation. 
 
 
 
Planned reforms but no regulator 
 
-------------------------------- 
 
 
 
¶6. (U) The SAG aims to privatize or contract out the management 
of the water distribution networks with the hope of shifting the 
industry to a profit-oriented and, thus, more efficient business 
model.  However, vague regulations have complicated this effort. 
 A long-time utility consultant in the region told PolOff, "It 
is still unclear who is ultimately responsible in the water 
sector."  The consultant added, "The ministry that owns the 
water company shouldn't be regulating it."  Several different 
speakers at the conference emphasized the importance of passing 
a comprehensive "water law," which should clarify complicated 
regulatory matters and facilitate private sector investment. 
(Note:  A comprehensive Electricity Law was implemented in 2006. 
 A draft Water Law was introduced last year but remains in the 
draft stage.  End Comment.) 
 
 
 
Old desalination facilities 
 
--------------------------- 
 
 
 
¶7. (U) Saudi Arabia has the largest installed desalination 
capacity in the world producing more than 4 million cubic meters 
per day.  However, many of the approximately 35 desalination 
facilities in the Kingdom use old technology and are at the end 
of their useful lives.  These provide almost all of the 
industrial and potable water supplies in-Kingdom while water 
originating from aquifers is used for agriculture.  Replacing 
desalination plants and other water infrastructure improvements 
will require massive investments over the next decade, with the 
U.S. Department of Commerce estimating the need for almost $5 
billion annually over the next 20 years.  To help achieve this 
and take advantage of private sector capital, the 
government-owned Salt Water Conversion Company (SWCC) will be 
privatized over the next few years.  SWCC is responsible for all 
of the Kingdom's desalination facilities. 
 
 
 
¶8. (SBU) COMMENT:  Saudi Arabia has the cash to invest in 
sufficient desalination capacity to meet short-term increases in 
household and industrial demand for fresh water.  Whether the 
Kingdom has the will, however, to implement politically 
sensitive policy fixes such as raising water tariffs is 
uncertain.  Saudi and expat industry leaders think the fixes are 
inevitable, but they will not invest until the KSA commits to a 
water price hike.  END COMMENT. 
KENNY