December 2002
Volume 44 Number 12
 

World Spotlight: Water Scarcity & Population Boom Offset High Prices in Asian Desalination Market
by Matthew Barker   Pages: 

Already the linchpin behind water production in many regions of the Middle East and the United States, desalination is increasingly being touted as a panacea for the world water crisis in the 21st century.

Across Asia, pressure on water resources, constituted by over-extraction, mismanagement and unnecessary pollution -- as well as droughts -- is exacerbated by the continent’s limited freshwater resources. From unparalleled droughts in Northern China to arsenic pollution in Bangladesh’s groundwater, the need for a safe and sustainable water supply becomes ever more apparent.

Facing the issues
With the water shortage creating vast opportunities for generating desalination plant revenues in Asia, it’s of crucial importance for companies active in this market to address contemporary issues in a dynamic and innovative fashion to attain strategic, sustainable competitive advantage and achieve superior profitability.

Growth will further be galvanized by escalating demand -- due to explosive rates of population growth across Asia -- that accentuates the significance of safe freshwater resources for drinking, cooking, bathing and washing. A new study gives credence to the buoyancy of the Asian desalination plant market, which projected sales of seawater and brackish water desalination plants -- currently valued at $508.7 million -- to grow at a compound annual growth rate (CAGR) of 11 percent between last year and 2005.

Fresh is best
Rising demand for freshwater resources for both industrial and municipal use will help push sales in the Asian desalination market value to just under $1.03 billion in 2010. The study observes annual fluctuations in total market value throughout the forecast period -- a direct result of the impact monolithic projects occasionally have on the overall industry.

The municipal market is gathering momentum as prices fall, the technology becomes more user-friendly, and end-user confidence and understanding of desalination rise. One analyst pointed to price constraints as the most significant challenge confronting participants in the Asian desalination plant market.

“Although the potential for developing desalination may be high in some regions, the extent and extreme level of poverty in some countries is expected to delay market take-off. Most of the Indian subcontinent falls under this classification. This region boasts enormous potential demand for fresh water delivered through desalination plants; however, a lack of project funding remains a key stumbling block,” he comments.

“The market has seen some degree of funding from foreign bodies to provide small plants in the most dismally poverty-stricken regions; however, desalination is perceived as an expansive extravagance in comparison with alternative options to solve water shortages. Brackish water desalination equipment generally costs up to 50 percent less than its seawater counterpart. Compared to other potable water recovery techniques -- such as water recycling and reuse -- this is an expensive option.”

Getting the BOOT
The private sector’s technical ability to produce large volumes of potable water through desalination at a competitive price, coupled with its operational and management expertise, has enticed governments around Asia to turn to the private sector to fund and implement desalination projects. Private participation generally includes management and service concessions, asset sale, privati-zation agreements and plants assembled on a “build own, operate and transfer” (BOOT) contract basis.

Depending on its success, such a contract in Singapore -- scheduled to commence in 2005 -- represents the first large-scale desalination plant to be built in Asia and is set to become the benchmark for future projects. Ondeo, SembCorp Utilities, Tuas Power and Keppel FELS Energy submitted bids for the project -- set to produce up to 30 million gallons of water a day -- in early June.

Interaction is key
The scale of this type of project heightens the importance of relationships between equipment suppliers, foreign and local investors, commercial lenders, government authorities, contractors, insurance companies and public water utilities. Those players that exhibit a solid grounding in the BOOT process will gain a stronger foothold in the Asian market.

As the largest, most influential and most sophisticated regional market -- albeit on an equal par in terms of market size with Northeast Asia and the Indian Subcontinent -- Japan has spearheaded growth in the Asian market for desalination plants for the last four decades. Now other markets in the region are expected to become increasingly prominent and offer great opportunities to companies active in the desalination sector.

Conclusion
Around 100 to 120 companies -- ranging from huge multinational turnkey plant suppliers to specialist small scale equipment manufacturers -- are battling it out on the Asian desalination stage. The current elevated levels of market concentration are predicted to decline over the forecast period, as more companies provide aforementioned products for this sector.

About the author
Matthew Barker is an industry analyst for San Jose, Calif.-based Frost & Sullivan’s Environment Group. He works out of the company’s United Kingdom affiliate office. Frost & Sullivan released a report on desalination in China in May. Barker can be reached at +44 20 7343-8376, +44 20 7343 8380 (fax) or website: www.frost.com