Opportunities in Saudi Arabian Water & Wastewater Sector

1. Opportunities in Saudi ArabianWater & Wastewater Sector 5th Dec 2012 Presentation By Mr. Ibrahim Shirazi Advisor, CEO's Office & Executive Director Business Development Department.

2. Agenda

3. Introduction & Background Introduction & Background • The government of the Kingdom of Saudi Arabia embarked upon a programme to transform the water & wastewater sector in the Kingdom aimed at privatisation • The first step in this process was the establishment of National Water Company (NWC) as a commercial entity • NWC was established as a government-owned statutory company by a Royal Decree and registered as a joint stock company in early 2008 with a capitalisation of SR 22 billion • This new entity has started its operations with a corporate headquarters in Riyadh and Business Units in cities of Riyadh (RCBU), Jeddah (JCBU), Mecca and Taif (MTCBU) Achievements and Success Business Opportunities

4. NWC Vision & Strategic Objectives Introduction & Background “A world-class water utility company” Achievements and Success C A A B Shaper of KSA water sector “Increased market presence and corporate image, make a positive impact on environment and society, and engage efficiently withthe regulator and other stakeholders” Financial sustainability “Increase cash in-flow, optimize cost structure and cash management in order to reduce dependency on government subsidies” World-class operator “Provide customer-oriented water & waste-water services through operations excellence” Business Opportunities D Streamlined organization structure with strong performance culture “Ensure organizational excellence through highly competent employees, a clear governance structure and a performance driven team culture” E Distinctive capabilities that will provide a competitive edge “Develop relevant combinations of skills, tools and processes that will help NWC to become a world-class water utility company” Source :AT Kerney

5. NWC Current Status Vs. Future Goals Introduction & Background Achievements and Success Business Opportunities Source :AT Kerney

6. NWC Organisation Development Journey The Kingdom’s privatisation program has targeted the water sector by introducing key changes from 2005 to 2012, onwards Introduction & Background Key Milestones in the Privatisation of the Water and Wastewater Sector (2005-2012) Achievements and Success 2005 2010 2015 2008 2012 2007 Business Opportunities • PPP Model expected to evolve to complex and more collaborative arrangements with TSE & O&M joint venture. Moreover, NWC to cover the rest of the 15 cities in KSA for 65% population coverage • MOWE develops the Strategic Transformation Plan (STP) to introduce private sector participation in the water sector • NWC is created by Royal Decree M-1 (13/1/1429H) • NWC launches 1st PPP agreements for the water sector in Riyadh and Jeddah, partnering with Veolia France & Suez Group respectively • NWC launches the PPP agreement for Makkah / Taif partnering with Saur Group & Al Zamil. • Commencement formation & incubation of TSE & OM BU. • CoM Resolution 2/27 sets the guidelines for the privatization of the water and wastewater sector • NWC has spun off the TSE & OM BU into separate profit centers. • RFP Launched Business Case & transaction implementation in setting up of TSE/O&M – SPVsin Riyadh

7. NWC Achievements Launching Jeddah Waste-Water System Introduction & Background • Combined total treatment capacity for Jeddah WWTP to reach 1,000,000 m3/day • A total of 132,000 house connections and 2,500 kilo meters of networks, pipelines & mainlines Achievements and Success Business Opportunities

8. NWC Achievements & Prestigious Awards Introduction & Background Achievements and Success Business Opportunities

9. Business Opportunities – TSE Initiative Introduction & Background • Definition of “MOALAJ” or Treated Sewage Effluent (TSE) “MOALAJ” or Treated Sewage Effluent (TSE) can be utilised in multiple non-potable applications including irrigation. • Objective The objective of the “MOALAJ” TSE initiative is to effectively utilise the currently under utilized resources by creating an environment friendly and financially sustainable long term market for treated sewage effluent • At present in KSA, approximately 18 % of the treated sewage effluent is reused • NWC’s target is to maximize use of MOALAJ-TSE up to 100% Achievements and Success Business Opportunities

10. Description TSE Business Value Chain Introduction & Background Sewage collection TSE value chain TSE production • Sewage is collected by the wastewater network to enter the treatment process Achievements and Success Pumping • Treated Sewage Effluent (TSE) is the end product of the wastewater secondary or tertiary treatment process in a Wastewater Treatment Plant (WWTP) Transmission Business Opportunities • All or part of the produced TSE is pumped from the WWTP to pipelines specially designated to transfer the fluid Storage / pumping substations • Large transmission lines transport the fluid to storage facilities, tanks, lakes or reservoirs for further distribution into consumption areas Distribution • TSE is then collected in large volumes and high rates in storage facilities, tanks, lakes or reservoirs before being pumped out to the larger distribution network Metering • TSE is distributed from the collection points to the end users through a distribution network. The network can have sequential pumping stations (boosters) End user consumption • Flow meters act as a gateway to monitor the flow of TSE to the end user and measure individual consumption • End users consume TSE in a variety of industrial and commercial applications/ processes Source: NWCA.T. Kearney

11. Operating Model - tse MOALAJ -TSE BU/SPV will treat raw sewage and deliver treated sewage effluent from WWTPs to end users Introduction & Background Schematic Achievements and Success TSEBU/SPV Scope of activities TSE BU/SPV Water users Business Opportunities Waste-Water Treatment Plant (WWTP) Desalinated water TSE customers Dedicated TSE pipeline(s) Water Supplies Water distribution network Wells Waste-water network Asset used solely by TSE BU/SPV Asset owned by NWC/ MoWE Source: NWCA.T. Kearney

12. Case Study: Al Khomra RO Plant, Jeddah • NWC signs a bankable RBOT Contract with Saudi Group for a duration of up to 20 years, commencing end 2011 • Customer to Rehabilitate, Build, Operate, Maintain & Transfer (RBOT) an RO plant with an increase in capacities • The contract includes viable commercial terms including indexation and periodic price reviews • Investment by customer expected to be in excess of SR 70  Million, based on market requirement • NWC to supply TSE quantities in excess of 12 million m3/year to customer for subsequent resale to end users • Customer to hand back the RO plant in workable condition to NWC at end of agreement Introduction & Background Achievements and Success Business Opportunities

13. Growing demand for MOALAJ -TSE, drives sales and EBITDA growth in Riyadh, Jeddah, Madinah, Makkah and Greater Dammam Introduction & Background Achievements and Success • Revenues for the newly established SPV will be entirely driven by TSE tariffs • With sales growth and increasing EBITDA, TSE SPV has the opportunity to develop into a sizable and profitable business Business Opportunities SR Million Source: 2012-2016: NWC actual projections. 2018-2030 Fichtner projections

14. MOALAJ-TSE BU has already commenced acquiring TSE contracts and is in the process of negotiating new contracts Introduction & Background December 2012 TSE contracts – All of at least 20 years in duration Achievements and Success Business Opportunities TSE MOUs Source: NWC- TSE

15. Projected TSE Vs. Portable Water growth revenues over the next 20 years for 6 cities Introduction & Background Achievements and Success Business Opportunities Source: 2012-2016: NWC actual projections. 2018-2030 Fichtner projections

16. Business Opportunities - O&M initiative • The objective of the O&M initiative is to fill the void in the market for a technically competent entity, incorporating global best practices with financially sustainable operations, creating SPVs with national and international partners. • SPVs will provide excellent customer service to NWC customers, while in sourcing national staff. The aim is to establish the SPVs as a brand for O&M services in water and wastewater industry. • Potential partners could participate in addition to NWC, which would include international utilities, reputed local O&M operators, and other water/wastewater related entities/investors. • The scope of the SPVs will cover • Traditional O&M activities include Asset Management for existing plants and selected networks (case-by-case). Capital Programs (new build) will be under NWC responsibility • Customer-facing activities and support services are within O&M SPV responsibility however NWC will directly provide some of these services to SPV(e.g., IT, training, procurement, prequalification and logistics) • O&M SPVs will initially focus on “captive” outsourced contracts and in-sourced O&M activities within “captive cities” that are currently under NWC control (e.g., Riyadh, Jeddah, Makkah & Taif) and/or cities to be privatised in the future • In total 16 cities with traditional O&M estimated at ~ SAR1.4 billion in 2010 • O&M SPVs subsequently will competitively bid for 3rd party water O&M contracts in • Local water utilities, Directorates • MOALAJ-TSE companies that own water assets • Local industries with water network • Regional and international water utilities identified through international SPV partners • Expected contract durations may reach up to 20 years Introduction & Background Achievements and Success Business Opportunities

17. By 2015, four clusters will have been formed with a potential for combining the western regions into one cluster Proposed Introduction & Background O&M services contract clustering # of contracts/ annual value (SAR mil)/ Thousands of inhabitants 153 East 35 Achievements and Success 86 Northwest 21 9 2,639 15 8 1 62 20 1 32 22 1,745 1 13 Tabuk 1 4 22 Business Opportunities Jubail 3 Population served Value Contracts Value Population served Population served Contracts Dammam/ Al Khobar Buraida/ Onaizah Potential to combine into single cluster if West (north) SPV partner is the same partner as West (south) Al-Hofuf & Al-Mubarraz Madinah Riyadh Yanbu 672 4,583 Central 35 6 Southwest 5,905 493 Makkah Jeddah 627 627 4 4 Taif 202 26 Abha/ Khamis-Mushayat 1 1 1 11 74 13 Population served Contracts Value 121 Map legend 82 NWC captive city 2 14 2015 2013 2011 Captive in near future Population served Contracts Value 2010 2014 2012 Captive Subsequent Source: NWCA.T. Kearney

18. SPVs/JVs will give immediate access to state-of-the-art know-how and accelerate local & regional growth Introduction & Background Phase 2: Spin-off of O&M BUs into SPVs/JVs Achievements and Success • Benefits Draft Head of SPV /JV Head of SPV /JV • NWC benefits from SPV/ JV dividend distribution • JVs allow immediate access to state-of-the-art capabilities • JVs enable NWC to grow faster locally and regionally through JV partner network • NWC overcapacities are leveraged • Revenues from NWC providing support services to JVs Secretary Secretary Local / international SPV / JV Partners NWC SPV/JV Support Services Support Services employees Operations Manager Operations Manager O&M Perf. Manager O&M Performance Manager QHSE Manager QHSE Manager NWC SPV/JV Business Opportunities Network x Network x Central Region Eastern & Northern Region Network y Network y Equity Equity Western & Southern Regions NWC SPV/JV NWC JV NWC JV Source: NWCA.T. Kearney

19. The O&M initiative leads into opportunity its evolution from BU to JVs across all clusters Revenue evolution of the O&M initiative (SAR mil., 2012-2032) Introduction & Background • Revenue for the O&M Service entity is driven from several sources including: • Operations revenue from outsourced contracts • Operations revenue from insourced activities within prioritized cities (e.g. Riyadh, Jeddah) • Ancillary revenue from customer service and ancillary O&M services (e.g., meter replacements and new connections) Achievements and Success 4284 4166 Central 3956 East 3846 3740 Northwest 3638 3539 Southwest 3350 3258 Business Opportunities 3170 3085 3003 2332 2268 2831 2154 2755 2682 2094 2036 2553 1980 1926 1824 2280 1774 1726 1679 1635 1541 1500 1460 1390 393 382 1571 1241 363 353 343 334 325 231 225 307 299 213 291 207 283 202 276 196 191 260 253 181 901 246 176 171 234 166 162 153 209 149 606 145 138 123 1328 1291 1226 152 1192 1159 1127 1097 1038 1010 983 956 89 931 877 340 854 831 791 707 192 21 429 140 61 61 59 117 55 0 Notes: (1) Riyadh network contracts (2) Riyadh plants and hybrid contracts Source: NWC , Economist Intelligence Unit, MOWE, Global Water Intelligence, Datamonitor, NCB capital, Expert interviews, Market Research World, Frost & Sullivan, A.T. Kearney analysis 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Source: NWCA.T. Kearney

20. Business Privatisation Initiative ‘BPI’Services Cash Flow Model Introduction & Background Achievements and Success Equity participation “TSE” Special Purpose Vehicle ‘SPV’ International/ Local O&M Services & TSESPV Partner(s) NWC Equity & Financing NWC Polytechnic training JV “Usage of Assets” Revenue (1) SPV profit share Business Opportunities Shared Services fees Revenue: Staff provision Sale of raw Sewage SPV profit share Premium/Goodwill Revenue Revenue Tariff 3rd party TSE & O&M customers (KSA & MENA) Partners “Captive” contribution / business Customers / End Users (1) Assets include WWTPs and/ or WW networks/ facilities; leased for a concession period to the TSE/O&M - JV Source: NWCA.T. Kearney

21. Estimated Capex needs for Water and Wastewater Sector - SR 38 billion in the Cities of Riyadh, Jeddah, Makkah and Taif (2013 – 2017) Introduction & Background Achievements and Success Business Opportunities Million Disclaimer: This is an estimate and is subjected to revision as per NWC business needs Source: NWC Capital Projects

22. NWC major Ongoing Projects Introduction & Background • “Riyadh Water Supply ” is one of the biggest EPC project in the potable water supply industry,(200k m3/day) with a total cost of around 1.6 billion SR with an execution period of six months • “Saad underground water Project” (under tendering process) – construction of around 80 wells, which will provide Riyadh city with 300k m3/day and estimated cost of SAR 1.8 billion (the transmission pipeline is awarded) • Jeddah project including the construction of strategic reservoir with a total capacity of 1.5 million m3, additional to that project related to wastewater house connection to reach 25k house connections in 2012 and estimated 40k house connections for 2013 • The (Airport waste-water treatment plant, phase 2) with a capacity of 500k m3is still under tendering process as its considered one of the largest projects of wastewater treatment plants in the region • Makkah and Taif, one of the several projects includes the construction of a strategic reservoir with a capacity of 700k m3and others include upgrade of the existing wastewater treatment plants Achievements and Success Business Opportunities

23. NWC Upcoming Planned Projects Introduction & Background • Riyadh City Business Unit • Projects for the construction of water & waste-water mainlines and networks • Construction of a wastewater treatment plant in Benban, capacity of 300,000 m3 • Construction of a wastewater treatment plant in Manfoha (phase 4), capacity of 200,000 m3 • Jeddah City Business Unit • Projects for upgrade and rehabilitation of water & wastewater networks in the historical area of Jeddah • Projects for the construction of water & wastewater mainlines and networks • Makkah & Taif City Business Unit • Projects for upgrade of existing water & wastewater networks • Projects for the construction of water & wastewater mainlines and networks • Construction of wastewater treatment plants in Makkah and Taif (~80,000 m3) Achievements and Success Business Opportunities

24. Thank You