|Reprinted, with permission, from:
PWFs Fourth Annual Outsourcing SurveyU.S. Water/Wastewater Outsourcing Revenues
Jump 63% to $1.6 Billion in 1999
By William G. Reinhardt, Editor/Publisher
For the full story and insightful related articles please call William Reinhardt at 908-654-0397 or email PWF at PWFinance@aol.com
|PWFs fourth annual survey of the U.S. water/wastewater
privatization market shows slower growth than anticipated in the core municipal contract
operations business but a banner year in 1999 for revenue growth overall due to big gains
in design-build and industrial markets.
The data supporting these conclusions are derived from responses to a detailed survey in January of the 16 largest outsourcing firms who reported revenues, profits and new contract data for calendar 1999.
Including inflation, the O&M revenues reported for publicly owned projects grew by 14% last year, to $928 million. The design flow of the facilities operated by the 16 firms grew by 12%. The dollar growth is well below the 25% annual revenue gain these same large operators had predicted for their core business at the start of 1999.
Some of the falloff in the rate of growth last year resulted from the cancellation of procurements for long-term contracts in Birmingham, Ala., Camden and Essex-Union Counties in N.J., Chattanooga, Tenn., and Danville, Va. That lost business$65 million in annualized income and over $1.1 billion in backlog revenue valuerepresented nearly half of the municipal O&M market opportunities in 1999 (see chart 5).
Despite the slower than expected development of the big-city market, revenues overall shot up 63% to $1.6 billion last year. Record numbers were reported by the surveyed companies from delegated management of the capital, operation, maintenance and customer service functions of 1,500 municipal clients and nearly 400 industrial customers (see chart 4).
Moreover, the industry leaders surveyed predict a further 32% gain in revenue during 2000 to $2.1 billion. Farther out, they expect to share close to $4.5 billion in outsourcing revenue from all market segments by the end of 2004 (see chart 1).
In terms of market share, the municipal O&M portion of the 1999 total, $930 million, represents less than 4% of the annual spending by public water/waste-water utilities on operations. Likewise, the $320 million in industrial O&M revenues reported to PWF by nine companies in 1999 is 2.5% of the amount spent each year on industrial water operations.
BTI Consulting Group surveys show annual spending by U.S. industrial companies for water operations to be about $13 billion. BTJ estimates public water and sanitation utilities spend roughly $35 billion a year. OMI figures that $24.5 billion of the government spending on O&M is available for outsourcing to private companies. Under long-term contracts, OMI estimates the government market has a backlog revenue potential of about $480 billion.
Most of the big year-to-year revenue gain in 1999 resulted from a doubling of designbuild contract bookings, to nearly $200 million, and a tenfold increase, to over $470 million, in revenues reported by nine firms for industrial water/wastewater capital projects ($150 million) and treatment plant operations ($320 million). (PWF counts Energy Dept. contracts for weapons-site utility operations as industrial projects.)
The lions share of the 1999 revenue increment was taken by three top-tier playersVivendis U.S. Filter Operating Services, CH2M Hills Operations Management International (OMI) and Lyonnaises United Water Services.
Equipment-vendor U.S. Filter dominated the industrial market in 1999 (see chart 3). It also continued its strong push in the design-build-operate capital management business, claiming $140 million in contract revenue from both municipal and industrial clients last year.
United Water capitalized on its dominance of the emerging big-city O&M business in 1998, adding almost $50 million in new revenue in 1999 from water system contracts in Atlanta and San Antonio and its metering work for New York City and others.
Newly aggressive OMI posted a 20% year-to-year gain in O&M revenue from municipal projects and added over $60 million from industrial service contracts, mainly for defense-related contract operation and design-build work.
OMI, the contract operations arm of employee-owned consulting engineer CH2M Hill, also pulled out all the stops last year in its battle for market share with its much larger, French-owned competitors. "They may eventually win," says Ralph R. Peterson, President and CEO of CH2M Hill Cos. Ltd. "But theyd better pack a big lunch because its going to be a long fight."
In terms of backlog growth, OMI claims it won almost $400 million, or 60%, of the new municipal O&M business that was competitively bid in 1999 (see chart 5). However, OMIs market share figure includes at least $210 million in backlog revenue from a long-term wastewater O&M contract it was still negotiating at year end with a utility authority in Bergen County, N.J.
The ability to mobilize capital has not had much impact on the water privatization market. Small investments of private risk capital are being made in contract-operated municipal plants because new IRS rules allow for longer amortization periods. These strategic investments in staff training, automation, process improvements and improved management controls are driving private profits now. This alignment of public and private interests in continuous efficiency gains ensures the industrys growth.