ON THE SPOT
Murray & Roberts builds a potentially profitable water treatment business to meet crisis
A turnaround at its underground mining business and reduced losses from the Middle East helped construction group Murray & Roberts double half-year headline earnings. While the company has set out to dominate work in segments of the resources sector like oil and gas, it’s also steadily building up a water-treatment business. Given SA’s drought crisis, that may be of growing importance in years ahead. Business Day asked CEO Henry Laas whether more companies will become water self-reliant.
I think so, especially medical facilities like hospitals where they cannot risk not having water.
What kind of options have you presented to private companies in Cape Town?
We have small, containerised water treatment plants with a much smaller capacity — and they will do in the order of anything from half a megalitre to two megalitres per day. We did an exercise for Life Healthcare – they have about 50 hospitals and they placed two orders with us for hospitals in Cape Town — and we are putting these facilities in place, and there’s another seven or eight that will be rolled out post the fulfilment of the first two units. Mediclinic also placed an order for two units.
These solutions are all based on borehole water: so we put a borehole down, treat the water to potable quality and supply it. But where we eventually want to end up with these hospitals is reusing all the discharge water to retreat it and store it in tanks to get them less dependent on municipal supply.
We’ve also got a technology called Organica — it’s a foodchain reactor, an alternative to sludge technology which is used in normal waste treatment plants and you could retrofit it to an existing waste-water treatment plant, city or town, or you can do it on a greenfields basis.
Would that be enough to make a strong business and pick up the slack from government, which is underspending on water?
Aquamarine (M&R’s water division) is running at capacity at this stage, but it’s so small it doesn’t really shift the needle as far as our results are concerned. I don’t think this business would ever be a large part of the group but I would love to see it getting to a point where maybe it contributes R50m earnings before tax annually. That’s what we realistically could expect.
But to achieve that we would need to get Organica plants to the market.
When you do a 10 megalitre plant, the capital cost is about R12m per megalitre and if you go up to 35 megalitres per day, the cost is about R7m per megalitre. So when you put a big plant in you could be looking at a billion rand — that is the type of work we would do and you could earn a reasonable profit though at a lower margin percentage.
What’s the interest like?
As it is now, we’re just presenting these solutions into the market.
I think if it weren’t for the crisis in Cape Town, it would have been difficult for us to get off-take for what’s happening now.
I don’t want to say that M&R is the only solution here. I know many other companies capable of providing desalination plants and other services and they’ve all presented unsolicited offers … so I think the solutions are out there. It’s purely a matter of getting through the decision-making processes and then moving ahead. I think they (the authorities) are scared of being criticised afterwards that procurement processes weren’t fair or competitive — that type of stuff. I guess they are documenting each step of the way but we could have a desalination plant ready sooner than it would take them to make a decision on what to do.
What happened with the desalination tenders in Cape Town?
We tendered on a number of them ... (but) we were not successful on any of these and the reason for that was all these facilities have a two-year life. On a two-year term it’s just impossible to put an economic proposal on the table.
Do we have a water crisis looming, countrywide?
If you ask me I’d say we have a huge problem — the obvious issue is from a bulk storage point of view, I don’t think we have sufficient infrastructure. The Lesotho highlands scheme has been delayed for too long and that’s going to present a problem to Gauteng, but that’s talking to additional infrastructure.
Existing infrastructure is in a terrible state of repair – in all areas, including cities, the waterworks are not operating to capacity, and the level of maintenance is just not what it should be.
Is this the Department of Water and Sanitation’s fault or simply a failure of larger government policy regarding infrastructure spend?
The most difficult thing for us is to work out who to talk to in the government and how to get our solutions heard by the relevant people.
You knock on a door that just does not open. And I think the scenario that we currently have in Cape Town and the in-fighting between the national and provincial governments is just an example of it.