Water for sale

Founded by Bjorn Lyng, the group holds a patent for a device best-known to the business traveler – the hotel safe with a touch pad locking mechanism – has made custom drill bits for the off shore industry, and developed its own seawater reverse osmosis (RO) desalination system.

Although Aqualyng is Norwegian registered and essentially owned by Norwegian shareholders, Dubai is the effective commercial headquarters of the company ,as it pushes its way into the desalination industry.

It has been selling complete plants on a turnkey basis and its competitive advantage comes from a piece of proprietary technology, invented by Bjorn Lyng; an energy recovery device known as a recuperator.

The recuperator has allowed Aqualyng to provide a lower overall kWh cost per cubic metre of water over the life of an RO plant.

“Aqualyng AS was founded in 2002,” said Jankel. “Since then it has sold 10-12 RO plants with a capacity of between 1 000 m3 per day up to 9 000 m3 per day. We’re finishing projects in Oman for Occidental and Shadid Steel, and one in Jeddah for a royal palace, as well as projects in Morocco and Egypt.”

The company is now turning the economic power of its energy recovery device toward a build-own-operate business model. This sees Aqualyng develop desalination plants for its customers on the basis of a contract to sell that customer water in the future.

The technology was first developed for a resort-based desalination project on the Canary Islands in the mid 1990s. By 2002 the Lyng group decided it wanted to sell bigger plant on a global basis. The change in the business model came after the addition of a new shareholder. Bernt Osthus was a Trondheim-based lawyer retained by the Lyng Group, and his proposition was to sell the water, rather than the equipment to make it.

“Osthus bought 10% of Aqualyng and then started to develop this strategy with Bjorn’s son Ragnar,” said Jankel. “Aqualyng Holdings was formed to do BOO projects on long-term contracts, selling water and using the technology of the recuperator as part of the competitive advantage.”

“It’s an economic model that is well proven in this region. For the project’s structure and finance, we generally like to get an 80:20 debt-to-equity ratio. Basically, it is the strength of the off-take contract and the credit worthiness of the off-taker that secures the debt.”

TECHNOLOGY

The technical advantage Aqualyng claims is distilled down to the recuperator, an energy recovery device integrated into the RO plant.

“In seawater RO, it really is very much open technology, with very little proprietary technology,” said Jankel. “On these BOO projects, the key thing for the owner and developer is the so-called life cycle costs – the blending of the capital costs of the project with the operating costs – so we want to optimise these as best we can.

“There are lots of trade offs between the capital and operating costs in seawater desalination. For instance you can select a high-pressure pump that will last three years based on construction, but seawater is highly corrosive, so the selection of a seven-year pump, or a three-year pump, affects how much it costs you to replace the pump over the life cycle.

“There’s a lot of engineering know how around the life cycle cost factor: energy is normally the highest single cost. Our energy recovery device gives us an advantage over our competitors, who don’t have access to our technology. There are competing energy recovery devices in the market, but we feel ours outperforms those. We are the only BOO seawater RO company that has our own proprietary technology.”

The measure of this energy efficiency is in kWh per m3 of water. Even a small energy saving over the 25-30 year life of a project can make a big difference in the competitive pricing of a BOO projects. It is this difference that Aqualyng thinks its technology can make.

“We’re in the midst of trying to document what savings our device can offer,” said Jankel. “We’ve had measurements of our device as low as 1.8 kWh/m3, but can’t guarantee that. Other manufacturers of energy recovery devices in RO will guarantee 2.4 kWh/m3, although they’ll operate better than that. If we could be 10% under that, we would be very happy. It would make a big difference in the cost of the life of the project.”

The technology in question isn’t for sale on the open market and is currently only in use in the company’s own installations. Jankel says the issue of licensing or selling the recuperator is under consideration, as shareholders explore ways to get the most value out of Aqualyng’s intellectual property. In the meantime the company is continuing to document the operational evidence supporting its technology’s claim to improved efficiency.

“We’ve used the technology for ten years or more and have a lot of operational experience with it,” said Jankel. “But someone once said that as these things are developed, they go from gadget to product: we are somewhere in between that right now.

“It was always an in-house device, with each version made slightly different from the one before. These things have to be standardised. We have no good cost data on how much it costs to make and install the units. If we’re going to make 20-50 of them, we want to know costs. These are the commercial considerations the company is currently looking at.”

The units are manufactured by a selection of sub suppliers, but the engineering know-how, particularly the aspect of working with exotic metals – titanium, super duplex stainless steel – comes from Norwegian engineers and component suppliers.

The 16 staff based in Dubai include a large proportion of engineers and a local project engineering team, which supervises the construction of plants.

PROJECT FINANCE

The change in the financial climate has inevitably brought change to industry, but Jankel is optimistic about Aqualyng being able to find finance.

“We have a project in Ghana and we’re working with a South African bank,” said Jankel. “Because they are in South Africa they are not quite so deeply affected by the global crisis and our project is relatively small, US $45 million. So in some of the markets where we operate, we’re finding that commercial banks are somewhat insulated from the bigger crisis.”

The company is also working on projects in China, trying to put together similar deals.

“We haven’t hit a wall on any projects so far, but the future is uncertain,” said Jankel. “One can only believe that the forces of the pendulum will bring things back, but how long this will take is clearly open to question. For our business model, they are frankly questions of concern. Without structured project finance and without the availability of the active debt market it’s a problem.”

However, Jankel has several reasons to be optimistic. Water projects are long-term and take several years to move from decision to actual reality. Furthermore a lot of the demand that Aqualyng is seeing is driven by the industrial sector, not the municipal sector. In water-scarce parts of China, there are long-term prospects in the creation of major industrial zones.

“Will the second phase be postponed, probably,” said Jankel. “But again, we’re not seeing people cancel projects that were already into development.”

The company is in the process of completing two projects in Oman, one in Saudi and sees Oman as a useful market for its offering.

“Oman has a good history of transparency and success in IWPPs,” said Jankel. “The project size is good for us and we have a strong local partner in WJ Towel. There are a number of projects in the queue and they are comfortable with the technology.”

Jankel says the company will definitely be out looking for more capital and equity to help fund further development.

“We had planned to come out in 2009, looking for a substantial amount of money,” he said. “But this will probably be delayed until the market is better. We need the investment to grow and support future projects.”  

Water made faster

Aqualyng has introduced a line of containerised desalination units, known as Fast Water, capable of producing 500 m3 or 1000 m3 of water per day, depending on the unit.

The units are compact, can be delivered quickly, monitored remotely and have flexible configuration options.

“They are being well received by the market,” said Jankel. “In a crisis people may want to buy time, but still need water for whatever they are doing on their site. If they don’t want a commitment of 10 000 m3 per day, they can buy 1500-2 000 m3 of capacity in containers.”