Water Treatment in Thailand
The water treatment industry in Thailand is divided into: the waste water and the ground water.
1. The waste water treatment and recycling require high technology in engineering design and building, and in-house knowledge in hardware and software application. Each client has different requirements and need individual customized solution. Cheaper water price for industry (Baht 25/m3) discourages factories to invest in waste water treatment and water recycling. Immediate cheap water price in Thailand justify wastefully uses of water, rather than investing in water treatment and recycling which will pay off in four-five years. Water price in Thailand and scarcity are rising, as water in the main industrial zone in Eastern Thailand mainly coming from rain water collected in reservoirs, exposing supply risk from frequent droughts. GE Water, Veolia and Onoda are conclusive that at Baht 25/m3, the financial benefits cannot justify water treatment and recycling. But people will flock into the services once the water prices approaching Baht 55-60/m3.
2. The ground water treatment. This involves producing tab water from cannels, rivers and reservoirs. Major clients are state enterprises that monopoly supply of tab water in Bangkok and upcountry, and local government on remote islands that need desalination of sea water to supply tab water. Industrial estates selling water to factories, and hotel resorts are the customers in this segment as well. Thailand is the world's largest of rubber gloves. The industry is now the highest user of water. High growth in rubber gloves production is pushing up demand for water and its prices.
IWM: The company only focuses on the high-tech and high-margin waste water treatment and recycling. Its business model is to build the water treatment units, installing them in the clients' factories and selling back the treated water to earn the income. These are great deals for factories as they do not have capital investment in the hardware, and buying recycled water at cheaper price than the fresh water. Waste water treatment and water recycling is new in Thailand, and while water is cheap, not many factories are prepared to invest on the matter to preserve environment and to conserve water resources.
The build-own-and-operate model (BOO) of IWM is capital intensive, and limiting growth potential. However, as water prices and supply scarcity are rising. Moreover, environmental concerns to conserve water and using it wisely is the trend that factories are following. Hence, IWM business could be growing 10x in the next 5 years, if it had sufficient capital to invest in the units, and having strong partner to give confidence to the cash-rich clients to invest in their own units under the model build-sell-and-operate. Presently, waste water treatment and water recycling are in the infant stage in Thailand with very few players; hence its future is promising.
Big Water (BW): BW is in the low-tech and labor-intensive water engineering. Its main business is the Engineering Procurement and Construction (EPC) for monopoly state enterprise waterworks authority, Bangkok and upcountry. These state enterprises have budget to expand capacity of water supply every year to keep up with demand growth, and opening the bids for building new tab water plants. BW is one among the bigger players, outbidding the others because of its long-standing track records, in-house technical know-how, work quality, and availability of fund to sustain a year-long-cycle of bidding process. But the CW JV with a strong international player and simultaneous acquisition of BW.
The Benefits come in three folds. First, the new capital will de-bottle neck funding constraint enabling CW to expand the contracts to sell the services under the business model build-own-operate and selling recycling water, as well as build-sell-operating for fee. Second, the know how build-sell-operating for fee will be applied to the EPC clients of BW, reducing operating burden and costs of the state enterprises in running the new tab water plants, and creating long-term recurring fee income to BW. The income stream of BW will be balanced between the thin-margin contract-based EPC and attractive-margin and low competition long-term recurring income. Lastly, CW will achieve cost synergy by optimizing the use of the engineering resources of BW for high-margin business expansion of CW, and high-margin business diversification of BW.