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Outsourcing of Asset Management in European Water and Wastewater Utilities Markets
Frost & Sullivan, Dec 2003
Urge to Transfer Operational Risks Drives Demand for Outsourced Solutions
Municipalities across Europe are increasingly opting for outsourced solutions in managing their water and wastewater utilities. This switch is mainly because of the significant advantages in terms of security, financing and expertise offered by outsourced solutions. In emerging markets such as Italy, Benelux and Norway, the private sector has recently gained some ground through large build-operate-transfer (BOT) and concession deals. Additionally, new countries joining the outsourcing bandwagon are likely to create a snowballing effect in regions that were sceptical about such solutions in the past. However, heavy investments, long payback periods, poor asset inventories and long negotiation periods continue to challenge outsourcing service providers. The market for big concession contracts is likely to saturate in the long term as customers increasingly prefer shorter term BOT and low-risk operations and maintenance (O&M) contracts.
This research examines the specific opportunities for outsourcing in the European water and wastewater utilities market and analyses the strategic factors influencing their growth in the following regions: United Kingdom, France, Germany, Southern Europe (Italy, Spain, Portugal and Greece), Eastern Europe (Poland, Hungary, Czech Republic, Slovakia, Slovenia, Croatia, Bulgaria, Romania, Ukraine and the Baltic countries) and Rest of Europe (Scandinavia, Benelux and Alpine countries). The market is segmented based on service types (distribution and collection networks, water treatment and wastewater treatment) and contract types (management, leasing, BOT and concession). The research also provides individual market assessments, cross-regional comparison and overview of competitive factors and strategies.
Preference for Complete Outsourced Services on the Rise
The demand for operational support has slowly begun to surface even in well-established water utilities markets such as Northern Europe where the public sector has historically been very protective of its internal capabilities. The willingness to utilise outside expertise and advanced technologies is on the rise with public authorities across Europe showing little or no interest in the day-to-day asset operations, says the analyst. This along with the fast disappearing scepticism regarding outsourcing even in highly conventional and nationalist public sector markets such as Germany is increasing the demand for such solutions. However, the preferences vary in different regions.
In the mature western region, public utilities seek improvements in quality and cost performance while in the eastern region, the emphasis is on financial and technical support to meet the legislative requirements of the European Union. These requirements are favouring international and consolidated companies that offer complete outsourced services - from planning to designing, building, operation and maintenance - involved in asset management.
Adoption of Global Strategies Essential for Participants
The know-how of the localised resources continues to be a significant competitive factor. However, regional specialisation is likely to provide only niche growth opportunities such as greenfield sites and technical support functions. This coupled with the saturation of large contracts has created a requirement for adoption of macro-level policies among participants.
The adoption of global strategies by participants have assumed greater significance, especially with the large-scale expansion plans of national utilities, transfer of skills across borders and the subsequent increase in market competitiveness, says the analyst. These mass developments are giving rise to consortiums, strategic partnerships, specialist services and vertical integration to extend resources, spread risks and avoid pricing pressure.
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