India's new source of clean water: Desalination
In this series, Sramana Mitra shares chapters from her book Vision India 2020, that outlines 45 interesting ideas for start-up companies with the potential to become billion-dollar enterprises. These articles are written as business fiction, as if we’re in 2020, reflecting back on building these businesses over the previous decade. We hope to spark ideas for building successful start-ups of your own.
In 2008, I wrote in my Forbes column: “Alchemy refers to a medieval science that turns metals into gold. As our planet depletes natural resources at a frantic pace, one brand of alchemy that will become critical to humanity’s survival is technology that turns seawater into drinking water.”
The column profiled a small San Leandro, California, company, Energy Recovery Inc. (ERI) that was at the heart of our hydro-alchemy venture, Gangotri. Dominique had joined their board right before the IPO in July 2008. As a result, through numerous meals with H. P. Michelet, the Norwegian entrepreneur behind this fascinating venture, I got to learn an enormous amount about the water industry.
ERI had created a ceramic device called the PX pressure exchanger that helped water treatment plants around the world cut desalination costs. With the help of Energy Recovery’s PX device, desalination costs in 2008 had plummeted to $0.46 per cubic meter. To put that in context, ERI clients in Spain, Egypt, Africa, China, and Australia were producing over 5.2 million cubic meters of freshwater per day, saving an estimated 500 megawatts of energy, or $352 million per year in operating costs. ERI clearly had the technology to power very large-scale desalination efforts like an over 175,000-cubic- meters-per-day plant in Algeria and a 144,000-cubic-meters-per-day plant in Perth, Australia, which was delivering desalinated ocean water into the municipal water supply.
This is what needed to happen in India on a very large scale. Gangotri was envisioned to become the new source of clean water for India, a role the Ganga had ceased to play by 2010. Of course, clean water is needed in every aspect of life, from drinking and cooking, to irrigation and industrial use. So we had to carefully select what segments of the market we were going to first pursue, planning the rollout accordingly.
We studied each of these segments, assessing the pros and cons of each market. One thing that became clear was that many seaports were sitting on large chunks of un- monetized coastal real estate, where they were willing to host desalination plants. There were also significant manufacturing units around these ports, making the industrial market attractive as our market entry strategy. According to forecasts published in the World Water Development Report (WWDR, 2003), the volume of water consumed per year by industry would rise from 752 cubic kilometers per year in 1995 to an estimated 1,170 cubic kilometers per year by 2025. Most of this increase in industrial water use was forecasted to happen in fast-growing developing countries like India.
We did our first deal with the Haldia port in 2010, and in parallel, we also secured Haldia Petrochemicals as our first major marquee customer. HPC was close by and had ever-mounting clean water needs. Along with our initial location and customer came our first round of funding from the Asian Development Bank, who backed the first phase of the plant as a pilot, in a joint venture with Hyflux of Singapore.
While Hyflux was new to the Gangotri mix, they had been working closely on a number of projects with ERI and their CEO, G. G. Pique. The Souk Tleta SWRO desalination plant, located in northwestern Algeria, with a total capacity of 200,000 cubic meters per day, was slated to begin operation in the first half of 2010. It would provide desalinated water to the Algerian Energy Company (AEC), the state-owned national water utility of Algeria. In 2008, Hyflux also contracted ERI’s PX technology for one of the largest works in China, the 100,000 cubic meters per day Tianjin desalination project. During our pilot phase, it was fascinating to watch the speed and alacrity of Hyflux’s design project. They used a lot of the blueprints from the SingSpring project designed to meet 10% of the water needs of Singapore. We used this phase to train our Indian team under the highly experienced Singapore team that had worked on SingSpring. As pipes and turbines went up, as water turned and roiled, we watched firsthand the alchemy itself – 100,000 cubic meters per day, close to the 136,380 cubic meters per day of SingSpring, for a building cost of $150 million.
Both the ERI and Hyflux names helped us establish credibility with our investors during the due diligence phase, and after bringing HPC to the table as the anchor client and successfully completing the pilot phase, we were very well situated for sustained financing and growth through extensive public-private partnerships, as well as further banking tie-ups. The same consortium of five banks – DBS, KBC Bank, ING Bank, Standard Chartered Bank, and Norddeutsche Landesbank Girozentrale – who had financed the SingSpring project were brought to the table by Hyflux.
More financing poured in in 2012 after the Haldia plant was up and running and had started servicing much of the industrial belt in West Bengal. One of our biggest collaborators turned out to be the government of Orissa. Having spent most of its post- independence history as a backwater state, Orissa was determined to find a niche, and hydro-alchemy via seawater reverse osmosis provided them with the much-needed breakthrough. Billboards along National Highway 5 proclaimed in bold, “Orissa, the New Glacier State.”
By 2017, 30 Gangotri desalination plants ran along the coast of Orissa, built on land the state government provided at huge subsidy. Three million cubic meters per day of freshwater was created at a total cost of $4.5 billion. And with this Gangotri captured 78% market share in the industrial market in Orissa, Bihar, Madhya Pradesh, West Bengal, and Western Maharashtra.
By 2018, Gangotri was also feeding the utilities in many of the South Indian states through a complex grid designed to achieve maximum efficiency. The Indian government had acquired major financing from the World Bank for this smart water grid project, which IBM designed and helped implement. At the same time, we also accidentally solved a long-standing diplomatic problem. India had been planning to link the rivers flowing from the Himalayas and divert them south. However, this would cripple Bangladesh since more than 80% of its 20 million small farmers depended on these waters. But in 2018, instead of diverting large percentages of water from the Ganga and the Brahmaputra to the south, India was able to replenish the southern Indian rivers by funneling freshwater from the Orissa Gangotri plants.
Having saved Bangladesh from this calamity, we also earned the contracts for building almost 100% of the country’s 1.5 million cubic meters per day desalination infrastructure in the delta, pushing our 2019 backlog up to $2.25 billion. Yes, Gangotri is a multi-billion-dollar company in 2020, but we are much more than that. We are helping solve a planet-scale problem – an enormous responsibility, but an even more enormous pleasure.
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