18 April 2017

Africa: Movement Toward Centralization and Larger Treatment Plants Catalyzes Outsourcing in Municipal Water and Wastewater

press release

Santa Clara, California — Pricing will be key consideration for municipalities when choosing external vendors, finds Frost & Sullivan's Environment & Water Team

Intensifying environmental regulations, need for infrastructure investment and lack of capital are steering the North American municipal water and wastewater market toward outsourcing. Larger outsourcing partners stand to reap significant benefits from handling challenging projects that address multiple needs. Emerging players will do better in targeting select areas and providing superior quality services.

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North American Municipal Water and Wastewater Outsourcing Market, Forecast to 2021, new analysis from Frost & Sullivan's Environment & Water Growth Partnership Service program, finds that increasing private sector penetration in Canada and the United States will support a compound annual growth rate of 2.3 percent from 2015 and 2022 to push revenues to $6.08 billion.

"The municipal water market is becoming increasingly sophisticated in its approach to business models and partners. The broader regional trend toward centralization and larger treatment plants stresses the need for investment and private organization involvement in managing complex process expansion," said Frost & Sullivan Energy & Environment Industry Analyst Seth Cutler.

The absence of qualified in-house personnel and difficulty in obtaining finance at low interest levels make outsourcing a smarter alternative. However, pricing is a major consideration for many municipalities. Other potential barriers to outsourcing include:

Misperception that municipal outsourcing is bad for the local economy; a misunderstanding aggravated by past experiences, misinformation and negatively equating it to privatization

Easing of cost pressures on municipalities due to a decline in gas prices that may encourage in-house services

Low profit margins for private companies

Outsourcing is not a one size fits all solution, as some municipalities already have the internal resources to deal with planned investment or the ability to access tax-free bonds without presenting an issue to their balance sheet

Organized labor such as union involvement that acts as a hurdle for partnerships with the private sector

Bureaucracy and extensive legislative requirements for private companies to work with municipalities; approvals can take time to obtain, which not only has the effect of reducing the likelihood that the outsourcing will take place, but also increases the time in setting up a successful partnership

"Offering a competitive price is a key factor for many outsourced contractors in this market. Contracting abilities, access to technology, finance, experience in the sectors and support capabilities are other competitive factors players use to differentiate their offerings," noted Cutler. "Players in the water sectors include American Water, Severn Trent Services, SUEZ, and Veolia. The construction sector is made up of participants such as CH2M Hill and EPCOR. Other active companies like AECOM, GE, Alliance Water, and Woodard & Curran are either technology specialists or have a regional focus.

About Frost & Sullivan Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break today's market participants. For more than 50 years, we have been developing growth strategies for the global 1000, emerging businesses, the public sector and the investment community.

North American Municipal Water and Wastewater Outsourcing Market, Forecast to 2021 K0F3-15

Contact: Jaylon Brinkley Corporate Communications - North America P: 210.247.2481 E: jaylon.brinkley@frost.com

www.frost.com

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