By Yoel Tzafrir
In recent years, Mekorot National Water Company has become a global player in the international water industry by leveraging its relative advantages accumulated in the Israeli water economy. Mekorot has been restructuring as part of this process and to support it. Mekorot Vice President Engineering and Technology Rafi Ifergan has mapped out the company’s strategy and marked the principle areas of activity overseas – drilling for water, desalination, sewage treatment, and water technology ventures.
In the corridors leading to the conference rooms at Mekorot National Water Company hang the portraits of some of Israel’s economic leaders, including the late Prime Minster Levi Eshkol and late Minister of Finance Pinchas Sapir. Few people know that both men served as managers of the company, which is marking its 70th anniversary. However, it is doubtful if even Eshkol and Sapir, both visionaries, would have imagined that the company they founded for the purpose of laying water pipelines in the emerging Zionist enterprise would one day become an international, high-tech and knowledge-intensive corporation, with a significant environmental orientation – a kind of water production and supply powerhouse.
Around the world, Mekorot is considered a unique company, mainly thanks to combined handling of a range of water sources and their integration into a national water system, something that rarely exists in other countries. The fact that Mekorot also supplies water for many uses across a broad geographical region gives the company a global-scale managerial edge. Nonetheless, Mekorot has not begun to even scratch its international potential.
The global water market, which is growing steadily driven by the severe shortage of drinking water caused by demographic growth, industrial development and global warming, is thirsting for Israeli water solutions and water technologies, which are perceived as having an edge in the industry. In this sense, Mekorot is the face of Israel’s relative advantage in the global water industry and the company is determined to leverage its domestic advantages into global ones.
Talking business
The domestic activities of Mekorot are very extensive. The company is responsible for supplying water for agriculture, industrial and most domestic consumption. In addition to the pumping and supply of fresh water from existing sources, the company has built and maintains seawater and brackish water desalination facilities, and operates municipal sewage treatment and wastewater reclamation facilities. All these activities are combined into an integrative approach for the handling of water, conserving fresh water sources, and preventing the pollution of the few current water sources as part of a broad environmental perspective and the security of water sources and the preservation of natural water sources.
Although Mekorot is a government company, it operates and speaks in the language of business, without neglecting the national goals that are its raison d’etre, such as settlement and regional development. In order to achieve its international expansion, the company is undergoing a complete restructuring and streamlining designed to serve and support its global aspirations. The company will be split into several subsidiaries that will operate under the umbrella of Mekorot Water Ltd., which will continue to be a wholly-owned government company. Mekorot’s executives consider this to be more than a routine corporate restructuring; but a strategic turning point that will both carry the company towards rapid expansion in its global business and streamline operations in Israel.
Mekorot Vice President Engineering and Technology Rafi Ifergan says that Mekorot aims to become a significant player in the developing global water industry. With a turnover of NIS 2.5 billion a year, more than NIS 3 billion in shareholders’ equity, and 3,000 facilities throughout the country, the company has the self-confidence to play in the major leagues.
What are the primary fields in which Mekorot can leverage its Israeli activities into international businesses?
“First of all, it is necessary to map the global water market needs. We’re living in an era of climate uncertainty, with global warming, which has become an issue of global awareness, worsening the problem of water scarcity. Water distress is no longer the preserve of arid regions in the developing world, but also existing in the developed countries of the West. Shortages of water for drinking and irrigation are becoming acute problem worldwide and have strategic importance. The answers to this water distress lie in the immense potential economic obligations of companies and utilities that can provide technological solutions in the sector.
“The world is thirsty for innovative and creative solutions in everything related to the production, efficient management, protection, supply and preservation of water quality. In all of these fields, Mekorot has something to offer, thanks to its accumulated experience in its domestic activity. For 70 years, we’ve been coping daily with scarce water sources, which are steadily shrinking due to Israel’s demographic growth, rising standard of living, and high level of development.
“Second, specifically, I believe that we have an advantage in everything related to sewage treatment and wastewater enhancement, desalination, environmentally friendly water treatment, security of water sources and water quality, and these will be the areas that we’ll focus on overseas.”
You talk about turning Mekorot into a player in the international market, but isn’t the company small in global terms?
“I think that the power of Mekorot in the global market does not derive from the scale of its activity, which is impressive in itself, but from its operational and technological uniqueness. By the way, this is true for Israel’s water industry as a whole, which is successfully challenging the global market. This is primarily because of Israel’s range of climatic regions and the need to deal with constant water distress. This unique experience, which is almost without equal, enables the industry to go international.”
You are now restructuring. Can you go into details?
“The restructuring is being applied as part of a government decision on the matter. The intention is to establish a number of subsidiaries, under the roof of Mekorot as the parent company, which will become a holding company. I wish to discuss at length about two of the key subsidiaries. The first is Mekorot Enterprises and Development Ltd., which will operate in competitive sectors in the water and sewage sectors as a contractor or developer of projects in Israel and other countries by leveraging its capabilities and know-how accumulated in Israel. The second company, Mekorot EMS Ltd., will consolidate all the company’s implementation units, and will mainly serve the parent company. Mekorot Implementation will operate in all of Mekorot’s core businesses, both in terms of operations and in terms of operating the smart command and control systems. This company will emphasize water wells, which Mekorot leads in Israel.”
But wouldn’t it be worthwhile to privatize rather than restructure?
“First of all, Mekorot is a natural monopoly in the area of the national water supply. However, it should be stressed that Israel has already partly privatized its water economy. After all, Mekorot supply water only to the level of the local authorities, which are responsible for supplying it to consumers. This belies the common holistic approach in the world in which the water utilities are broadly responsible for the entire process from water production to the recycling of sewage.”
Water quality security
Mekorot’s headlines story in 2007 was the inauguration in June of the Central Filtration Plant at the Eshkol Site at an investment of NIS 550 million. This plant is, without question, the flagship of the company’s water security activity. Company executives say that the facility marks a new era in drinking water quality in Israel. The project relies on research and experiments conducted worldwide on the most efficient methods of filtration of surface water while complying with the water quality standards mandated by national water authorities.
Ifergan says, “The Central Filtration Plant expresses Mekorot’s multitasking capabilities. It is the only plant of its kind in Israel and the fourth largest in the world, combining technologies, engineering methods and the most advanced operational processes. For example, most of the control system operates automatically, ensuring reliable, fast and safe filtration and treatment at the lowest possible cost. Water from the Kinneret comes in, is improved, and at the end of the process, the filtered water is delivered to the pumping station and from there to customers.”
Does this mean that it’s possible to stop drinking mineral water from plastic bottles and switch to drinking water directly from the tap?
“Your question reflects the common belief in Israel that, regrettably, the water quality is poor. I wish to emphasize that this is a totally mistaken attitude. The quality of the water that emerges from the household taps in Israel is among the best in the world, especially since the Central Filtration Plant came online. More than once, I’ve been amused to see Israelis pay more for exactly the same water. After all, the water provided by the mineral water companies comes from our springs.”
We’ve learned something. As long as we’re talking about the domestic market, what are your goals for Israel’s water market?
“At the domestic level, we intend to prioritize sewage treatment and wastewater recovery. Although Israel is considered a leader in this field, large quantities of water are still not recovered. We intend to continue to be the leading player in this field, either as sewage treatment contractors or as the owners of sewage treatment facilities. We already treat about 40% of Israel’s wastewater and provide more than half of the treated water used for agriculture, but want to apply in full the technological advantages involved in treatment sector and improve the quality of the treated water in order to full exploit all treated wastewater in Israel up to the tertiary treatment level. This has a two-fold importance: it both saves water and prevents pollution of the soil and the environment, all of which goes beyond the improvement in the water balance by directing larger quantities of fresh water to household consumption.”|
What else? What is your paramount challenge?
“Beyond this, as the number 1 water supplier, providing 90% of Israel’s drinking water, we’re committed to supplying the public with the best quality water that complies with the strictest standards of the authorities, while minimizing pollution. In general, Mekorot instigates the adoption of the world’s strict water standards. More than once, we prodded the government to adopt advanced standards and we’ve warned that the rate of adopting standards is too slow. Our biggest challenge is to continue to lead the water economy by developing technologies that will provide fair solutions to the water shortage problem while simultaneously protecting the environment and developing environmentally friendly methods for preserving water sources and their quality.
What is the role of Mekorot in desalination? To the best of my recollection, you were forbidden to participate in the Ashkelon Desalination Facility, isn’t that correct?
“As a strategic goal, Mekorot aims to be the leading player in desalination. As a point of interest, we were deeply involved in the subject of desalination even before the construction of the large-scale facilities. For example, we’ve been responsible for seawater desalination in Eilat for years; desalination provides the city’s entire water consumption. These facilities have been in operation since the 1980s, and especially since 1997. In fact, Mekorot was a pioneer in the application of reverse osmosis technology in Israel and currently operates 31 desalination facilities, mostly in the south. We also specialize in the desalination of brackish water. We actually have extensive know-how and experience in the sector. It’s true that because of government directives we were prevented from taking part in the construction of the Ashkelon Desalination Facility, but we’re partners in the Ashdod Desalination Facility with General Electric, a facility that will come on line in mid-2011 and supply 100 million cubic meters of water a year. We’re talking about an especially large facility, and we’ll be able to express our capabilities in the sector in it.”
Do you intend to leverage this know-how in your international activity?
“Yes, of course. We’re already involved in a number of projects around the world and we’re desalination advisers in Spain, Australia, Argentina and elsewhere. We have cooperation agreements with a number of leading utilities in these countries, and we intend to continue to leverage our desalination know-how internationally. The water shortage is a common problem to every country in the Middle East and technological innovation in desalination can turn Israel into a regional supplier of water, consolidating cross-border cooperation with our neighbors in the region and lower political tensions caused by water shortages.”
The Entrepreneurship Center – Leveraging Technology and Business Cooperation
As part of Mekorot’s experience in leveraging its accumulated know-how into business and commercial activity, while also bringing in outside knowledge which is integrated into the company’s business, Mekorot founded WaTech - Entrepreneurship & Partnership Center for Water Technologies, which functions as a headquarters unit at the company. WaTech, founded in 2004, is designed to help Mekorot located innovative solutions for its technological needs, with an emphasis on commercializing collaborations and the know-how accumulated over the years. Mekorot has applied the model of the university technology transfer companies. In effect, WaTech manages all of Mekorot’s collaborative technology and research ventures in Israel and internationally.
Through WaTech, companies, entrepreneurs, start-ups, research institutes and academe are invited to offer Mekorot innovative solutions relevant to the company’s activities, thereby opening the door to joint ventures between the government and business sectors in the field of water technologies. Companies benefit from the support, technological analysis and commercial platform for subsequent marketing of products. After all, Mekorot has the economies of scale and the reputation in the global market that small companies lack. These solutions undergo beta testing at Mekorot’s many facilities before full commercial installation. As part of the various collaborations, Mekorot, even before the beta pilots, is likely to participate in the R&D to help in the definitions and features of the products and technologies.
“Technology is the key to business success in the global water industry, which has become a knowledge-intensive and technological industry. That is why we set the goal of expanding cooperation in this area with the business sector,” says WaTech Director Yaniv Bertele. He says that the program resembles the format of a venture capital fund. On this basis, Mekorot receives future royalties, options, and so forth, and sits on the steering committees. He notes that the idea is to achieve joint development on the basis of emerging know-how, even in cases of new companies and immature technology, adding that Mekorot’s role in these cases is to assist the company, through business collaboration, to sell its products in the global market, including assistance in finding potential markets. Mekorot offers its accumulated experience in defining market needs and providing suitable solutions. In some cases, Mekorot can even make an acquisition commitment in the event that the technology is a definite innovation that meets the company’s needs.
Bertele says that although WaTech is not a separate legal entity, the advantage of its activity is that it operates more flexibly and quickly in line with the characteristics of the business environment in which Mekorot operates. “This is a professional platform that offers the business sector know-how, experience, equipment, facilities and a supportive environment that includes domestic and international marketing ability together with financial solutions. All these abilities constitute an exceptional platform for collaboration for the presentation of innovative water solutions,” he notes.
To date, Mekorot has received more than 250 proposals for joint ventures, of which 30 are already underway after passing the filtering process. 15 companies have already signed cooperation agreements. Mekorot also recently signed a cooperation agreement with Kinarot-Jordan Valley Technology Incubator. The two companies will jointly operate Israel’s first water technology incubator with the goal of developing innovative water technology solutions.
In which sectors are you seeking collaboration?
“WaTech is seeking technological solutions in the fields of water quality, environment, desalination, sewage treatment, wastewater reuse, water systems operation and maintenance, command and control systems, and drilling. We also emphasize the spotting of environmentally-friendly technologies, including for the removal of pollutants from water sources, environmentally-friendly disinfecting methods, and the discovery and identification of environmental nuisances.”