Talbot Water Risk & Strategy Diageo Energy & Water Management Plus Helen Hulett Renewable Energy Supply RFI Africa Building Sustainable Operations

Transcription

1 Talbot & Talbot & Talbot Talbot Water Risk & Strategy Diageo Energy & Water Management Plus Helen Hulett Renewable Energy Supply RFI Africa Building Sustainable Operations

2 Talbot & Talbot Who we are Established in 1989, Talbot & Talbot (Pty) Ltd offers expertise in the provision of sustainable water and wastewater solutions across Africa, while our collective experience provides our clients with the assurance of insight, innovation and quality. Talbot & Talbot s strong multidisciplinary team of professionals endeavors to provide solutions to water resource management needs and challenges, from understanding water-related risks and ensuring optimal supply to maximising performance efficiencies, reducing effluent discharge and ensuring environmental compliance. Our highly qualified team of scientists and engineers are employed across four interactive business units namely: Talbot Laboratories, a commercial, SANAS accredited laboratory Talbot Projects, a turnkey water and wastewater management solutions business unit Talbot Operations, an outsourced operation of water and wastewater treatment plants service provider Talbot Water Risk & Strategy, focusing on global water strategy development

3 Talbot & Talbot Our African Footprint Working with clients across the African continent, we have built up a world class brand that puts us at the forefront of the water, wastewater and environmental monitoring sector. Talbot & Talbot's experience in the design, construction, operation and monitoring of industrial water and wastewater treatment plants has enabled the delivery of over 300 projects across more than 20 countries. We currently have registered entities in: South Africa Mauritius Mozambique Uganda Tanzania Swaziland Our team has extensive experience in the sugar industry having worked for 23 producers across Africa and 4 in Latin America. The information provided in this presentation has been informed by this experience however, none of the information or data is company specific.

4 Water Risk & Strategy Building Sustainable Operations Objectives of ISO: (a) To ensure enhanced international cooperation in connection with world sugar matters and related issues; (b) To provide a forum for intergovernmental consultations on sugar and on ways to improve the world sugar economy; (c) To facilitate trade by collecting and providing information on the world sugar market and other sweeteners; Presentation Objective: Building Sustainable Operations The unpredictable water and energy environment in Africa and many other locations could significantly impact operational viability 1. Current water pressures impacting the sugar industry 2. How these pressures are typically dealt with 3. The business case for strategically managing water at the operation level (d) To encourage increased demand for sugar, particularly for non-traditional uses

5 Water Pressures in Africa Talbot & Talbot

6 Impacts Water Supply Status Quo Very little up-to-date and accurate information is available at a catchment level. Water balances are being developed but there are very few reconciliation strategies. Cape Town Water Reconciliation & Supply Strategy The surplus provided by the Berg River Dam was only sufficient to meet requirements to Additional supply initiatives include WC/WDM, desalination, Voelvlei Dam & reuse of water.

7 Impacts Legislation & Cost Status Quo Despite the water scarcity characterising large areas of the continent water has historically been cheap & often charged based on a bulk permit. This bulk permit is minimal compared to the actual cost of water. In most cases far below a $ 0.01 / m 3. In most countries waste water discharge is not charged and fines are very rarely implemented.

8 Impacts Legislation & Cost Near Future New water and waste water pricing strategies are in varying levels of development across the continent. These typically include: A per m 3 charge representing the actual water price A waste water discharge charge based on volume and quality Reductions in abstraction permits Tightening of discharge limits The proposed South African Revised Water Pricing Strategy will not only ensure a more representative price of water but will also significantly increase the cost of discharging waste water. There is very little to no indication from the regulators of the extent of these or when they will come into effect. Reference:

9 Methods to Strategically Manage Water Talbot & Talbot

10 Strategically Managing Water The Difficulty Sugar Producer Scenarios Due to the lack of transparency its very difficult to understand and manage the risk Water often considered not to have strong operational drivers due to a poor understanding of the drivers Consequently many decisions are made at the international head office level for reputational and governance purposes. Two sugar producer scenarios situated in different countries: Scenario A Scenario B Each scenario is characterised by a: cane supply of 1.5 million tonnes from which they produce tonnes of sugar However, although this is important operational drivers are actually far stronger

11 Common Risk Management Method m3 m3/t Sugar Step 1: Risk Assessment 300,000,000 1,200 Risk Category Scenario A Scenario B Overall Water Risk Low to Medium Low to Medium Dry Season Water Availability Low Medium 250,000,000 1,000 1,000 Regulatory & Reputational Risk High High Physical Risk Quality Low Low to Medium 200,000, Step 2: Operation Stats Scenario A m 3 / t sugar Scenario B 750 m 3 / t sugar 150,000, Water price of USD 1c / m 3 at both operations Scenario A $ 2 million / yr Scenario B - $ 1.5 million / yr Step 3: Strategy Reduce water requirements by 15% by 2022 Step 4: Implementation No direction on what initiatives will achieve the most value No business case to implement any significant initiatives 100,000, ,000, Scenario A Scenario B Agric Surface Water Agric Rainfall Cane Water Mill Surface Water Efficiency (m3/t sugar)

12 Strategically Managing Water In order to understand the impact of water on business sustainability and obtain the most value the translation of water risk into business drivers is required This goes beyond quantifying m3 / t sugar and rather looks at how: Water supply Changing climate Water quality Legislation Cost will impact Production Revenue Operating Cost Capital Cost Legal Compliance Profitability

13 Translating Risk into Business Drivers Talbot & Talbot

14 Sugar Producer Scenario m3 m3/t Sugar Business as Usual 2022 By 2022 Scenario B will require 32 million m3 less water to produce tonnes sugar than Scenario A. 300,000, ,000, ,000,000 1, ,200 1, However the financial impact of water on the business will be far greater for B compared to A: 150,000, Scenario A $ 116 million 100,000, Scenario B - $ 226 million 50,000, Consequently Scenario B will require a far stronger water strategy 0 Scenario A Scenario B 0 Agric Surface Water Agric Rainfall Cane Water Mill Surface Water Efficiency (m3/t sugar)

15 Translating Risk into Business Drivers Business as Usual 2022 Scenario B will spend $ 141 million / yr on water compared to Scenario A who will spend only $ 51 million / yr (a difference of 176%) $ $ 1.00 Agric water supply cost Scenario A $ 47 million Scenario B - $ 90 million Effluent discharge from the mill will cost Scenario A - $ 5 million Scenario B - $ 51 million $ $ $ $ $ $ $ 0.27 $ 0.91 $ 0.90 $ 0.80 $ 0.70 $ 0.60 $ 0.50 $ 0.40 $ 0.30 $ 0.20 $ $ 0.10 $ 0 Agric Water USD Producer A Mill Water USD Producer Water B Cost USD/m3 $ 0.00

16 Translating Risk into Business Drivers True Cost of Water Irrigation Efficiency in Perspective Calculating the true cost of water in the sugar sector is extremely important and should include at least: The water price The cost of pumping and irrigation energy Irrigation labour requirements Irrigation maintenance requirements Discharge charges Scenario A 67% irrigation efficiency of the $ 57 million / yr spent on irrigation $19 million / yr will not reach the crop (66 million m3) Scenario B 75% irrigation efficiency of the $ 90 million / yr spent on irrigation $23 million / yr will not reach the crop (37 million m3) Scenario A Scenario B $ 19 million $ 23 million To Crop Lost To Crop Lost

17 Translating Risk into Business Drivers Water Related Production Lost Opportunity Scenario A will experience a production lost opportunity of tonnes sugar by 2022 primarily due to: Energy supply issues t sugar Irrigation inefficiency t sugar This loss will equate to $ 106 million in lost revenue Scenario B will experience a production lost opportunity of tonnes sugar by 2022 primarily due to: Irrigation inefficiency t sugar Irrigation energy supply failure t sugar This loss will equate to $ 138 million in lost revenue Scenario A Scenario B Operational Criteria Lost Sugar Production (tonnes) Operational Criteria Lost Sugar Production (tonnes) Water quality resulting in pump lost time 20% % 0 Conveyance loss 10% % Irrigation efficiency 67% % Energy supply failures 10% % Dry season water availability 0% 0 10% Total Lost Tonnes Sugar Total Lost Revenue $ $

18 A Strong Strategy with a Business Case Talbot & Talbot

19 Strategic Focus Areas Scenario A Strategic Plan 1 Scenario B Strategic Plan 1 1. Pump maintenance & protection 2. Conveyance efficiency 3. Irrigation efficiency 1. Cheaper energy 2. Irrigation efficiency 3. More reliable energy supply 4. Recovery of waste water

20 Strategic Wins Scenario A Scenario B 2022 BaU Strategy Sugar Production (tonnes) Revenue $ $ Water OPEX $ $ Opportunity / yr $ The increase in water reaching the crop results in improved production but also an increase in Water OPEX 2022 BaU Strategy Sugar Production (tonnes) Revenue $ $ Water OPEX $ $ Opportunity / yr $ Failing to implement a cheaper energy supply in the scenario would have resulted in a $ 6 million / yr increase in water OPEX by Running a strategic scenario with a cheaper energy supply will improve the opportunity.

21 Concluding Message Talbot & Talbot

22 Concluding Message Provide direction, ambition and tools from the top and the business case from the bottom Water is an extremely operation and area specific. Consequently a solely top down approach can result in: poor management of risk, missed opportunities, a waste of resources, no alignment with the business strategy and poor implementation However, support from head office is extremely important to ensure: Water isn t managed within silos, it needs to be integrated into day to day governance and management structures Strong and well structured data systems are in place data that drives business performance not just data for external reporting.