Tourism brings boom in desalination for Mexico

An increase in demand for potable water from international hotel chains and industry has brought about growth in Mexico's desalination market. Gordon Fellar reports on government initiatives that that are creating the opportunity for large-scale private investment.

Table 1: Distribution of desalination plants in Mexico 2004. Dest: CAN

Table 1: Distribution of desalination plants in Mexico 2004. Dest: CAN

Table 2: Market Size for Desalination Equipment and Services   (US$ millions). Dests: Bancomext, Secretaria de Economia, SEMARNAT, CNA, SAGARPA, construction companies, retailers, CONIECO, IMTA.
Table 3: Market share (%)
During the last 12 years, leading Mexican institutions have become more concerned over the insufficient quantity of potable water in various areas of the country. In response, the Comision Nacional del Agua (CNA) (National Water Commission) and the Secretaria de Agricultura, Ganaderia, Desarrollo Rural, Pesca y Alimentacion (SAGARPA) (Secretariat for Agriculture, Livestock, Rural Development, Fisheries, and Food) have been working with the private sector in tourist resorts to encourage major hotels to invest in desalination systems to meet their water needs.

The focus has been in those regions where the tourist numbers are highest: in the States of Baja California, Sonora, Colima, Jalisco, Guerrero, Quintana Roo, Tabasco, Veracruz, and Tamaulipas. However, at the end of 2004 Mexico had a total of 171 desalination plants and only 120 were in operation.

Fast Growth
The desalination equipment and services market is expected to grow at an average of 9% over the next two years, spurred by projects expected to be implemented by municipalities and industries, including international hotel chains, on the Pacific Ocean and Gulf of Mexico.

Throughout the 2005-2006 timeframe, Mexico's Fondo Nacional de Fomento al Turismo (FONATUR) (Tourism Trust Fund), along with private national and international investors in the tourism industry, will invest over US$300 million in the construction of new hotels and golf courses that will have desalination systems to reduce or eliminate the consumption of potable water.

Major agro-business firms in states such as Nayarit, Sinaloa, Sonora, Colima, Jalisco, Michoacan, Guerrero, Campeche and Veracruz will be investing over US$100 million in desalination systems to reduce the consumption of potable water in their manufacturing processes. Engineering services will be required by the CNA and SAGARPA to draw up technical specifications for international tenders to invite private companies to bid on desalination projects for the municipalities of Cancun, Tijuana, Ensenada, Manzanillo, Tampico, Altamira, and Reynosa. Bidders will also be asked to help CNA to fix 51 existing plants that are not in operation because lack of maintenance.

Table 2 shows that the total market size for desalination equipment and services will increase from US$298.0 million in 2004 to US$325.1 million by the end of 2005. According to CNA and SAGARPA officials, 27.3% of the equipment and services will be demanded by municipalities, 32.8% by processed food industries and 39.9% by the tourism industry. Total imports will grow at an average of 9%/year from 2005 to 2006, a higher growth rate than for 2003-2004, which saw an 8% average.

At the end of 2004, Mexico had a total of 11,618 hotels of which 22% were five-star and luxury hotels. Many hotels are located in the states of Veracruz, Colima, Jalisco, Oaxaca, Quintana Roo, Guerrero, Baja California, Baja California Sur, Sonora, Sinaloa, Nayarit, Tabasco and Tamaulipas that will be demanding desalination systems equipped to treat seawater by reverse osmosis or evaporation methods.

Major hotels chains in these areas are: JW Marriott, Sheraton, Best Western, Hilton, Radisson, and Four Seasons. Many of these sites are located at tourism resorts in cities such as Los Cabos, Manzanillo, Puerto Vallarta, Acapulco, Ixtapa and Cancun. They are also expected to be installing desalination systems to treat seawater by reverse osmosis.

The main competitors in the Mexican desalination market are the US, Japan, UK and Canada, although there are others with smaller margins.

Local tie-up
The most successful corporate competitors in Mexico's water sector usually have a local representative or a strategic alliance with a local water resources equipment firm. They have been actively promoting their interests over the last five years at trade shows and seminars.

When shows and seminars are held in their countries, they may invite government officials and potential representatives to participate with all expenses paid. These visits include tours of research institutions that often result in cooperation agreements, exchange of research information, and technical training programmes.

The CNA and SAGARPA are the federal government's largest end-users of desalination equipment and services, and the two largest, single consuming entities of any type in Mexico. The CNA and SAGARPA expect to issue over ten tenders over the next two years, inviting private companies to participate in the construction of desalination plants at various cities along the Pacific and Gulf regions.

After-sales commitment
Often, the decision to select desalination equipment depends largely on the demonstrated commitment to aftersales. Manufacturers offer to have their maintenance personnel at the clients' facilities in no more than 48 hours after a service call is made.

The availability of required spares is the natural complement to the presence of their technicians. Customers in the desalination industry are demanding uniform quality control, compliance with international standards, productivity, lower production costs, just-in-time deliveries and above all, reliable local service and maintenance programmes. This last factor has become, in many instances, even more important than pricing or financing to the final desalination equipment purchasing decision.

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