FINANCE CORNER

FOR WHAT IT’S WORTH: FINANCING WATER REUSE

By Ms. Lydia Whyatt, Managing Director of Resonance Asset Management

Value and price of water has been a major to industry, with the exception of Taiwan at topic of debate at many global water related the moment, where semiconductor industry conferences. This theme is very closely linked is currently prioritised at the expense of with water reuse. For us, in finance, value and local agriculture) will mean that the industrial price are not philosophical or ethical issues, users will be the key target for water re-use, but very practical ones. Water reuse (like and this is where we chose to focus with desalination) would our first water fund only make financial The other reason for at Resonance. The sense, and hence industrial water reuse is other reason for worth investing in, that the re-used water is industrial water if it can be delivered more “predictable” than reuse is that the at a price the buyers the surface water whose re-used water is are willing to pay for salinity and turbidity can more “predictable” it. Of course, many change with seasons. than the surface governments may water whose salinity choose to subsidise the price of water, but and turbidity can change with seasons. this significantly distorts the market for Here we have a situation where price and water re-use. The government financial help “value” of water are not always the same. can support water reuse and work from a Even if it might be cheaper for the industrial finance prospective if the subsidy is placed to companies to use surface water, the value in the right way, but this level of granularity of that water is lower than that of the more is often missed when government policy is controllable sources of water – their own developed. wastewater reuse or reused wastewater from other industrial or municipal sources. When we devised the strategy for our water fund, we felt that in those geographies where Over time this has proven correct, and a water is in short supply, the hierarchy of large portion of our fund, particularly in demand (from drinking water to agriculture China and South East Asia is focused on

industrial wastewater reuse, both of our clients’ own wastewater and also municipal wastewater. Predominantly, where we invested in water re-sue opportunities, they involved outsourcing of the design, build

and operations of the wastewater treatment plants to our technology partners. The key reason outsourcing is so widespread in water reuse applications is that technology used in the solutions requires engineering and operating experience that many industrial clients do not have, at least at the operating plant level. As the availability of the plant can significantly affect the top line of our clients, if water is not delivered to enable the production process, the industrial clients prefer to insure that this does not happen due to the lack of technical knowledge in client’s own operations team. The challenge, however, in developing the right commercial structure where the clients fully benefit from the expertise of external service providers, but do not feel that they are handing over the complete control of their water supply. The division of responsibilities and operating risks in such an arrangement is also a very complex topic, to say the least. It requires depth of experience that can be built only over many years This is one of the roles we play as a financier of the outsourced solutions in the discussions with our partners and clients. Our team consists of senior partners with over 20 years of experience in this area.

The challenge, however, in developing the right commercial structure where the clients fully benefit from the expertise of external service providers, but do not feel that they are handing over the complete control of their water supply.

About the Author

Lydia Whyatt joined Resonance Asset Management in 2014 as a Managing Director. She leads the investment process for the Resonance Industrial Water Infrastructure Fund.

Lydia has over 10 years experience investing in water technology, infrastructure and service businesses and has over 15 years investment experience in PE/VC and infrastructure.

Prior to joining Resonance, Lydia was a Managing Director of the Environment Group at Fourwinds Capital Management and was responsible for managing the Aqua Resources Fund. She served on the boards of Waterleau Group, a leading wastewater treatment business active in the food & beverage and municipal sectors, and Monsal, the UK’s leading Advanced Anaerobic Digestion technology business. Prior to Fourwinds, Lydia was in charge of a €90m family office fund focusing on investments in water and waste technology and related service companies. She was also part of Kennet Venture Partners, one of the most successful technology VCs in Europe, and a management consultant with McKinsey in London.

Lydia has a Finance degree from the London School of Economics and a postgraduate degree in Physics from Moscow State University.