Valuing a desalination plant or water infrastructure in Morocco: concession asset and residual term

On this class of asset the first task is not to measure areas. It is to establish exactly what interest is being valued — and for how long it runs.

1. An infrastructure asset, not a building

A desalination plant combines land — often coastal, sometimes on public domain — civil engineering works (intake, screening, basins, process buildings, reservoirs, brine outfall), pipelines and pumping stations that may run for tens of kilometres, and an industrial process (pre-treatment, reverse osmosis, post-treatment, energy recovery). Around all of it, a contract organises production, the sale of water, maintenance and the end of life of the scheme.

The consequence for the valuer is clear-cut: the first piece of work is not measurement but qualifying the interest being valued. Outright ownership? A right to occupy the public domain? A concession with reversionary assets? A project company whose underlying assets are being valued? The Red Book requires that clarification up front, because everything else follows from it. The same discipline governs any asset held on a time-limited public right — see our note on occupation permits on the maritime public domain and the valuation of a precarious right.

2. The contractual structure: what to read before calculating

2.1 The nature of the partnership

Water infrastructure is frequently structured as a public-private partnership: a project company finances, builds and operates the works, then earns its return on the sale of water to a public entity or to users, for a defined term. This framework is common in Morocco for large hydraulic and energy schemes. It creates an asset whose value depends first on the strength and duration of the contract, and only then on the physical quality of the works.

2.2 The clauses that make the value

• Residual term — how many years of cash flow remain contractually secured.
• Payment mechanism — offtake or availability commitment, fixed and variable elements, indexation.
• Risk allocation — volume, energy, currency and performance risk: who bears what, and within what limits.
• Maintenance and renewal obligations — imposed programmes, reserves to be funded, the handback condition required.
• Fate of the assets at expiry — reversionary assets, assets subject to repurchase, any compensation payable: this is what does or does not exist as a terminal value.
• Transferability — change of control provisions, the grantor's consent, security granted to funders.

2.3 What the valuer does not do

He does not interpret the contract in place of the lawyers, and does not opine on the validity of its clauses. He reads it, adopts explicit assumptions and has them confirmed by the client and its advisers. A valuation report on a concession asset that does not say which clauses it rests on carries no evidential weight at all.

3. The applicable RICS methodology

3.1 DCF over the contractual horizon

This is the primary approach. The net operating cash flow of the infrastructure — contractual receipts, operating and energy costs, maintenance and major overhaul, programmed renewals, fees payable — is projected over the residual term of the contract and discounted at a rate reflecting the risk of the structure. The terminal value is treated with caution: if the works revert to the grantor without compensation it is nil or marginal; if compensation or renewal is contractually provided for, it is documented from the contract, not from a market assumption.

3.2 Depreciated replacement cost (DRC, VPGA 5)

Useful for the property and civil engineering component: land, buildings, basins, reservoirs, pipelines, intake and outfall structures. It provides a consistency check and often serves insurance and accounting-allocation needs. It does not replace the DCF: an expensive structure whose contract ends in a few years is not worth its reconstruction cost. The mechanics are set out in our guide to the DRC and DCF methodology for industrial assets.

3.3 Comparables

The market in water infrastructure is thin, and transactions most often bear on interests in project companies, on terms that are not public. Comparables therefore serve to calibrate the reasoning — risk structure, horizons, return requirements observed on regulated infrastructure — never to copy across a multiple. No rate and no price is adopted without a verifiable source and without being discussed in the report.

3.4 The link with the accounts

Under international standards, service concession arrangements attract a specific treatment: the project company may recognise a financial asset, an intangible asset or a mix of the two, depending on who carries demand risk. The valuer must know which framework his work sits within in order to deliver a relevant basis of value — fair value, value in use, reinstatement value — and must say so plainly. Our guide to the practical application of IFRS 13 fair value to Moroccan property sets out the reporting side of that conversation.

4. The inputs to the instruction

• Contractual — concession or partnership agreement, water purchase agreement, amendments, guarantees, funding agreements, end-of-contract provisions.
• Land and consents — titles or occupation permits, pipeline corridors and wayleaves, operating authorisations, environmental prescriptions covering the intake and the brine outfall.
• Works — drawings and specifications, commissioning dates, condition of the civil works, reservoirs, pipelines and pumping stations, nominal capacity and availability actually achieved.
• Process and energy — treatment train, consumption, energy contracts, recovery devices, replacement cycles for consumables.
• Operations — production and availability history, O&M contracts, major maintenance and renewal plan, incidents and deductions.
• Financial — the project company cash flow model, debt and covenants, indexation assumptions, recurring outgoings.

5. Common traps

• Valuing a finite-term asset into perpetuity — a perpetuity applied to a contract that expires is the structural error of this segment.
• Ignoring the fate of the reversionary assets — the terminal value is read in the contract, not in a market assumption.
• Confusing construction cost with value — historic cost says nothing about value if the payment mechanism or the residual term do not support it.
• Underestimating major maintenance and renewal — membranes, pumps, control systems, corrosion protection: these cycles weigh heavily on net cash flow.
• Forgetting the linear corridors — pipelines, wayleaves and intermediate pumping stations are part of the asset and part of its exposure.
• Neglecting environmental obligations — intake, outfall, reinstatement: these are future costs, to be built in once identified.

6. Particular situations

A plant still under construction can be valued, either in its state of completion or on a completed basis, according to the basis adopted and clearly stated. The exercise then rests on the construction contract, the programme, the costs still to be incurred and the commissioning risks; conditional assumptions are presented separately from the value in the existing state.

Infrastructure sited on public domain is valued by reference to the interest actually held — a temporary occupation permit or a contractual right of use, with its duration, its fees and its renewal conditions. That is not freehold land and is not valued as though it were; the report says so explicitly. The reasoning is the same one applied to a marina held under a maritime public domain concession.

The land often retains a value of its own, but a constrained one: a dedicated footprint, easements, coastal proximity, environmental prescriptions. The valuer assesses it by reference to the uses legally possible once the scheme reaches its term, which can be very different from the value of an ordinary industrial site.

7. What the report is for

Project funding and refinancing — funding parties want an independent asset value, consistent with the cash flow model and with the security taken. Accounts, under IFRS or Moroccan standards — fair value, impairment testing, purchase price allocation, componentisation for depreciation. Disposal or the entry of a partner — sale of an interest in the project company, arbitrage within an infrastructure portfolio. Restructuring and end of contract — preparing a renegotiation, valuing the assets subject to repurchase, weighing extension against exit. Insurance — reinstatement value of the works, distinct from value in use.

Our reports are prepared by RICS-certified expertsand comply with Red Book standards. A private valuation informs a decision and an arm's-length negotiation: it sets out its assumptions, names its sources and states its methodology, which makes it contestable point by point rather than defensible in a block.

Infrastructure assets are quoted case by case, calibrated on the complexity of the contract, the extent of the works and the purpose. For reference, our valuations start at 3,500 MAD excl. tax for standard assets, with a firm quote within 24 hours and delivery in 5 to 8 days, 48-72 hours on the express service. ReaConsult has been operating since 2019, with more than 5,000 valuations completed, offices in 6 cities and a rating of 4.9/5 across 47 reviews.

Note:this article sets out a valuation methodology compliant with RICS standards (Red Book, VPGA 5 depreciated replacement cost). Concession and partnership agreements, occupation rights over public domain and environmental prescriptions are governed by the regulations in force and by the terms of each contract — confirm your own position with the competent authorities and your legal advisers, who alone interpret the contract. Process equipment is valued by plant and machinery specialists. A private valuation informs a decision and an arm's-length negotiation. To instruct us, see our contact page or the property blog.