How Israel defies drought

EIN YAHAV, ISRAEL — Even at night, the ground of Israel’s Arava desert pulsates with heat. For decades, the vast expanse of bleached hills looked like a mountain biker’s paradise and a farmer’s torment. With only about an inch of precipitation per year, not even Israeli vegetation had the chutzpah to grow here. 

But that slowly began to change when Israeli pioneers came here in the mid-1960s. True, they didn’t come for the soil or the weather. But farming was vital to staking out the young state of Israel’s claim to this land along the Jordanian border. In between fending off attacks from Palestinian militants, the settlers worked the unforgiving soil. 

They grew roses when others said it was impossible. They created naturally air-conditioned greenhouses by setting up “wet curtains” – honeycombed walls that allowed water to seep through slowly. They planted flowers in trenches of volcanic ash instead of the sandy soil. Later they switched to dates and peppers, using an Israeli-invented drip irrigation system.

Today this former moonscape, though still barren, has become an agricultural Eden: Rows of greenhouses stretch across the land, harboring everything from apricots to mangoes, avocados to pomegranates. Other crops are grown outside with plastic stretched over them to reduce evaporation. This narrow strip of land along the Jordanian border produces 65 percent of Israel’s vegetable exports – mainly tomatoes and peppers – and helps feed the Jewish state itself. It’s one of the most productive salad bowls in the Middle East. 

GRAPHIC Map of southern Israel

More than anything, the transformation of the desert here is a testament to Israel’s innovative approach to water. Driven by a combination of necessity and inventiveness, the country has become one of the world’s leaders in how to wring the most out of parsimonious amounts of rainfall and turn a parched landscape into a productive garden. 

The Israelis are turning seawater into tap water, pioneering new types of irrigation, and reusing wastewater at the highest rate of any country in the world. Last year, despite having the driest year on record, the country recorded a surplus of water. As climate change creates more severe patterns of weather – including, notably, devastating droughts – Israeli technology and ideas are increasingly being adopted around the world. 

To be sure, Israel is a far smaller country than most of those with the most pressing water needs. But proponents say many of its practices can still be used elsewhere. Already, Israelis have big water projects under way in China, India, and drought-stricken California. 

“Israel is very much a beta test site for solving these problems in a small country,” says Glenn Yago, founder of the Financial Innovation Lab at the California-based Milken Institute, who is fostering increased Israeli investment in water projects in California. “Drip irrigation, desalination, [wastewater] recycling, and aquifer remediation – those are problems that can be tested in the global laboratory that Israel is and then scaled elsewhere.”

As with everything in this part of the world, however, politics intrudes on the narrative here, too: Palestinians claim that Israel is taking more than its prescribed allotment of water from shared aquifers, and environmental concerns swirl about the effect of the country operating so many desalination plants along the eastern Mediterranean. But Israel’s surplus of water has also opened new opportunities for water cooperation with its Arab neighbors – and, perhaps, more flexibility. 

•     •     •

The story of making the desert bloom here begins with a man in a top hat.  

Back in the 1960s Simcha Blass, an immigrant from Poland, was traveling around the torrid Israeli desert in a three-piece suit, white gloves up to his elbows, and that imposing lid, looking like a European duke. He was, in fact, a water engineer, one of the foremost in Israel, who had helped to establish its first aqueducts and pipelines. (One of those plumbing systems was made from salvaged pipes from postwar London, which had been used to put out fires during the German blitz.)

Now he was tinkering with an idea to help make things grow where they shouldn’t: drip irrigation. But none of the young kibbutzniks working the dusty clods of the Negev desert were interested.

Until one day in 1965 Uri Werber knocked on Mr. Blass’s door in Tel Aviv. Before Mr. Werber even had a chance to introduce himself, the eccentric water engineer said, “You know what you are? You are an idiot.... No one is listening to me. Why are you coming here?”

Werber represented Kibbutz Hatzerim, one of 11 farming settlements set up overnight in the Negev in 1947, the year before Israel declared independence. It was so desolate that one knoll was known then, and still is today, as the “hill of the only tree.” The only water for growing vegetables was the runoff from a primitive shower house.

Two decades later, the kibbutz had grown to about 100 people, and Werber was looking for a small business to employ about a dozen of its members. He’d suggested manufacturing everything from traffic lights to chandeliers, but drip irrigation was closer to their farming roots.

So there on Blass’s doorstep, Werber insisted he wanted to hear more about his invention. Blass had developed it after a farmer friend pointed out a tree that was far larger than those around it. The reason, they discovered, was a small leak in a hose that spritzed water on the tree’s roots. 

Werber went back to Hatzerim with the proposal – to build a system of perforated pipes that would water crops with judicious regularity. The kibbutz approved it. Initially, the group’s farm manager was so impressed with the results – drip irrigation both reduces water usage and increases crop yield, resulting in as much as four times more produce for the same amount of water – that he wanted to keep it as the kibbutz’s secret weapon. 

Instead, the kibbutz founded Netafim, whose technology was piloted first on dusty Israeli farms and then exported around the world. Today, from its lush campus on Kibbutz Hatzerim, the company commands more than 30 percent of the global market for drip irrigation systems, with customers in 110 countries.

“To me there’s no question that drip irrigation made the desert bloom,” says Naty Barak, Netafim’s chief sustainability officer, who sees special potential for the company’s technology in California, where he opened Netafim’s first subsidiary back in 1981. “Israel has an answer to California’s drought.”

While drip irrigation is now a well-established technique, Netafim is always working to refine its technology, using the Arava as a prime laboratory, just as it has for decades.

“We are under tough and extreme conditions – soil, water, weather,” says Effi Tripler, a soil and water scientist from the Central and Northern Arava Research and Development Center in Hatzeva. “They know if it works here, it will work in any place in the world.”

The R&D center, one of several in Israeli agricultural areas, experiments with everything from sophisticated new drip irrigation techniques to aquaculture. The center also tests different varieties of mangoes, apricots, and other fruits and vegetables to determine which ones can best endure the harsh conditions of the Arava, where temperatures range from freezing to more than 100 degrees F. in the summer, and the parched soil receives only about an inch of precipitation per year.

“Plants are very smart,” says Dr. Tripler, who has beads of sweat collecting on his face despite the early hour. In cooperation with Netafim and other researchers, he’s refining a sophisticated drip irrigation system that waters plants only when they’re thirsty. The system, which is installed here in a small plot of sorghum, includes four solar-powered sensors that connect wirelessly to a control panel at the edge of the plot and measures the suction of the plants’ roots to gauge their thirst. A similar system will be installed at the University of California, Davis in the fall. By reading the signals of the plants, the system helps farmers maximize their water use. 

“For the growers, this is their GPS,” says Tripler, who spent 15 years overseeing a date-palm plantation near the Dead Sea. 

Decreasing water usage in agriculture holds some of the most potential to help the world husband a precious resource, since agriculture accounts for about 70 percent of water usage globally. The most common method of watering fields is flood irrigation, which pumps or otherwise channels water into fields and lets it flow among the crops. The problem with the technique is that it requires flat land and uses vast amounts of water, much of which is lost. 

Drip irrigation could reduce water usage dramatically and make it possible to utilize hillier land as well, says Mr. Barak of Netafim. Yet global adoption of drip irrigation remains below 5 percent, compared with 75 percent in Israel. That’s largely because of the cost of installing such a system. Water is still free in many places, which makes it financially hard to justify such an investment.

Barak says sometimes he wakes up in the morning and feels “so proud” that what has been done out in the Israeli desert is now gaining awareness around the world. “[But] sometimes I wake up in the morning and say, ‘What’s happening? We have a solution to the most pressing issues and it’s not picking up.’ ” 

•     •     • 

About the time that Blass was peddling his drip irrigation technology around the Negev, American chemical engineer Sidney Loeb was devising a new way to turn seawater into drinking water.

In those early days of desalination, there were two main methods of separating out the salt: freezing or distillation. But Mr. Loeb, along with another graduate student at the University of California at Los Angeles (UCLA), developed reverse osmosis (RO) desalination, in which seawater is forced through membranes that block the salt but allow the water to pass through.

In 1965, the first commercially viable RO plant was established in Coalinga, Calif.; it was run by firemen in between putting out blazes. Its output was small – 5,000 gallons of water per day – but it supplied a third of the town’s fresh water. The next year, a second commercial plant was established in the Israeli kibbutz of Yotvata in the Arava desert, along Jordan’s border. According to Loeb, who moved to Israel in 1966, women brought buckets to the plant to wash their hair in the soft water, but skeptical residents initially refused to drink it.

Experts didn’t think much of the technology at first, either. Indeed, it took decades for RO to be used on a large scale, even though Israel was suffering periodic water shortages. In the mid-1980s, the problem became so severe that Israel’s minister of agriculture recommended that everyone shower in pairs to save water.

Then in 1999, the Israeli water commissioner came up with a master plan for 2000 to 2010 that called for wide-scale desalination to help close a water gap of 400 million cubic meters a year. The Israeli government agreed to produce 50 mcm of desalinated water – an important, if small, first step, says Abraham Tenne, head of the desalination division at the Israel Water Authority. “Usually the first decision is the most important because you crossed the line.”

In 2003, IDE won a contract with the French firm Veolia to build a seawater RO plant in Ashkelon that would produce 100 mcm per year, making it the largest such plant of its kind in the world. The government agreed to a plan that would guarantee the plant enough financial support to survive regardless of actual water demands.

“Ashkelon changed everything,” says Tom Pankratz, editor of the Water Desalination Report and an independent desalination consultant. Up until then, bankers had been skittish about underwriting a large-scale plant for a technology that had yet to be proved on such a scale.

In 2006, Ashkelon was named “desalination plant of the year” at the Global Water Awards ceremony in Dubai, United Arab Emirates, where it was hailed as “a milestone in reverse osmosis desalination.”

“The guys in Dubai don’t like us too much, but even they were impressed,” says Mr. Tenne, who has become one of Israel’s leading desalination experts almost by accident: He signed up for Loeb’s first university class on RO because he figured an American professor would go easy on the students.

After Ashkelon, RO grew exponentially. From 2004 to 2014, some 74 percent of contracted desalination plants were RO. Three of those were built in Israel – Palmachim, Hadera, and Sorek.

Sorek, also built by IDE, has a capacity of 150 mcm per year and came on line in 2013 as the largest such plant in the world. Every two minutes, enough seawater to fill an Olympic-size swimming pool is pumped nearly a mile and a half from the ocean through massive underground pipes, which are roughly twice the height of an average person. The water gurgles up into huge vats that screen out jellyfish and other elements that could clog the pumps, and then goes into an array of pretreatment pools with sand filters.

Once all solids have been removed, the water is pumped into a phalanx of 11,200 cylinders at high pressure. Inside the cylinders, membranes screen out the salt. Within an hour, that Olympic-size pool of drinkable water is delivered into Israel’s national water system and ready to come out of people’s taps.

Not everyone is enamored of the technology, though. Environmentalists worry about the rerouting of nature’s resources on such a massive scale. The brine discharged back into the sea could harm the wildlife, especially with so many plants along the Mediterranean – not just in Israel but also Cyprus, Egypt, and Algeria.

“Desalination should always be a last resort,” says Karin Kloosterman, founder of Green Prophet, which covers sustainability issues in the Middle East. “Desalination is an energy-intensive process that consumes an unbalanced amount of electricity while removing the salts from the water. The byproducts and brine of desalination are harmful to the waterways around the desalination plant.”

Another concern is the price. Desalinated water here costs 2.8 shekels per cubic meter ($0.66) versus as much as four times that in Australia. Part of that is due to IDE’s innovative plant design and operations, such as arranging the cylinders vertically instead of horizontally to save on concrete and other structural support materials. But in Israel the vast majority of the population, with the exception of Jerusalem, is located within just a few miles of the coast.

California, by contrast, is far wider and has high mountains that could add significant cost to the price of desalinated water. A stronger environmental movement also exists there, and significant regulatory hurdles. In addition, California has a far more fragmented system of water control, so it can’t easily set a price for water, and few people want to pay for desalinated water if they’re getting it from the ground, lakes, or rivers free of charge. So, ironically, the state where Loeb first developed RO desalination lags far behind Israel today in that field.

IDE is building a $1 billion plant in Carlsbad, Calif., which will be the largest in the Western Hemisphere. But it is still relatively small and the project has faced many complications.

“In the time it took Carlsbad to materialize from plan to operations, we’ve built plants that together produce daily seven times more water than Carlsbad is going to produce,” says Hamutal Ben Bassat, IDE’s business development manager, on a tour of the Sorek plant.

In early May, Santa Barbara gave IDE the nod for another desalination plant, and Ms. Ben Bassat says other projects in California are under discussion. She says IDE also expects to see “quite a lot of activity in the US, China, and India” in the next two years.

In China, coastal cities that account for 40 percent of the population and 60 percent of the total gross domestic product already face “extreme” water scarcity, according to a report by WaterWorld, a trade publication. Last fall, Israel heralded a “Water City” project in Shouguang, a city of 1 million where Israeli water companies will implement their technology with the hope of winning over the Chinese government and expanding to other cities.

Limits exist to how far the Israeli technology can spread, however. The Arab Middle East and North Africa represent more than 40 percent of the global market for desalination, but so far they have been untappable by IDE for political reasons. Nevertheless, from 2004 to 2014, the company ranked as the fourth largest desalination plant supplier in the world.

“Basically we build the largest plants for the lowest costs,” says Ben Bassat.

•     •     • 

Israel has also been able to wring more water out of the resources it has because, in essence, it has only one hand on the spigot. It has one water authority that sets both policy and pricing for the whole country.

Many other nations – including, notably, the United States – have a tangle of federal, state, and local jurisdictions that control water issues. “Much of the issue in the US is not so much technology, it’s governance,” says Prof. Yoram Cohen, a chemical and biomolecular engineer at UCLA. 

Indeed, hundreds of water agencies exist in California alone. In the US, many farmers have rights to the water and don’t pay for it, and in some places governments don’t even have a system in place to measure water usage, making it impossible to charge for it.

In addition to key decisions regarding measurement and cost of water, Israel’s government has been able to enforce national policies, such as widespread wastewater treatment and recycling. Israel recycles more than 80 percent of its wastewater for reuse in agriculture and other industrial processes, which is quadruple the amount of the second largest wastewater recycler, Spain. In California, there’s still strong public distrust of such recycling, even after rigorous treatment. 

“When you say ‘reuse’ in California, it means something different ... most of the implication there is toilet to tap,” says Mr. Pankratz. “And there has been a real stigma with that.”

Israel also has taken a lead in reducing water loss, with innovative companies like TaKaDu. Its monitoring system costs about $150,000 for a big city like New York – a relatively small price tag given that global water loss amounts to as much as $15 billion. Among Israel’s Arab neighbors, as much as half of their water is lost to leaks, while in London it’s about 35 percent. In Israel it’s down to 10 percent, and the country is aiming for 8 percent, says Tenne of the Israel Water Authority, which requires the country’s water utilities to spend a certain percentage on maintenance each year. 

He says, however, that the answer to improving global water efficiency is not in any one step, but rather in a long-term, comprehensive approach. “There is no one single step and there won’t be one single step in China, California, or India,” says Tenne. “People are trying to solve problems from today to tomorrow, and it doesn’t work. But it can be done, and Israel is a great example that it can be done.”http://www.csmonitor.com/World/Middle-East/2015/0621/How-Israel-defies-drought

How One Accounting Rule Wrecked The Middle Class

How One Accounting Rule Wrecked The Middle Class

Maybe you heard your CEO say, "Our people are our greatest asset." He's probably lying. That's not how he really feels about you. Despite how much management talks about "human capital" as if it were an asset, it's not. The accounting system that the whole world uses classifies labor as an expense.

Anyone who has studied accounting even briefly can see that it's a lot of bullshit designed to appear objective. In reality, it is filled with assumptions, estimates, and sometimes, fraud. Yes, it is rule-based, but with any system, who makes the rules is often more important than the rules themselves. Accounting is the language of business, and in the mouth of a double-talking CEO, it's just another way to promote their own interests.

One of the most insidious rules in accounting is that labor must be classified as an expense on the income statement. Actually, it should be classified as an asset on the balance sheet. The accounting profession has rigged the system against the worker. The misclassification of labor as an expense has branded every employee with a negative dollar sign. The way the accounting system defines labor causes CEOs and upper management to view employees as expendable. When profits decline, the CEO says, "It must be those damned employees dragging us down! Let's fire a few thousand of them. That will get us on track again."

According to current accounting rules, inanimate objects like pencils, clothing, or any type of inventory are assets, but people are expenses. The CEOs want you to believe that a pen is an asset, but a person with knowledge, skills, and experience is an expense, something that should be avoided. This is actually what they teach business students in school all around the world, and the students just accept it as fact. Have we all gone insane? We are being held captive by dumbass accountants and shrewd CEOs who realize the whole system is rigged in their favor.

The proper way to account for labor would be to classify it as an asset on the balance sheet. The employee would be valued with mark to market accounting at every reporting period, and the value would be determined by calculating the profit per employee, the average tenure, and the net present valueof this amount. This would accurately account for the true value of labor. If this rule were implemented, balance sheets would be dramatically altered. Some companies that appeared valuable before might look like complete garbage. Other companies would prove to be much more valuable than previously thought.

One company that understands the true value of employees is Costco. Their full-time employees make $43,000 per year, which is very high for the retail industry. The turnover there is only 5% for employees who have been there a year or longer. In 2004, The Wall Street Journal published an article about Costco's skeptics. Bill Dreher, retail analyst at Deutsche Bank, said, "From the perspective of investors, Costco's benefits are overly generous. Public companies need to care for shareholders first." Dreher said profit margins weren't as high as they should be.

However, Costco CEO Jim Sinegal, who owned 3.2 million shares of Costco at the time, said,

The last thing I want people to believe is that I don't care about the shareholder. But I happen to believe that in order to reward the shareholder in the long term, you have to please your customers and workers.

The CFO, Richard Galanti, agreed,

From day one, we've run the company with the philosophy that if we pay better than average, provide a salary people can live on, have a positive environment and good benefits, we'll be able to hire better people, they'll stay longer and be more efficient.

A study in the Harvard Business Review showed that Costco generated $21,805 in U.S. operating profit per hourly employee, compared with $11,615 at Sam's Club, a Walmart subsidiary. John Bowen, an investment manager and Costco shareholder, said, "Happy employees make for happy customers, which in the long run is ultimately reflected in the share price."

Fortunately, the Costco CEO didn't listen to the Deutsche Bank analyst who was complaining about their labor investments. In the last 5 years, Costco stock has risen by 139%. Walmart has only gained 41%.

What's interesting about the reclassification of labor as an asset is the implication for central bank policy. The federal minimum wage is only $7.25. Those in power don't see that as a problem. However, when asset prices decline, all of a sudden, they start worrying about deflation. That's why the Federal Reserve launched multiple rounds of quantitative easing, a policy which has essentially become QE Infinity.

While there is no official minimum stock market level like there is with the minimum wage, it's quite clear there is a de facto minimum level, and I guarantee you it's not $7.25. The Chicago Mercantile Exchange's "central bank incentive program" has proven that central banks buy S&P 500 futuresto prop up the market. If labor is no longer misclassified as an expense, would the value of labor rise with all the other assets being inflated by quantitative easing?

Putin & The Saudi Caravan

No one – as usual - saw it coming.

So guess who walks into a room in St. Petersburg this past Thursday; Saudi Arabia’s Deputy Crown Prince – and Defense Minister – Muhammad bin Salman, favorite son of King Salman; Foreign Minister Adel al-Jubeir (former ambassador to the US and very close to key players in the Beltway); and all-powerful Oil Minister Ali al-Naimi. They were all there for a face-to-face with President Vladimir Putin, on the sidelines of the St. Petersburg Economic Forum. 

 

In principle, there could not be a more spectacular game-changer-in-waiting. A royal Saudi caravan offering tribute, in the form of incense, gold and myrrh (or higher oil prices)? No one knows, yet, how this will play out in the New Great Game in Eurasia, of which a major spin-off is Cold War 2.0 between the US and Russia.

Putin and King Salman – very discreetly — had been in touch over the phone for weeks. The King’s son invited Putin to Riyadh. Accepted. Putin invited the King to Moscow. Accepted. No question, the suspense is already killing everybody. But is this real life? Or smoke and mirrors?

Who's allied with whom?

First of all, the crucial energy front. Putin is now discussing what was, so far, an oil price war but may become – and the operative concept is “maybe” – a “petroleum alliance” (in Naimi’s words), directly with the source: the House of Saud.

Assuming this entente cordiale will eventually lead to an oil price rise, Putin scores a major internal victory against what could be described as an Atlanticist Fifth Column trying to undermine Russia’s multipolar drive. Moreover, geoeconomically, it doesn’t hurt that Moscow is now able to add Saudi Arabia as a top purchaser of superior Russian defense systems.

Russian intelligence is fully aware that the House of Saud has been tremendously “disappointed” – and that’s a monster euphemism – with the self-described “Don’t Do Stupid Stuff” Obama administration, for a vast number of reasons, not least the concrete possibility of an Iran-P5+1 nuclear deal on June 30, which is code for Washington finally accepting to breach its own Wall of Mistrust against the Islamic Republic, built 36 years ago.

A highest-level meeting with the House of Saud, on top of it in Russia, ruffles infinite feathers in the Beltway. This won’t go unpunished – for both Moscow and Riyadh. After all, real Masters of the Universe – not their paperboys in different sectors of the US government — have been mulling for a while how to dump the House of Saud.  

Russian intelligence also knows that in Washington, the House of Saud actually depends on the good favors of the Israeli lobby – and it’s all about demonizing Iran. And now an Iran nuclear deal – which will “normalize” Tehran with the West – could not provoke a more glowing red alert in an already vulnerable Riyadh. 

Putin’s message to Iran is more sophisticated. Moscow has been very active working for a successful Iranian nuclear deal; so that invalidates the theory Moscow might be starting to play Riyadh to extract “concessions” from Tehran.

There are no “concessions”. Russia — and eventually Iran — will both provide energy to European markets. Not immediately, because the upgrading of Iranian infrastructure will take years and torrents of investment. But as soon as next year, a non-sanctioned Iran may be finally admitted to the Shanghai Cooperation Organization (SCO).  

So Iran won’t be turning feverishly pro-West from one day to another – as much as some, non-neocon Beltway factions dream. Iran will be solidifying its regional power; engaging in normalized relations especially with Europeans; but most of all accelerating its Eurasian integration, which implies ever close relations with both Russia and China. Not to mention that in Syria, Iran and Russia are exactly on the same geopolitical page, which happens to be totally opposed to the House of Saud’s. 

Putin’s move also carries the potential of isolating Qatar – which is indirectly, but very effectively, subsidizing al-Qaeda in Syria to facilitate its ultimate geoeconomic aim; a natural gas pipeline from South Pars through Saudi Arabia and Jordan to the Mediterranean coast.

The rival project happens to be the Iran-Iraq-Syria pipeline, which is now perennially threatened as a great deal of “Syraq” is under the vise grip of ISIS/ISIL/Daesh. Here, we see the fake Caliphate supporting Qatari designs, geoeconomically, and Saudi, geopolitically.

What is certain is that the top-level Saudi pilgrimage to St. Petersburg could not be more antithetical to (disgraced) Bandar Bush threatening Putin in August 2013 to unleash Chechen jihadis on Sochi if Moscow didn’t back off on Syria.

Who’s on message?

It's tempting to watch this fabulous unfolding drama as a subplot of the BRICS – mostly Russia and China – advancing in the Middle East, with Washington as the loser. It’s more like Putin playing Multipolar World, not Monopoly, and ensuring the Empire of Chaos will really have to sweat to keep its puppet/vassal blocs, such as the GCC, “on message.”

It remains to be seen, long-term, whether this is not a desperate Saudi play to extract “concessions” from its imperial protector. But assuming this is a real deal, Moscow retains the ability to match both Iran and Saudi Arabia’s interests, and ensure this concerted “pivoting to the Middle East” may turn out to be as spectacular as Russia’s “pivoting to Asia” and China’s New Silk Roads. 

 

There is no evidence so far to attest that the House of Saud has conclusively seen which way the wind is blowing, that is, towards the 21st century Silk Road Eurasian caravan, no matter any exceptionalist wishful thinking to the contrary.

 

They are fearful; they are paranoid; they are vulnerable; and they need new “friends”. No one better than Putin – and Russian intelligence — to play the new groove in multiple ways. The House of Saud can hardly be trusted; see the latest, Wikileaks-released, Saudi cables. So this may turn out to be a geopolitical/geoeconomic bonanza. But it can also be a case of keeping your friends close, and your enemies closer.

Why the Saudis Are Going Solar

PRINCE Turki bin Saud bin Mohammad Al Saud belongs to the family that rules Saudi Arabia. He wears a white thawb and ghutra, the traditional robe and headdress of Arab men, and he has a cavernous office hung with portraits of three Saudi royals. When I visited him in Riyadh this spring, a waiter poured tea and subordinates took notes as Turki spoke. Everything about the man seemed to suggest Western notions of a complacent functionary in a complacent, oil-rich kingdom.

But Turki doesn’t fit the stereotype, and neither does his country. Quietly, the prince is helping Saudi Arabia—the quintessential petrostate—prepare to make what could be one of the world’s biggest investments in solar power.

Near Riyadh, the government is preparing to build a commercial-scale solar-panel factory. On the Persian Gulf coast, another factory is about to begin producing large quantities of polysilicon, a material used to make solar cells. And next year, the two state-owned companies that control the energy sector—Saudi Aramco, the world’s biggest oil company, and the Saudi Electricity Company, the kingdom’s main power producer—plan to jointly break ground on about 10 solar projects around the country.

The Saudis burn about a quarter of the oil they produce—and their domestic consumption has been rising at an alarming 7 percent a year.

Turki heads two Saudi entities that are pushing solar hard: the King Abdulaziz City for Science and Technology, a national research-and-development agency based in Riyadh, and Taqnia, a state-owned company that has made several investments in renewable energy and is looking to make more. “We have a clear interest in solar energy,” Turki told me. “And it will soon be expanding exponentially in the kingdom.”

Such talk sounds revolutionary in Saudi Arabia, for decades a poster child for fossil-fuel waste. The government sells gasoline to consumers for about 50 cents a gallon and electricity for as little as 1 cent a kilowatt-hour, a fraction of the lowest prices in the United States. As a result, the highways buzz with Cadillacs, Lincolns, and monster SUVs; few buildings have insulation; and people keep their home air conditioners running—often at temperatures that require sweaters—even when they go on vacation.

Saudi Arabia produces much of its electricity by burning oil, a practice that most countries abandoned long ago, reasoning that they could use coal and natural gas instead and save oil for transportation, an application for which there is no mainstream alternative. Most of Saudi Arabia’s power plants are colossally inefficient, as are its air conditioners, which consumed 70 percent of the kingdom’s electricity in 2013. Although the kingdom has just 30 million people, it is the world’s sixth-largest consumer of oil.

Now, Saudi rulers say, things must change. Their motivation isn’t concern about global warming; the last thing they want is an end to the fossil-fuel era. Quite the contrary: they see investing in solar energy as a way to remain a global oil power.

The skyline in Riyadh is a striking reminder of Saudi Arabia’s rapid growth and urbanization. In 1960, the city had just 155,000 inhabitants; today it has more than 5 million. (Mohammed Al-Deghaishim)

The Saudis burn about a quarter of the oil they produce—and their domestic consumption has been rising at an alarming 7 percent a year, nearly three times the rate of population growth. According to a widely read December 2011 report by Chatham House, a British think tank, if this trend continues, domestic consumption could eat into Saudi oil exports by 2021 and render the kingdom a net oil importer by 2038.

That outcome would be cataclysmic for Saudi Arabia. The kingdom’s political stability has long rested on the “ruling bargain,” whereby the royal family provides citizens, who pay no personal income taxes, with extensive social services funded by oil exports. Left unchecked, domestic consumption could also limit the nation’s ability to moderate global oil prices through its swing reserve—the extra petroleum it can pump to meet spikes in global demand. If Saudi rulers want to maintain control at home and preserve their power on the world stage, they must find a way to use less oil.

Solar, they have decided, is an obvious alternative. In addition to having some of the world’s richest oil fields, Saudi Arabia also has some of the world’s most intense sunlight. (On a map showing levels of solar radiation, with the sunniest areas colored deep red, the kingdom is as blood-red as a raw steak.) Saudi Arabia also has vast expanses of open desert seemingly tailor-made for solar-panel arrays.

Solar-energy prices have fallen by about 80 percent in the past few years, due to a rapid increase in the number of Chinese factories cranking out inexpensive solar panels, more-efficient solar technology, and mounting interest by large investors in bankrolling solar projects. Three years ago, Saudi Arabia announced a goal of building, by 2032, 41 gigawatts of solar capacity, slightly more than the world leader, Germany, has today. According to one estimate, that would be enough to meet about 20 percent of the kingdom’s projected electricity needs—an aggressive target, given that solar today supplies virtually none of Saudi Arabia’s energy and, as of 2012, less than 1 percent of the world’s.

The goal is not just to install solar panels across Saudi Arabia but to export them. Among the potential locations is the United States.

Some of Saudi Arabia’s most prominent industrial firms, as well as international electricity producers and solar companies big and small, have lined up to profit from what they see as a major new market. The fact that Saudi Arabia, an ardent booster of fossil fuels, has found compelling economic reasons to bet on solar is one of the clearest signs yet that solar, at least in some cases, has become a cost-effective source of power.

But the Saudis’ grand plan has been slow to materialize. The reasons include bureaucratic infighting; technical hurdles, notably dust storms and sandstorms that can quickly slash the amount of electricity a solar panel produces; and, most important, the petroleum subsidies that shield Saudi consumers from any real pressure to use less oil. The kingdom is a fossil-fuel supertanker, and though the captain knows that dangerous seas lie ahead, changing course is proving exceedingly hard.

Nasser Qahtani is an oilman through and through. On a credenza in his Riyadh office, he has a souvenir glass block that holds a shot of crude from Saudi Arabia’s biggest oil field. He spent about 15 years working at an Aramco petroleum-processing plant. And he has a master’s degree from Texas A&M University, which is why he has two Aggies coffee mugs on his bookshelf. “That’s for my easy days,” he told me one morning, pointing to the smaller one. “That’s for my tough days,” he deadpanned, pointing to the bigger mug.

Nasser has many tough days. Any shift away from oil threatens a host of entrenched powers, and as the vice governor of regulatory affairs for Saudi Arabia’s Electricity & Cogeneration Regulatory Authority, he spends much of his time trying to corral the competing constituencies to work together to modernize the country’s energy system.

Sipping Arabic coffee while sitting beneath paintings of the same three Saudi royals who adorned Prince Turki’s office wall, Nasser underscored the extent to which his country’s energy subsidies promote waste. In October, the World Bank estimated that Saudi Arabia spends more than 10 percent of its GDP on these subsidies. That comes to about $80 billion a year—more than a third of the kingdom’s budget. “In my opinion, that’s an accurate number,” Nasser said. “This is not sustainable.”

Also unsustainable is the opportunity cost of burning so much oil at home. Aramco sells oil to the Saudi Electricity Company for about $4 a barrel, roughly the cost of production. Even with the global price of oil down to about $60 a barrel as of this writing (a drop of about 40 percent since June 2014), Saudi Arabia forgoes some $56 on every barrel it uses at home. That gap will become far greater if, as many experts expect, the global price rebounds.

The King Abdelaziz City for Science and Technology, a national research-and-development agency based in Riyadh, is one of the key Saudi entities funding solar. (Mohammed Al-Deghaishim)

Saudi leaders carefully calibrate the kingdom’s output to keep that global price where they want it: high enough to fill Saudi coffers but low enough to avoid spurring competitive threats. For years, analysts have debated how much oil Saudi Arabia has in the ground, with some alleging that the kingdom is far less flush than it lets on. Saudi officials maintain that they face no immediate crisis, but they talk about the need to keep in check competitors such as the U.S. shale-oil industry. A serious reduction in the oil they have available for export would hinder their ability to fend off such threats.

Over roughly the past year, the government has toughened energy-efficiency requirements for air conditioners, imposed the country’s first-ever fuel-economy standards for cars, and begun to require insulation in new buildings. It’s moving to require that new power plants be more efficient than the ones they replace. And in March, Saudi Arabia signed a memorandum of understanding with South Korea to build the kingdom’s first two nuclear reactors, and possibly more.

What Saudi leaders don’t appear likely to do, at least anytime soon, is cut the fossil-fuel subsidies. Many Saudis view cheap energy as a birthright, and any increase in prices would be hugely unpopular. In a speech in February, the head of the central bank called for slowly reforming the subsidies, but he gave no indication of when. In the meantime, officials are looking to what once seemed an unthinkable solution: promoting renewable energy.

“The view initially was not to support renewables,” Nasser told me, explaining that Saudi officials feared “that if renewables were successful, we would not find customers for our commodity.” That view has changed—sort of. Should solar somehow begin to threaten the primary market for Saudi oil—as a transportation fuel—the kingdom’s calculus could shift back.

Few places better illustrate Saudi Arabia’s energy challenge than the country’s Red Sea coast. Along a stretch of black highway running north from the coastal city of Jeddah lies a string of new infrastructure. All of it is big. All of it is named for King Abdullah bin Abdulaziz al Saud, who died in January after leading the country for a decade. And much of it was built by Aramco, which, beyond being an international oil giant, is the Saudi government’s go-to player for getting things done. There’s the new King Abdullah Football Stadium, the new King Abdullah University of Science and Technology, the new King Abdullah Economic City, and the new King Abdullah Port. To the north of all this development, in the village of Rabigh, sits an enabler of growth: a massive, oil-fueled power plant.

Built by a Chinese firm and completed in 2012, the plant consists of two towering furnaces that produce electricity by burning heavy fuel oil. When I visited one morning this spring, a tanker sat at the pier, disgorging its liquid into one of the plant’s six circular storage tanks. Each tank holds about 14.5 million gallons of oil, which the plant typically burns in a week. In the sweltering air, the place stank like a Jiffy Lube, the kind of smell that sinks into your pores. Luai Al-Shalabi, a worker who lives in a dormitory there, told me the oily odor is ever-present: “All the time I feel it.”

Oil isn’t the only liquid this plant requires. It also needs freshwater—more than half a million gallons a day. The plant’s furnaces burn the oil, the heat boils the water, and the steam spins the plant’s turbines. All of that freshwater isn’t readily available in this desert kingdom; the Saudis have to make much of it out of saltwater.

Next to the power plant is a desalination plant. It’s small by Saudi standards; far bigger ones produce drinking water. Yet it still seems huge: a maze of tanks, tubes, filters, and pumps covering an area twice as large as a football field. The water the plant sucks in from the Red Sea contains about 40,000 parts per million of salt. By the time it comes out the other end, having been filtered and mixed with chemicals, its salt content is 25 parts per million. The process is a triumph of man over nature. And every step consumes electricity—which comes primarily from oil.

Solar power presents an alluring alternative. The kingdom first began experimenting with energy from the sun in the 1970s. In 1979, the same year that unrest in the Middle East sparked a global oil shock and President Jimmy Carter had solar panels installed on the White House roof, the United States and Saudi Arabia jointly launched a solar-research station about 30 miles northwest of Riyadh, in a tiny village called Al-Uyaynah, which at the time lacked electricity.

Georg Eitelhuber came to Saudi Arabia to teach high-school physics. A few years ago, he began developing a system to keep solar panels clean in the desert. (Mohammed Al-Deghaishim)

Work at this site languished in the 1990s and early 2000s but has picked up in the past few years. In 2010, the King Abdulaziz City for Science and Technology, the research agency that runs the station, built a small experimental assembly line there to manufacture solar panels. A year later, it more than quadrupled the line’s capacity. It plans to expand the facility again over the next several months, this time by a factor of eight.

Prince Turki told me that Saudi officials want to add another factory elsewhere in the kingdom; it will be one of the largest outside of China. The goal, he said, is not just to install solar panels across Saudi Arabia but to export them—a way, Saudi officials hope, to create high-paying tech jobs for the kingdom’s large population of young people. (Some two-thirds of Saudis are younger than 30.) Officials also want to bankroll solar installations in other countries, to boost the market for Saudi-made panels. Among the potential locations is the United States, where Turki envisions the kingdom undercutting other solar providers in part by tapping cheap development loans from Saudi banks.

But the factory at Al-Uyaynah shows how far the country has to go. The equipment comes mostly from Europe, and the solar cells—the square slices of silicon that make up a solar panel—are made in Taiwan. Often, as on the day I visited, the assembly line doesn’t produce much, because materials are stuck in transit. Once, a shipment of the plastic sheeting used to seal the backs of solar panels sat at a Saudi port for a month, and it melted.

The disconnect between aspiration and reality is even starker at the King Abdullah University of Science and Technology, one of the big projects along the Red Sea coast. The multibillion-dollar campus has both a world-class solar-research lab and some stupendously energy-inefficient amenities—including, in the middle of the desert, a hotel where I found my room chilled to about 62 degrees Fahrenheit and a nine-hole golf course fully lit for nighttime play.

The entire campus went up in about three years. It has a town square with a Quiznos sandwich shop, a Burger King, and a grocery store with an extensive selection of dates and nonalcoholic beer, all across the street from a towering white mosque. It has steel-and-wood offices and houses with red-tile roofs, both of which evoke suburban California. And it has a faculty of experts recruited from around the world.

The Saudis spend about $80 billion a year—more than a third of the kingdom’s budget—on domestic energy subsidies.

Among them is Marc Vermeersch, a Belgian physicist and materials scientist who arrived in January after spending several years in Paris heading up solar work at Total, the French oil giant. Vermeersch told me that although no expense was spared in setting up the university’s solar laboratory, the money wasn’t wisely spent. The lab includes half a dozen highly specialized printers—including one that cost about $1 million—that apply coatings to surfaces, a process important in researching futuristic solar-panel technologies. But because Saudi Arabia wants to ramp up solar power soon, Vermeersch and his colleagues are reconfiguring the lab to focus on nearer-term research, work he hopes will pay off in the next few years.

The university houses an incubator for technology start-ups, including a firm founded on the premise that there’s good money to be made in keeping solar panels clean in the desert. The company’s creator is Georg Eitelhuber, an Australian-born mechanical engineer who came to the university in 2009, the year it opened, to teach physics at a high school on the campus. “King Abdullah made me an offer I couldn’t refuse,” Eitelhuber told me kiddingly, in an Aussie accent.

In late 2010, Eitelhuber attended a ceremony at the university for which “a bunch of bigwig managers” gathered to christen experimental solar panels. But a dust storm had blown in, covering the panels and threatening to nix the photo op. With the temperature hovering at about 115 degrees and “everyone sweating bullets,” he said, “guys with squeegees” swept in to wash down the panels. Incredulous, Eitelhuber asked how solar panels are normally cleaned. “This is it,” he was told. “It was clear to me this was going to be the big new problem of a new industry in the Middle East.”

With seed funding from the university, he and some colleagues set about designing a waterless system. “The idea of using desalinated water that’s desalinated using oil,” he said, “is just a big green wash.” Five years later, his company has a late-stage prototype—a long metal rod with lines of brush bristles, powered by the panels—and several solar-panel manufacturers are testing the device. Eitelhuber plans to start installing it on solar farms next year.

Aramco is the most important player in the kingdom’s shift to solar power. The company’s initial forays have been tiny—a solar-panel array next to one of its office buildings, for example—but its plan to break ground on 10 or so bigger solar projects next year seems to represent the start of a more serious commitment. A high-ranking Saudi official told me he expects Saudi Arabia to develop an initial tranche of a few gigawatts of solar capacity over the next five years. The projects will be in places where the cost of conventional fuel is high, either because the sites are remote or because they use diesel. (Saudi Arabia has historically had to buy large quantities of diesel at international prices because its refineries can’t process enough to satisfy domestic demand.)

Even at these cherry-picked sites, solar power is likely to cost more than electricity from the existing conventional plants—but only because those conventional plants get oil at a subsidized price. This explains why the government, not the private sector, is making most of the investment in solar. Private companies are waiting for the government to offer up a slate of contracts that would, in effect, allow solar energy to compete with artificially cheap oil-fired electricity.

Prince Turki bin Saud bin Mohammad Al Saud is helping to lead the kingdom’s shift to solar power. (Mohammed Al-Deghaishim)

One of the biggest firms waiting in the wings is Acwa Power International, which is based in Riyadh and owns and operates power and desalination plants in the Middle East, Africa, and Southeast Asia. In the past few years, Acwa Power has signed contracts to produce solar power in several countries—places where the price of conventional electricity is higher than in Saudi Arabia.

Taqnia, a state-owned company, is finalizing a deal to provide solar energy for 5 cents a kilowatt-hour—a price that may be the cheapest in the world.

Earlier this year, it won a bid to build a solar farm in Dubai. The price at which Acwa Power agreed to sell electricity from that solar farm—5.84 cents a kilowatt-hour—turned heads among solar watchers the world over. It was heralded as signaling a new era of cost competitiveness. Paddy Padmanathan, Acwa Power’s president and CEO, told me he’s confident the company will make a healthy profit over the 25 years of the deal. “All of a sudden, renewables are becoming a very competitive proposition,” he said.

Acwa Power hasn’t yet developed any solar projects in Saudi Arabia. But Prince Turki told me that Taqnia, the state-owned company he chairs, is finalizing a deal to provide solar energy to the Saudi Electricity Company for 5 cents a kilowatt-hour—even less than the price Acwa Power recently agreed to in Dubai. “It’s the cheapest in the world that I know of,” Turki said.

That deal may be a tantalizing sign of things to come, but the goal Saudi Arabia announced three years ago of building 41 gigawatts of solar capacity remains a distant glimmer. In January, Saudi officials announced that they were pushing back the target date from 2032 to 2040—and even with the longer time frame, skeptics have dismissed the goal as a mirage.

Proving them wrong would require reshuffling an economic deck that the kingdom’s leaders have stacked for decades to favor petroleum. In that sense, Saudi Arabia’s energy challenge is a more extreme version of the one that faces the rest of the world. But if the kingdom’s leaders can find the political courage to act decisively, Saudi Arabia, of all nations, could become a model for other countries trying to shift away from oil.

This was given to Free flag subscribers on friday....

BUY PODDAR DEVELOPERS Script code 523628.

Target Rs 3000. in 2 years.

Few reasons can be as follows:

(i) Very high quality of earnings: The aggregate pre-tax ROE of the portfolio is 37% a year;

(ii) Exceptionally strong balance sheet quality: Of the 11 businesses, 8 have no net debt and the most leveraged business has interest cover of more than 3x;

(iii) Highly Scalable Businesses.

Poddar Developers qualifies on all counts. It is a very profitable business with very low debt. Also, it is a micro-cap with a market capitalisation of only Rs. 875 crore. So, you can imagine the extent of scalability that it has. The management, headed by Rohit Poddar, is very dynamic and clear-headed about the future path for the company.

To understand Poddar Developers’ business model, we have to look at four resources:

(i) Article in Forbes India which analyzes the prospects of the company and calls it “the next big realty thing given a 24.7 million unit shortage”. Rohit Poddar, the CEO, is quoted as saying “My business, in the years to come, won’t be judged as a realty business. It will be like any consumer business with a steady growth in top line and profits. The next year’s numbers will always be better than the previous”.

(ii) Feature on CNBC TV18 which explains the economics of low cost housing projects;

(iii) Advertorial which provides details of the mega township project in Badlapur;

(iv) Investors’ presentation dated May 2015 which sets out the “key strengths and differentiators” of Poddar Housing and provides details of the “Strong project pipeline providing near term cash flow visibility”.