(SINGAPORE) Water treatment company Hyflux Limited said yesterday it has signed an agreement to build two water desalination plants in Libya, a deal which analysts say could be worth more than $1 billion.

Mr Ong: The projects, part of phase 1 of Libya's desalination plan, are likely to be fast-tracked

While details of project cost and financing are yet to be hammered out, based on the estimated $632 million cost of Hyflux's existing desalination plant now under construction in Magtaa in neighbouring Algeria, the two new plants in Libya could cost a total of $1.2 billion, said Kim Eng analyst James Koh.

'I see this as definitely positive for Hyflux as we've not seen any major contracts for a while,' he said. 'This project affirms our investment thesis that they are a major global player in the building of desalination plants.'

The agreements, signed yesterday with General Desalination Company (GDC), the commercial arm of Libya's Ministry of Utilities, will also see Hyflux taking a 49 per cent stake in the two plants which have a total design capacity of at least 900,000 cubic metres a day. GDC will own the majority share.

One plant, with a capacity of at least 500,000 cubic metres a day, will be sited east of Tripoli, the country's capital city. The other, with a capacity of at least 400,000 cubic metres, will be in Benghazi, Libya's second largest city.

The country is one of Africa's richest due to its large reserves of oil, but faces a shortage of clean water. Much of its present supply comes from vast underground lakes and the new desalination plants are expected to add to the supply. Some of the water is also earmarked for agricultural use, said Sam Ong, deputy chief executive officer of Hyflux.

Hyflux is taking on all the engineering, procurement and construction (EPC) work for the two plants, and the Libyan government has committed to 25-year offtake agreements for the water produced. A joint venture company will take care of ongoing operation and maintenance of the plants.

Eighty per cent of the project will be financed through debt, with the money to come internally from Libyan banks or government investment funds, said Abubakar Awidat, undersecretary of the Libyan Ministry of Utilities. Tax incentives are also on the cards.

The parties involved refused to give a timeline for a definitive agreement, saying that many technical and financial details remain to be ironed out. Further discussions will take place over the next few months, but Mr Ong said the projects, as part of the first phase of Libya's desalination programme, are likely to be fast-tracked.

Mr Koh said he expected little financial impact in 2010, with the bulk of the revenue likely to be booked only from 2011.

The company is now building two desalination plants in Algeria - a 500,000 cubic metre a day plant in Magtaa, and a smaller 200,000 cubic metre a day plant in Tlemcen. It is also building China's largest desalination plant in Tianjin, which is expected to deliver water on schedule this year.

Hyflux has reported an order book of about $1.5 billion, not including the latest deals. Net profit for the first quarter to March 31 fell 11 per cent to $5.1 million from $5.7 million in the same period last year, while sales were down 2 per cent to $88.2 million from $89.6 million. China made up about 38 per cent of total sales, with the Middle East and North Africa contributing 57 per cent.

The stock increased 3 per cent or 6 cents to $2.08 before trading was halted at lunchtime yesterday. It has rebounded 50 per cent since it hit a low of $1.36 in March this year. Trading resumes this morning.