China accelerates public-private partnerships in new reform stage

For the first time, long-term contracts in China allow foreign companies to directly market water services to consumers.

Pamela Wolfe, Managing Editor

For the first time, long-term contracts in China allow foreign companies to directly market water services to consumers.

Long-term contracts approved by China within the past two months to French water giants Ondeo and Vivendi Water represent a significant step for its water sector, which has depended traditionally on government funds for operations, construction and investment. Ondeo and Vivendi Water can now market water services directly to Chinese consumers in Chongqing and Pudong - clearly a sign that China is embarking on a new stage of reform that should accelerate public-private partnerships in the water sector.

Although this policy development may not be quickly duplicated in other cities, this policy shift opens the door for lucrative opportunities in China for large companies, such as Ondeo and Vivendi Water, which can draw upon strong financial and technical resources.

Most promising is the central government's new foreign investment policy, as reported in "China's water market signals bright future" (page 17) by David Cox of Masons Projects & Finance in Guangzhou. The central government relaxed its prohibition on foreign investment in China's water networks earlier this year by moving it to a "restricted" category.

Surprisingly, this policy quickly produced results. The city of Chongqing signed an historic framework agreement with Ondeo on 26 April to supply and manage drinking water services, including customer services, on a large scale. This public-private partnership, under a concession scheme, adds to Ondeo's portfolio of 17 other long-term contracts in China. Chongqing is one of the largest municipalities in China with a population of 30 million. Its city population expanded rapidly following the resettlement of hundreds of thousands of Chinese due to the construction of the massive Yangtze hydroelectric dam project.

On 22 May, Ondeo, the water division of Suez, announced that it signed two new contracts in China that are together worth US$ 485 million. In Qingdao, Shandong Province, which will host water events for the Beijing 2008 Olympic Games, Ondeo signed a 25-year contract to operate, improve and maintain two drinking water treatment plants with a combined capacity of 540,000 m3 per day. Ondeo Services' past water management experience in previous Olympic venues - Atlanta, Barcelona, Albertville and Sydney - helped the company win this contract. Ondeo will produce nearly 90% of the water supplied in the inner city. Sino-French Water Development, a joint subsidiary of Ondeo and the New World Group from Hong Kong signed a contract with the local water supply company, Qingdao Tap Water Corp. Ltd. These two parties will set up a 50/50 joint venture.

In Shanghai, Ondeo Degrèmont will also reconstruct two 100-year-old drinking water treatment plants located in Nanshi and Yangshupu for the Southern and Northern Shanghai Water Supply Companies. This contract is worth US$ 28 million and will improve drinking water quality by installing advanced technologies, such as rapid settling, pre-and post-ozonation, activated carbon filtration and complete sludge treatment.

Vivendi Water, a subsidiary of Vivendi Environnement, also had news of its own to report on 22 May. The company won a 50-year contract to operate and maintain water services in Pudong, Shanghai, a major business and financial centre. According to Vivendi Water, this contract is the "first outsourcing which gives a foreign company the responsibility for providing a full service offering drinking water production, network distribution and customer services." Approximately 1.9 million residents live in Pudong, but its population is forecast to increase to five million. The contract stipulates that Vivendi Water buys a 50% share in a new joint venture company, the Shanghai Pudong Vivendi Water Corporation, for US$ 239 million. The joint venture will supply potable water to 550,000 customers, who consume 1.2 million m3 of water daily.

Water supply shortages, insufficient sewage treatment and polluted water resources affect almost 400 cities in China. The government's new stance on foreign investments should help to attract the huge investments and technical expertise required to solve these problems in many of these cities.

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