Going naturally with the flow

Updated: 2012-11-23 09:08

By Lin Jing (China Daily)

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 Going naturally with the flow

Veolia's water laboratory in Lanzhou. The French company says it has spent 20 million yuan renovating it. Lin Jing / China Daily

Global water services firm recognizes environment concerns of new expansion

The world's leading water services provider, the French company Veolia, is savoring the latest development of Lanzhou New Area as it expects to tap into an increased demand for water supply.

Going naturally with the flow

"We have a long presence in China and are very happy to participate in Lanzhou's development, because it is becoming a very important place," says Guillaume Dourdin, Veolia Water's vice-president for China and CEO for North West Region.

"It is very exciting news for the city and also it is a very interesting opportunity for us. The new area is going to attract a lot of investment, and companies will increase their need for water services."

But the opportunity also involves a major conservation challenge, he says.

"The more investment coming in, the more environmental preservation is going to become an important issue in water service and waste water management."

China is different to the other developing countries in which Veolia Water operates, Dourdin says.

"With its large population and size, China has many unique features which bring challenges to environmental protection. The industry also has to face more stringent regulation, as indicated by the country's 12th Five-Year Plan (2011-15)."

He says China will face challenges concerning water availability, quality and preservation of resources, especially in the western regions.

Lanzhou has many heavy industries, such as machinery manufacturing and chemical works, which require a lot of water and environmental monitoring.

"That provides us with the opportunity and also an interesting challenge. It is a challenge we like, because we consider that with our technology and service, we can make a difference."

Founded in 1853 as Compagnie Generale des Eaux, the company was renamed Veolia Water in 2003. With a workforce of more than 96,000 in 69 countries, it reported revenue totalling 12.6 billion euros ($16 billion) in 2011.

Veolia's partnership with Lanzhou began in 2007, when the company signed a concession contract with the Lanzhou Water Supply Company, acquiring a 45 percent stake of the municipal water company for 1.7 billion yuan ($272 million; 214 million euros).

"At that time, we decided to cooperate with Lanzhou, because it promised to be a developing city," Dourdin says.

"We take care of all the water services, including production of drinking water, distribution and management of network and customer services."

Currently, Veolia's contract is limited to the old city, but it is in discussions with the Lanzhou authorities about providing water for the New Area.

Dourdin visits Lanzhou every two months, and what impresses him most is how quickly the city is changing.

"When speaking of China, two words come to mind - urbanization and industrialization. China has been experiencing rapid growth in the past decade and will probably see it continue in the next.

"I am fascinated to see the changes, some big, some small. After some time in China, you may get used to it; to seeing a bunch of buildings coming down and new buildings going up. But when bringing my French colleagues to visit, they are amazed."

Dourdin says developing countries represent about 30 percent of Veolia's business, and the company aims to increase that to 50 percent.

The company won its first water management contract in China in 1997 for Tianjin.

"The key advantage of Veolia is that we are able to bring global expertise to a local context and customize our services based on local needs," Dourdin says.

On July 1 new standards for drinking water came into force in China, with the number of quality indicators rising to 106 from 35, almost on par with EU standards.

In response, Veolia invested about 20 million yuan in the renovation of its laboratories in Lanzhou to meet the new test standards, including those for sources, pipes and tap water.

"It is expected to be the best lab of Veolia in the world," Dourdin says.

Two years ago the company proposed adding a third pipe across the Yellow River, to supply water to the northern part of the city. The pipe went into operation in August, after floods had collapsed the river bank and destroyed an original pipe.

"A 100-meter-long pipe fell into the river, but the trial pipe has been opened and the company was able to recover the water service quickly," says Yao Xin, chairman of Lanzhou Water Supply Company, Veolia's partner.

"In some cities there are several companies. But there is only one that provides water for the whole of Lanzhou city."

Veolia has been active in China over the past few years. In March 2007 after the Lanzhou partnership deal, the company bought a 50 percent stake in Haikou Water Group for 950 million yuan and set up Haikou Veolia Water. In September that year it signed another full-service concession contract in Tianjin, with investment of 2.18 billion yuan.

Today Veolia has more than 30 contracts in 20 cities in China employing 13,000 people.

The major involvement of foreign companies in China's water supply market, however, has raised concerns about monopolization.

Fu Tao, director of Water Policy Research Center with Tsinghua University, says that foreign water companies are only responsible for about 10 percent of the total water supply capacity in China, and that their rapid expansion in the sector merely shows their confidence in it.

"They are optimistic about rising water prices, the strategic position of the cities they operate in and the talent pool," he says.

"They have not formed any monopoly in China's water supply market. What these companies value is not the return in the short term, but a steady cash flow generated in the long term through service."

Fu suggests that when choosing partners, local governments select companies that are ready for long-term cooperation, rather than those aiming at short-term financial returns.

However, concerns remain about rising water prices in Lanzhou.

Dourdin says that the price of water is a sensitive issue anywhere.

"The price of water will probably keep going up for the next decade because of increasing concerns over preservation of resources, not only in Lanzhou, but also in other areas of China. And better services, including improved water quality and water supply security, will be associated with rising prices."

He says the focus of the water industry should be on minimizing the need for price increases, with companies making sure every penny is well spent.

"What is important to see is the result. The key focus should be on delivering a good water service to citizens."

linjingcd@chinadaily.com.cn

(China Daily 11/23/2012 page18)