Water Market Asia

“In shallow waters, shrimps make fools of dragons.” Chinese Proverb

i Water Market Asia

This report was researched, written and edited by Jensen & Blanc-Brude, Ltd. for Global Water Intelligence

Jensen & Blanc-Brude, Ltd. Global Water Intelligence 22 Leathermarket Street, Unit 6 Published by Media Analytics, Ltd. London SE1 3HP The Jam Factory, 27 Park End Street United Kingdom Oxford OX1 1HU [email protected] United Kingdom www.jensenblancbrude.com [email protected] www.globalwaterintel.com

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c ii Water Market Asia

Acknowledgements

The authors would like to thank the following contributors to this report:

Seungho Lee researched and wrote the South Korea profi le Michiko Iwanami researched and wrote the Japan profi le Marie Hélène Zerah researched and contributed to the India profi le Kathy Liu contributed to the China profi le

The GWI team provided helpful comments and support.

The authors also wish to thank the following practitioners for their valuable insights and support:

David Chen Country Director Earth Tech China Patrice Fonlladosa Executive Vice President, US & AIM Region Veolia Water Martin Lane Regional Managing Director Biwater Man Lee Teffrey Leung Head of China Division Biwater Man Lee Hans Werner Linne Director Siemens I&S China Tromod Mitroo Country Director Veolia Water India Barry Norman Managing Director Earth Tech Asia-Paciﬁ c Sheshabri Prakash Director, Operations Tamnilnadu Water Investment Co Faizal Othman General Manager, Business Development Ranhill Utilities Colin Sangster CFO Sino-French Water Company

Representatives of the following companies also kindly contributed information to this report: Beijing Capital Com- pany, Bio-Treat, Degremont (India), Earth Tech (Thailand), Hyﬂ ux, Puncak Niaga Holdings, Suez (Hong Kong), Shanghai Industrial Holdings, Tata Steel, United Utilities Australia, Veolia (Hong Kong)

iii Water Market Asia

Executive Summary

I. Markets Review Local Financial Markets I.1 Market trends The development of local fi nancial markets is making it easier for both local and international utility companies to access long-term fi nance at Private investment reasonable rates. For foreign investors who have seen projects dealt The number of signed DBFO projects has been steadily increasing ev- a death blow by exchange rate risk, this development contributes to ery year since 1990. The number of projects in the wastewater sector reigniting their interest in developing markets, especially China. has known a remarkable growth since 2000. Our database tracks 336 awarded projects in the region. Only 23 of these have been offi cially I.2 Actors terminated, a reasonable fi gure of less than 7% of the total. While not The rise of local investors always offi cially ‘terminated’, some of the largest projects have been Regional companies are increasingly active, whether competing with the object of well publicised re-negotiations and can be considered as the big international players in public tenders or puttin forward their stalled, especially the twin concessions of Jakarta and Manila. The own unsolicited proposals. In the top 20 companies in Asia, listed by largest number of terminated deals is in China (10) but represents a number of active projects, 13 come from the region. Five of the 20 are total portfolio value of US$300m, which is marginal when compared mainland Chinese companies listed either in Beijing or Hong Kong. with the US$8bn of project investment committed by the private sector to the Chinese market alone over the past decade. Many Singapore-listed companies are proving to be dynamic players in the Chinese markets, mostly at the more technologically sophisti- By number of projects and by value, China and Australia have seen cated end of the project spectrum. the greatest amount of private sector interest and fi nance. Overall, about US$25bn have been committed by private investors to wa- Success and failures of international utilities ter and wastewater projects in the region between 1985 and 2005. International investors have a mixed attitude towards the Asia Pacifi c. Wastewater emerges as a key component of the market after 2000 Most are focusing on China in their growth strategies, keeping their by this measure as well. But the trend reveals a much greater vari- options open in Australia and reducing their activities everywhere ability: three of the largest deals to date are the concessions in Manila else. China’s biggest cheerleaders are Veolia and Suez. (Philippines) and Jakarta (Indonesia), both awarded in 1997 and the privatisation of Malaysia’s sewerage network, signed in 1995. Correct- Some investors see the Asian market very differently. They have with- ing for such large signatures, the trend remains upward but is really drawn as quickly and as far as possible, even from China – Anglian driven by China. Overall, private investors, both local and internation- and Thames are the main names here. al, have been building an impressive but fl uctuating portfolio of water and wastewater assets throughout Asia. The role of IFIs Investment in the poorer countries is driven by bilateral and multilat- Trends in public investment eral funding. The big recipients are all very populous countries, and Across the region, governments are acutely aware of how infrastruc- with the exception of China, fall into the low income group of coun- ture shortages act as a constraint on growth, yet public budgets have tries. The focus on China, however, refl ects a partial misdirection of themselves been constrained by growth setbacks in recent years. At development assistance because the projects are located mostly in the same time, and rather belatedly, Asian governments are fi nally the richer coastal regions of the country, at the request of the Chinese starting to take notice of the looming environmental crisis in the re- government. gion. Broadly, this combination of forces will support the market for DBFO projects in countries where private investors are still willing to I.3 Policies go, particularly in the areas of wastewater treatment and recycling. A lost decade? In other countries where the risk-return ratio cannot support private fi nance, water companies will have to rely on the variable fl ows of Getting the private sector involved in the water sector not just as a donor fi nance for project opportunities. contractor but as fi nancier and operator has undeniably been the big policy idea of the decade but it has not proved to be the miracle solu- The World Bank estimates that US$3 per head a year would be enough tion to Asia’s water problems, contrary to what many, especially the to allow Asian developing countries to reach the Millennium Develop- World Bank, still advocated a few years ago. ment Goals. By this criterion, our estimates are grounds for optimism: the average expenditure for the low and middle income countries on In many of Asia’s developing countries, experiments with private sec- water and sanitation comes in above that line, as US$3.39. However, tor participation have come full circle, yet improvements in water and averages disguise important underlying disparities. sanitation services have been limited. In countries where public utilities were functioning relatively well, like Hong Kong or Thailand, PSP A further and major concern is that governments tend to invest much has been confi ned to a few BOT and technical assistance contracts less than they initially intend or announce. Historically, the average and the government continues to dominate the sector. In countries has been 50% less. that experimented more whole-heartedly with PSP, like the Philip- pines, through major concession contracts, both governments and The push towards wastewater treatment investors have been disappointed with the results. The number of new wastewater projects, both publicly and privately fi nanced that has been announced since 2002-2003 is impressive and At the other end of the spectrum, is the dramatic, all-important excep- can seem on the verge of over-taking the water sector both by number tion of China, which has gradually but convincingly opened up to PSP of deals and by value. Major investment programmes are now in the in all parts of the market. Yet there is a great deal of uncertainty about pipeline or already underway everywhere in the region. But the real Chinese government policy in the medium-term. The government has wastewater El Dorado could turn out to be China. shown itself capable of reversing a policy with no warning, as it did when it enforced a ban on guaranteed rates of return in foreign in- There, new wastewater projects go to tender almost every day and vested projects in 2001. wastewater treatment equipment is rapidly becoming big business. Assembly lines are already being built in China by foreign investors Tariffs and it is only a matter of time before China becomes a net exporter of Tariffs for water are on an upward trend throughout the region. In all treatment technology. countries, with the exception of Malaysia where tariffs will be harmon- ised nationally, tariffs are set at the local level. Decentralisation has re- Desalination or recycling? inforced the powers of local governments to approve tariffs. Charging Desalination is being tried in places (Singapore, Tianjin, Chennai) but for wastewater has not yet been well accepted. PSP in the municipal is generally proving to be at odds with what Asia needs: the cheapest wastewater sector is therefore unlikely to be fi nanced through con- fastest way to develop water supply. sumer tariffs. Instead, private partners will need to receive payments from the local utility or municipality. Financial planning for projects of

Opportunities in the Water & Wastewater Sectors in Asia & the Pacifi c iv Water Market Asia this kind will need to take very careful account of the fi nancial health and is itself constrained by the increased water use in the Pearl River of the relevant municipality. Delta area. II. Country round-up Singapore is a very mature water and wastewater market. The role of the public sector is pivotal and performance is excellent by regional II.1 High potential: China and international standards. There has been some experimentation The Chinese water and wastewater sector was only fully opened in with PSP (2 projects) but the rationale for these had more to do with 2002. Until then, local players were offi cially barred from taking an ac- industrial policy than getting value for money for public dollars. Ca- tive part and foreign companies were unable to take on water distribu- pacity is now in line with demand forecasts up to 2011 and beyond tion projects. But the PSP market had already started to develop rap- so there will not be new mega water projects in Singapore for some idly in 2000, with between 25 and 35 new private investment projects time. signed by foreign companies each year. Major international players Japan has been gradually opening up to the idea of private sector now have a signifi cant portfolio of assets in China, while local Asian participation in infrastructure, although since 1999 when the Private developers have become a non-negligible source of competition and a Finance Initiative Law was enacted, only a handful of projects have small number of powerful Chinese developers have established them- been pursued. This market is dominated by Japanese construction selves in the market. companies but the government is encouraging foreign participation in Contrary to most markets that have been opened to PSP, there has a few areas, including water recycling. Foreign companies face seri- not been a decrease of public spending in the sector. For the next fi ve- ous challenges in breaking into the Japanese PFI market, from pre- year plan (2006-2010), China will spend RMB200bn (US$25bn) on qualifi cation to performance specifi cation, so it is not surprising that water supply projects and RMB250bn (US$30m) on sewage disposal no international water majors consider the Japanese market to hold between 2006-2010. much potential. Both public and private projects will be needed to develop the required II.4 A Case Apart: Malaysia capacity. With the growth of Chinese cities, daily urban water demand Malaysia is in the midst of sectoral restructuring which will close off could reach 432.7 million m3 by 2010. However, at that point, the some avenues for private investors, but should open others. Under country’s urban water treatment capacity will only be able to produce the reform, responsibility for water has been shifted from the states 282 million m3, according to the China Water Association. to the federal level in a constitutional amendment while the shape of II.2 Good but limited potential: Australia, Taiwan, New Zealand & sector is set out in two proposed laws, the Water Services Industry Bill South Korea and the National Water Services Commission Bill. The bills provide for the creation of SPAN, the National Water Services Commission, and Australia is perceived as a strong, safe market but is often described WAHCO, the Water Asset Holding Company. SPAN will take over the as ‘tight’: few opportunities and intense competition. The needs, management of water assets from states. WAHCO will own the as- however, are important. New water treatment capacity is needed to sets and use these to raise funds on the private capital markets, of an cope with population increases and sewerage systems are in need of estimated MYR500m by 2007. upgrading. The sewerage systems in most of Australia’s major cities are old and overloaded. Large investments are needed to increase II.5 High Risk: Thailand, Indonesia and the Philippines sewerage capacity and improve their condition, as well as to improve Thailand, Indonesia and the Philippines have proved to be frustrating the quality of treatment. In addition, municipalities are turning to the markets for private developers. In part, this is due to timing, as a rush practice of recycling wastewater in order to alleviate the pollution load of foreign companies entered these markets in the mid-1990s and of the country’s rivers and coastal waters. were then hit severely by plummeting exchange rates and a collapse Taiwan is going through a period of budget tightening. However, its in demand during the Asian crisis. Thailand was one of fi rst countries water supply system seems able to meet most of the existing demand, in the region to launch PSP: in the mid-1990s it agreed several BOT except in remote areas. Wastewater, however, has been lagging be- projects and began negotiations for concession projects. Thames Wa- hind and performance is very low given the income level of the country. ter was an early participant in the Thai market and secured the major The wastewater sector needs a lot of new investment and the govern- West Bangkok BOT project which is saw as a step towards winning ment has plans to spend NT$100bn (US$3bn) in the sector between an integrated treatment and distribution contract which never materi- 2004 and 2008. However, such funds are considered insuffi cient and alised. PSP is proposed for numerous wastewater projects. Despite all these problems, the Philippines and Indonesia are both Privatisation is not a “natural” choice in the New Zealand political very keen to attract more foreign investment into water and sanita- context and local authorities expect to see high “value for money” in tion projects. Unfortunately for these two heavily indebted govern- exchange for awarding PSP contracts. Public utilities also tend to per- ments, the high visibility problems in Jakarta and Manila have put off form well. foreign investors. The Indonesian government was unable to attract any private sector interest in a list of projects presented to investors Korea is a market with great needs for water and wastewater treat- in 2005. ment but there can be a signifi cant gap between government plans and reality, especially in the short run. There are also great disparities II.6 No or Marginal Potential: The Mekong Delta & South Asia between large urban centres and the rest of the country in terms of The countries of South Asia and the Mekong are the least promis- service coverage and level of standards. For a long time, wastewater ing markets for private investors and foreign EPCs. The South Asian and the environment was a priority only on paper. Between 2003 and countries covered in this survey – Bangladesh, India, Nepal, Pakistan 2014, Korea needs KW4,000bn (US$4bn) of new investment for the and Sri Lanka – have made very slow progress towards establish- piped water sector alone. ing, and more crucially, implementing a framework water policy which II.3 Very limited potential: Hong Kong, Singapore & Japan could support PSP. The Hong Kong water and sanitation sector is wholly in the hands The Mekong countries – Vietnam, Cambodia and Laos – have gone of the public sector. While past performance has not always been further in policy development, following through the recommendations impressive, recent years have seen great improvements and much of IFIs, but with the result that the gap between policy and practice needed capex. Through their efforts to become and stay effi cient, the has become wider. HK water and drainage and sanitation departments are also attempt- Policy coordination within the government is extremely poor in most ing to fend off any attempt to introduce private sector participation. of these countries and agricultural needs predominate over domestic Despite diffi cult times for the economy in general, Hong Kong con- and industrial needs. Access to water resources therefore poses a tinues to modernise its water and sanitation infrastructure and will be long-term challenge for urban water projects. looking at new technologies (water re-use, desalination) in the future, By most practitioner’s accounts and looking at recent activity, the In- to alleviate its dependency on mainland China for supply. The current dian market should take fi ve to ten years to open up. water supply from Guangdong province is becoming more expensive

v Water Market Asia

Table of Contents

PART 1: ANALYSIS Hong Kong 59 I. Markets Review 3 I. General Information 60 I.1 Market trends I.1 Macroeconomic Situation I.2 Actors I.2 Political & Investment Environment I.3 Policies II. Water 62 II. Country round-up 13 II.1 Sector Policy & Structure II.1 Comparative Fundamentals II.2 Financing II.2 High potential: China II.3 Private Sector Participation II.3 Good but limited potential: Australia, Taiwan, New II.4 Tariffs Zealand & South Korea II.5 Facilities II.4 Very limited potential: Hong Kong, Singapore & Ja- II.6 Performance pan III. Wastewater 63 II.5 A Case Apart: Malaysia III.1 Sector Policy & Structure II.6 High Risk: Thailand, Indonesia and the Philippines III.2 Sewage Charges II.7 No or Marginal Potential: The Mekong Delta & South Asia IV. Environment and Legal Aspects 64 IV.1 Water and Wastewater Fundamentals PART 2: COUNTRY PROFILES IV.2 Laws and Institutions PART 2.1: HIGH INCOME ASIA V. Construction & Equipment Markets 68 Australia 25 VI. Sources 70 I. General Information 26 Future PSP Projects in Hong Kong 71 I.1 Macroeconomic Situation Japan 73 I.2 Political & Investment Environment I. General Information 74 II. Water 26 I.1 Macroeconomic Situation II.1 Sector Policy & Structure I.2 Political & Investment Environment II.2 Financing II. Water 74 II.3 Private Sector Participation II.1 Sector Policy & Structure II.4 Tariffs II.2 Financing II.5 Regulation II.3 Private Sector Participation II.6 Performance II.4 Tariffs III. Wastewater 36 II.5 Regulation III.1 Sector Policy & Structure II.6 Performance III.2 PSP III. Wastewater 77 III.3 Tariffs III.1 Sector Policy & Structure 77 III.4 Regulation III.2 Financing III.5 Facilities III.3 Private Sector Participation III.6 Performance III.4 Tariffs IV. Environment and Legal Aspects 36 III.5 Regulation IV.1 Water and Wastewater Fundamentals III.6 Performance IV.2 Laws and Institutions IV. Environment and Legal Aspects 80 V. Equipement Markets 40 IV.1 Water and Wastewater Fundamentals VI. Sources 40 IV.2 Laws and Institutions VII. Useful contact 40 V. Equipment & Construction Markets 80 Known PSP Projects in Australia 44 VI. Sources 80

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c vi Water Market Asia

Known PSP Projects in Japan 85 IV. Environment and Legal Aspects 110 South Korea 87 IV.1 Water and Wastewater Fundamentals I. General Information 88 IV.2 Laws and Institutions I.1 Macroeconomic Situation V. Sources 110 I.2 Political & Investment Environment Known PSP Projects in New Zealand 114 II. Water 88 Singapore 117 II.1 Sector Policy & Structure I. General Information 118 II.3 Private Sector Participation I.1 Macroeconomic Situation II.4 Tariffs I.2 Political & Investment Environment II.5 Regulation II. Water 118 II.6 Performance II.1 Sector Policy & Structure II.7 Facilities II.2 Financing & Performance III. Wastewater 92 II.3 Private Sector Participation III.1 Sector Policy & Structure II.4 Tariffs III.2 Financing III. Wastewater 122 III.3 PSP III.1 Sector Policy & Structure III.4 Tariffs III.2 The Deep Tunnel Sewerage System III.5 Regulation IV. Environment and Legal Aspects 122 III.6 Performance Known PSP Projects in Singapore 127 III.7 Facilities Taiwan 129 IV. Environment and Legal Aspects 94 I. General Information 130 IV.1 Water and Wastewater Fundamentals I.1 Macroeconomic Situation IV.2 Laws and Institutions I.2 Political & Investment Environment V. Construction & Equipment Markets 96 II. Water 131 VI. Sources 96 II.1 Sector Policy & Structure Known PSP Projects in South Korea 101 II.2 Private Sector Participation New Zealand 103 II.3 Tariffs I. General Information 104 II.4 Performance I.1 Macroeconomic Situation II.5 Facilities I.2 Political & Investment Environment III. Wastewater 132 II. Water 104 III.1 Sector Policy & Structure II.1 Sector Policy & Structure III.2 Financing II.2 Financing III.3 Private Sector Participation II.3 Private Sector Participation IV. Environment and Legal Aspects 135 II.4 Tariffs IV.1 Water and Wastewater Fundamentals II.5 Regulation IV.2 Laws and Institutions II.6 Performance V. Construction & Equipment Markets 136 III. Wastewater 110 VI. Sources 136 III.1 Sector Policy & Structure VII. Contacts 136 III.2 Private Sector Participation Known PSP Projects in Taiwan 138 III.3 Tariffs PART 2.2: EMERGING ASIA III.4 Regulation Bangladesh 141 III.6 Facilities I. General Information 142

vii Water Market Asia

Macroeconomic Situation III. Wastewater 174 II. Water 142 III.1 Sector Policy & Structure II.1 Sector Policy & Structure III.2 Financing II.2 Financing 145 III.3 Private Sector Particiption II.3 Private Sector Participation III.4 Tariffs II.4 Tariffs III.5 Regulation II.5 Regulation IV. Environment and Legal Aspects 180 II.6 Performance IV.1 Water and Wastewater Fundamentals III. Wastewater 146 IV.2 Laws and Institutions III.1 Sector Policy & Structure VI. Sources III.2 Financing Known PSP Projects in China 188 III.3 PSP India 243 III.4 Tariffs I. General Information 244 III.5 Performance I.1 Macroeconomic Situation IV. Environment and Legal Aspects 146 II.2 Political & Investment Environment IV.1 Water and Wastewater Fundamentals II. Water 246 IV.2 Laws and Institutions II.1 Sector Policy & Structure V. Sources 148 II.2 Financing Cambodia 149 II.3 Private Sector Participation I. General Information 150 II.4 Tariffs I.1 Macroeconomic Situation II.5 Regulation I.2 Political & Investment Environment II.6 Performance II. Water 152 III. Wastewater 248 II.1 Sector Policy & Structure III.1 Sector Policy & Structure II.2 Financing III.2 Private Sector Participation II.3 Private Sector Participation III.3 Tariffs II.4 Tariffs III.4 Regulation II.5 Regulation III.5 Performance III. Wastewater 156 IV. Environment and Legal Aspects 250 Sector Policy & Structure IV.1 Water and Wastewater Fundamentals IV. Environment and Legal Aspects 156 IV.2 Laws and Institutions IV.1 Water and Wastewater Fundamentals V. Construction & Equipment Markets 255 IV.2 Laws and Institutions VI. Sources 255 V. Sources 158 Known and Future PSP Projects in India 259 VI. Contacts 158 Indonesia 263 Known PSP Projects in Cambodia 159 I. General Information 264 China 163 I.1 Macroeconomic Situation I. General Information 164 I.2 Political & Investment Environment I.1 Macroeconomic Situation II. Water 266 I.2 Political & Investment Environment II.1 Sector Policy & Structure II. Water 166 II.2 Financing II.1 Sector Policy & Structure II.3 PSP II.2 Financing II.4 Tariffs II.3 Private Sector Participation II.5 Regulation II.4 Tariffs II.6 Performance

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c viii Water Market Asia

III. Wastewater 268 III.3 Private Sector Participation III.1 Sector Policy & Structure III.4 Tariffs III.2 Financing III.5 Regulation III.3 PSP III.6 Performance III.4 Tariffs III.7 Facilities III.5 Regulation IV. Environment and Legal Aspects 302 III.6 Performance 270 IV.1 Water and Wastewater Fundamentals IV. Environment and Legal Aspects 270 IV.2 Laws and Institutions IV.1 Water and Wastewater Fundamentals V. Sources 302 V. Sources 272 Known PSP Projects in Malaysia 307 Known PSP Projects in Indonesia 275 Nepal 313 LAO P.D.R. 281 I. General Information 314 I. General Information 282 I.1 Macroeconomic Situation I.1 Macroeconomic Situation I.2 Political & Investment Environment I.2 Political & Investment Environment II. Water 314 II. Water 284 II.1 Sector Policy & Structure II.1 Sector Policy & Structure II.2 Financing II.2 Financing II.3 Private Sector Participation II.3 Private Sector Participation II.4 Tariffs II.4 Tariffs II.5 Regulation II.5 Regulation II.6 Performance II.6 Performance III. Wastewater 320 II.7 Facilities & Technology III.1 Sector Policy & Structure III. Wastewater 288 III.2 Financing Sector Policy & Structure III.3 PSP IV. Environment and Legal Aspects 288 III.4 Performance IV.1 Water and Wastewater Fundamentals IV. Environment and Legal Aspects 321 IV.2 Laws and Institutions IV.1 Water and Wastewater Fundamentals V. Construction & Equipment Markets 292 Water Resources VI. Sources 292 IV.2 Laws and Institutions Malaysia 295 VI. Sources 322 I. General Information 296 Known PSP Projects in Nepal 322 I.1 Macroeconomic Situation Pakistan 323 I.2 Political & Investment Environment I. General Information 324 II. Water 298 I.1 Macroeconomic Situation II.1 Sector Policy & Structure I.2 Political & Investment Environment II.2 Financing II. Water 326 II.3 Private Sector Participation II.1 Sector Policy & Structure II.4 Tariffs II.2 Financing II.5 Regulation II.4 Tariffs II.6 Performance II.5 Regulation II.7 Facilities II.6 Performance III. Wastewater 301 III. Wastewater 328 III.1 Sector Policy & Structure III.1 Sector Policy & Structure III.2 Financing III.3 Private Sector Participation

ix Water Market Asia

III.4 Tariffs IV.1 Water and Wastewater Fundamentals III.5 Regulation IV.2 Laws and Institutions IV. Environment and Legal Aspects 330 V. Sources 360 IV.1 Water and Wastewater Fundamentals Thailand 361 IV.2 Laws and Institutions I. General Information 362 Philippines 333 I.1 Macroeconomic Situation I. General Information 334 I.2 Political & Investment Environment I.1 Macroeconomic Situation II. Water 364 I.2 Political & Investment Environment II.1 Sector Policy & Structure II. Water 336 II.2 Financing II.1 Sector Policy & Structure II.3 Private Sector Participation II.2 Financing II.4 Tariffs II.3 Private Ssector Participation III. Wastewater 366 II.4 Tariffs III.1 Sector Policy & Structure II.5 Regulation III.2 Private Sector Participation II.6 Performance III.3 Tariffs III. Wastewater 342 III.4 Regulation III.1 Sector Policy & Structure III.5 Performance III.2 Financing IV. Environment and Legal Aspects 366 III.3 Private Sector Participation IV.1 Water and Wastewater Fundamentals IV. Environment and Legal Aspects 342 IV.2 Laws and Institutions IV.1 Water and Wastewater Fundamentals V. Sources 368 IV.2 Laws and Institutions Known PSP Projects in Thailand 371 V. Construction & Equipment Markets 344 Viet Nam 375 VI. Sources 344 I. General Information 376 Known PSP Projects in the Philippines 346 I.1 Macroeconomic Situation 376 Sri Lanka 351 I.2 Political & Investment Environment I. General Information 352 II. Water 378 I.1 Macroeconomic Situation II.1 Sector Policy & Structure I.2 Political & Investment Environment II.2 Financing II. Water 354 II.3 Private Sector Participation II.1 Sector Policy & Structure II.4 Tariffs II.2 Financing II.5 Performance II.3 Private Sector Participation III. Wastewater 384 II.4 Tariffs III.1 Sector Policy, Structure & Performance II.5 Regulation III.2 Private Sector Participation II.6 Performance IV. Environment and Legal Aspects 385 III. Wastewater 356 IV.1 Water and Wastewater Fundamentals III.1 Sector Policy & Structure IV.2 Laws and Institutions III.2 Financing V. Sources 387 III.3 Private Sector Participation VI. Useful contact 387 III.4 Tariffs Known PSP Projects in Viet Nam 389 III.5 Regulation III.6 Performance IV. Environment and Legal Aspects 357

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c x Water Market Asia

PART 3: COMPANY PROFILES Keppel 440 Kobelco Eco-Solutions 440 PART 3.1: KEY PLAYERS Kurita Water 441 Asia Water Technology 397 Ludowici 441 Beijing Capital 398 Maezawa 442 Bio-Treat Technology 400 Multi-CON Systems 442 Biwater 401 Nanhai Developments 443 Darco Water 403 New World Development Company 443 Dayen Environmental 404 Obayashi 444 Earth Tech 405 Organo 444 Hyfl ux 407 Passavant Roedinger 445 Manila Water 409 PBA Holdings 445 Puncak Niaga Holdings 410 PJ Bumi 446 Ranhill Utilities 411 QED Occtech 446 Salcon Berhad 413 Qianjiang Water 447 Sembcorp Industries 414 Shanghai Raw Water 447 Shanghai Industrial Holdings 415 Sino-French 448 Siemens (I&S) 417 Suido Kiko Kaishi 448 Sinomem Technology 418 Thames Water (RWE) 449 Suez 419 The Environmental Group 449 Tianjin Capital Environmental Protection 421 Transfi eld Services 450 United Utilities 422 Tsukishima Kikai 450 Veolia Environnement 424 TWIC 451 PART 3.2: OTHER ACTIVE PLAYERS United Envirotech 451 Anhui Water Resources 429 United Group 452 Asahi Kasei 429 United Water Australia 452 Asia Environment Holdings 430 VA Tech Wabag 453 Australian Water 430 Wuhan Sanzhen Industrial 453 Anglian Water Group 431 WWE Holdings 454 Beijing Sound 431 YTL Power 454 Berlinwasser International 432 Boustead Singapore 432 Brite Technology 433 CDS Technologies 433 China Everbright International 434 China Evergreen Environmental 434 China Water Company 435 Citic Pacifi c 435 Eastern Water Resources 436 Eco Water 436 General Electric Water 437 Guangdong Investment 437 Hong Kong & China Gas Company 438 Intan Utilities 438 Interchina Holdings Company 439 Jaks Resources 439

xi Water Market Asia

Frequently Used Acronyms

ADB Asian Development Bank SAR Special Administrative Region BOD Biochemical Oxygen Demand SS Suspended Solids BOO Build-Own-Operate SSE Shanghai Stock Exchange BOOT Built-Own-Operate-Transfer TOT Transfer-Operate-Transfer BOT Built-Operate-Transfer UNDP United Nation Development Programme BROT Build-Rehabilitate-Operate-Transfer UNICEF United Nations Children’s Fund BT Build-Transfer VAT Value Added Tax CBO Community-Based Organisation WACC Weighted Average Cost of Capital CEO Chief-Executive-Ofﬁ cer WB World Bank CJV Cooperative Joint Venture WFOE Wholly Foreign Owned Enterprise COD Chemical Oxygen Demand WPOE Wholly Privately Owned Enterprise DB Design-Build WSP Water Service Provider DBO Design-Build-Operate WSS Water Supply and Sanitation DBFO Design-Build-Finance-Operate WTO World Trade Organisation EIB European Investment Bank WTP Water Treatment Plant EJV Equity Joint Venture WWTP Wastewater Treatment Plant EPC Engineering Procurement & Construction FDI Foreign Direct Investment FIE Foreign Invested Enterprise GDP Growth Domestic Product HKSE Hong Kong Stock Exchange IFC International Finance Corporation IFI International Financing Institution IPO Initial Public Offering IRR Internal Rate of Return JBIC Japan Bank for International Cooperation JSC Joint Stock Company JV Joint Venture LIBOR London Interbank Offered Rate MD Managing Director MF Micro-Filtration MLA Multilateral Agency MNC Multinational Company MOU Memorandum of Understanding NGO Non-Governmental Organisation O&M Operation & Management PF Project Finance PPP Public-Private Partnership PRC People’s Republic of China PRSP Poverty Reduction Strategy Paper PSP Private Sector Participation R&D Research & Development RO Reverse Osmosis ROR Rate of Return ROT Rehabilitate-Operate-Transfer

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c xii Water Market Asia - Part 1: Analysis

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 2 Water Market Asia - Part 1: Analysis

Asia Water Market Crouching Tiger Hidden Dragon

sia is the continent of economic tigers, now as much as ever. present in the market will have prepared the ground by convincing The set-backs of the Asian Financial crisis back in 1997 have municipalities and the general public of the benefi ts of PSP. That will been completely eclipsed by the phenomenal rise of China be the moment for everyone else to profi t from others’ patience and Athat is pulling the rest of the region along with it. India is the region’s launch into India. second great power house, not yet close to full-speed, but weighty For all its very real opportunities, private operators need to be wary of with potential. Even Japan, stuck in the doldrums for a decade has the mirage that Asian governments have millions of dollars to throw fi nally swapped recession and defl ation for recovery and optimism. at their environmental sectors. Governments in the region help to cre- The powerful forces of economic growth and urbanisation, however, ate this impression with regular announcements of multi-billion-dollar have been accompanied by the over-exploitation of resources and the investment plans and long lists of new projects lined up for public and degradation of environments by human and industrial waste. For the private fi nancing. The data and analysis presented here show that water and wastewater sector, this is an explosive combination that will reality frequently fails to match up with expectations, both for fi rms and drive demand in the sector at unprecedented rates. governments. The challenge for private investors is to sort the grain China, of course, stands out as the market that every company should from the chaff. This report will help them to do just that. have a strategy for, but the high income economies in the region have environmental conditions high on their list of priorities and all see a role for the private sector in providing technology, capital and management expertise to respond to the environmental challenge. Certainly, the mature markets see private sector participation (PSP) in very dif- Asia Water Market Top Picks ferent ways, but there are growing spaces for private companies ac- Market growth pick: China tive across the spectrum of water and wastewater activities. Wastewater reuse is right at the top of our list for growth opportuni- Sector growth pick: Wastewater ties. In advanced countries, where water resources are scarce, it of- Technology pick: Recycling/ Re-use fers a cheaper extra source than desalination. For companies, this is an opportunity to put together innovative technologies with attractive High spec EPC pick: Singapore, HK fi nancing packages that will appeal to governments constrained by the need to keep budgets balanced. At the same time, it addresses Long term investment pick: Australia environmental concerns. The top markets for wastewater recycling in the next decade will be Australia and China. Quick cash pick: Korea, Taiwan Stepping back a little from the more advanced solutions for water re- Mirage pick: Thailand, Indonesia use, it is clear that there is a huge demand for all forms of wastewater treatment ranging from standard primary treatment, which will be with- Headache pick: India in the budget of developing country governments and their donors, to secondary and tertiary treatment. Across the region, governments are beginning to take their own discharge standards seriously, tighten- I. Markets Review ing monitoring and putting the onus on fi rms to control discharges. Growing demand for domestic and industrial wastewater treatment is I.1 Market trends a sure thing in every country across the region. The question is how much governments will be willing and able to pay for it. We are betting Private investment on China, Taiwan and Korea as our top spenders. At the high-end of Whichever form they take (BOT, concession, PPP etc.) deals that re- the treatment market, Hong Kong and Singapore will continue to be quire water companies to act as long term investors now have an the best customers for EPC contractors, even if the fl ow of projects established track record in the Asia Pacifi c Region. As Chart 1.1 dem- is slow. onstrates, the number of signed DBFO projects has been steadily increasing every year since 1990. The number of projects in the waste- For both water and wastewater, China is undoubtedly the most im- water sector has seen remarkable growth since 2000. The enthusiasm portant market. Every company that we have spoken to has the same of both private investors and public authorities is visible, even though idea: to increase their share of the Chinese market. But the very fact the fi gures shown here refl ect this with a delay: each contract takes on that everyone agrees shows just how fi erce competition is. Further- average two years to sign. This explains the relative peak of 1997, the more, the idea that the Chinese market is big enough for everyone year of the Asian fi nancial crisis. Likewise, the unprecedented number might no longer hold true. Even the pool of skilled human resources of water and wastewater deals signed in 2005 (over fi fty) is a refl ec- is starting to dry out as local and international companies take part tion of the increased interest in the region since 2002-2003, when the in a hiring frenzy. So how can companies hold their own? Working Chinese market became fully liberalised. with a good local partner is vital, but there is competition even here to identify and snap up equity stakes in well managed Chinese busi- Our database tracks 336 awarded projects in the region. By number nesses. Given the inherent risks of the market, the best strategy is the of projects and by value, China and Australia have seen the greatest portfolio approach. Investors have to be ready to operate on a scale amount of private sector interest and fi nance (Chart 1.2). Only 23 of appropriate to the size of the market and to accept that in a group of these have been offi cially terminated (Table 1.1), a reasonable fi gure investments, some will not work out, however hard they try. of less than 7% of the total. While not always offi cially ‘terminated’, some of the largest projects have been the object of well publicised We were hoping to fi nd that the Indian water and wastewater markets re-negotiations and can be considered as stalled, especially the twin were on the point of explosive growth. They are not. A more realistic concessions of Jakarta and Manila. The largest number of terminated timeframe is 5-10 years, by which time the few brave private fi rms now

3 Water Market Asia - Part 1: Analysis

Private investment In China can be more accurately estimated as private investors are often forced to pay for their equity stake upfront Box 1: Reaching the Millennium Development Goals? and in cash (as for Veolia’s Shenzhen and Shanghai Pudong conces- According to the World Bank, the water and wastewater sectors sion.) in the Asia and Pacifi c regions need around US$6.3bn per year Overall, private investors, both local and international, have been in new investment to meet the Millennium Development Goals. building an impressive but changing portfolio of water and wastewater However, past levels of investment have averaged around half this assets throughout Asia (Table 1.3.) level. Annual investment volumes required across countries in the region are large. To meet the MDGs, China needs to spend over Trends in public investment US$4.2bn a year on water and sanitation infrastructure, and Indo- Across the region, governments are acutely aware of how infrastruc- nesia almost US$1bn per year. ture shortages act as a constraint on growth, yet public budgets have The fi gures for the Philippines and Vietnam are over US$300m and themselves been constrained by growth setbacks in recent years. At US$200m each year, respectively. On the other hand, actual ex- the same time, and rather belatedly, Asian governments are fi nally penditure over the last decade has been below this target. China’s starting to take notice of the looming environmental crisis in the re- actual expenditure over recent years is estimated at around 56% gion. Broadly, this combination of forces will support the market for of target requirements, while for Indonesia and Vietnam the fi gures DBFO projects in countries where private investors are still willing to would be 40% and 69% respectively. go, particularly in the areas of wastewater treatment and recycling. In other countries where the risk-return ratio cannot support private fi nance, water companies will have to rely on the variable fl ows of donor fi nance for project opportunities. deals is in China (ten deals) but represents a total portfolio value of US$300m, which is marginal when compared with the US$8bn of proj- Overall, governments commit only a tiny proportion of national bud- ect investment committed by the private sector to the Chinese market gets to the water and wastewater sector, although spending is in- alone over the past decade. creasing rapidly in few countries, notably China, Korea and Pakistan. We estimate how much governments are or are planning to invest in Overall, about US$25bn have been committed by private investors to their water and wastewater sectors (see Chart 1.7): comparing lev- water and wastewater projects in the region between 1985 and 2005. els of public investment across the region reveals, unsurprisingly, that Chart 1.3 shows the investment volume committed yearly by private China is planning to spend by far the most, demonstrating a strong water companies for this period. Wastewater emerges as a key com- commitment on the part of the government to raising environmental ponent of the market after 2000 by this measure as well. But the trend conditions to European levels. reveals a much greater variability: three of the largest deals to date are the concessions in Manila (Philippines) and Jakarta (Indonesia), The government of India also has ambitious spending plans that will both awarded in 1997 and the privatisation of Malaysia’s sewerage be covered in part by large new infl ows of IFI capital as the World network, signed in 1995. Correcting for such large signatures, the Bank has pledged to increase its spending on the Indian water sec- trend remains upward but, as a comparison with Chart 1.4 reveals, it tor (including irrigation) to US$1bn a year. Alongside these two large is China which is driving it. The PRC dominates the investment total, economies are the less populous but much richer economies of South with three deals – Shanghai Pudong (2002), Shenzhen (2003) and Korea, Australia and Japan. Changchun (2005) accounting for US$1bn of committed investment alone. In South Korea, a surge in government funding on wastewater will certainly create opportunities for the private sector, but it remains to However, like government investment committed to the sector, estimates of private investment are far from a perfect refl ection of what Table 1.1: PSP projects terminated early is happening on the ground. While most of the value committed cor- country Early termination responds to construction costs and is usually tied in during the fi rst China 10 two to three years of a BOT, the larger and more complex concessions contracts integrate long term capital commitments. The dispar- India 4 ity between commitments and actual investment is most striking in Indonesia 2 Manila and Jakarta: paralysed by a cat-and-mouse game over tariffs Malaysia 3 and capex (with regulators in the role of the cheese), private players have avoided tying down too much capital. Today they do not regret Philippines 3 these decisions. Viet Nam 1 Total 23

Table 1.2: Average annual investment by country income level US$ per capita Low income* 1.28 Lower middle income 5.51 Low + lower middle income 3.39 Upper middle income 47.13 High income 60.05 *Investment figures for low income countries may be underestimated as a result of the poor quality of the data available

Note on the calculation of investment fi gures. There is no single comprehensive and reliable sources for public investment fi gures for water supply and sanitation. Many governments do not report any breakdown of public investment in their national statistics and so no comparative data is collected by the IMF/World Bank. Thus multiple sources were used to put together these estimates. In China and Korea, the fi gures relate to future government spending plans and actual expenditure may turn out to be considerably lower than planned expenditure. However, as both governments are planning a big investment increase, there would also be a loss in accuracy if current investment fi gures were extrapolated. Australia, New Zealand, Taiwan, Pakistan, India, Thailand and Malaysia fi gures are based on government announced planned expenditure for the current planning period. Singapore, Hong Kong and Japan fi gures are based on utility or government reports of actual expenditure for 2004. Cambodia, Laos, Sri Lanka, Bangladesh, Nepal, Vietnam, Philippines and Indonesia fi gures are estimates based on actual expenditure in the previous planning period and may underestimate actual spending. However, as most of these countries have not launched plans for signifi cant increases in expenditure in the water sector recently, the underestimation bias is likely to be small. As government and utility reporting conventions vary, it may be diffi cult to separate out water resource management expenditure related to agricultural use from expenditure related to domestic and industrial use. We have compensated for this where possible using multiple sources to estimate adjustments, but the fi gures should be understood as broad estimates of public expenditure in the sector and should not be construed as offi cial data.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 4 Water Market Asia - Part 1: Analysis

Chart 1.1: Annual Number of Privately-Financed Water & Wastewater Projects Signed in Asia 1985-2005 (investment value > US$1m)

60 4

30 2

20 Desalination and Re-use Number of projects signed 1

0 0 1985 1987 1989 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Water Total Wastew ater Total Water Re-Use Desalination

Chart 1.2: Cumulative Number of Privately-Financed Projects by Country 1985-2005 (investment value > US$1m)

Thailand; 14 (4%)

Taiw an; 4 (1%) Viet Nam; 3 (1%) Singapore; 2 (1%) Australia; 37 (12%) Philippines; 14 (4%)

New Zealand; 7 (2%) Malaysia; 18 (6%)

Macao; 1 (0%)

Korea; 6 (2%)

Japan; 2 (1%)

Indonesia; 15 (5%)

India; 8 (3%)

China; 187 (58%)

5 Water Market Asia - Part 1: Analysis be seen to what extent international companies can gain access to wise, in other “high income” Asian economies, like Korea or Taiwan, this market. the wastewater situation is often dismal, especially regarding industrial discharge. In most parts of emerging Asia, the sewerage system In Japan, funds may be comparatively high but this does not refl ect a simply does not exist, and neither does the government agency that pattern of increased spending. Municipal and central governments are should be developing and managing it. still heavily indebted and the government is looking to its own brand of the “Private Finance Initiative” (PPPs/DBFO type projects) to transfer But this is all set to change, at least within the high income peer group. capital costs to the private sector. However, this programme has been The number of new wastewater projects, both publicly and privately very slow to get off the ground and the system has proved diffi cult for fi nanced that has been announced since 2002-2003 is impressive and foreign companies to break into. can seem to be on the verge of over-taking the water sector both by number of deals and by value. Australia has reasonably generous spending plans which will create some opportunities for the private sector over the course of the next Major investment programmes are now in the pipeline or already un- 2-5 years, but companies should not expect a rush of projects. derway. In Japan, the introduction of wastewater PSP legislation is encouraging. No offi cial targets have been set yet but the government Looking at investment per capita in Chart 1.8 reinforces the view that spends US$17bn per year on operational and capital costs. South Korea and Australia are markets with potential, but certain developing countries are also launching big spending plans, notably In some parts of Australia, wastewater systems are old and sewerage Thailand, which opened tenders for its ‘infrastructure mega-project’ overfl ows are becoming a political issue. Australian municipalities are programme in January 2006, and in Malaysia where projects funded also very keen on water recycling. The Government of Western Aus- under the Ninth Malaysia Plan and through the new sectoral asset tralia has plans to re-use 20% of treated wastewater by 2012. Like- holding company are expected to drive up capital investment. These wise, in New Zealand, with ever more stringent environmental stan- two countries should therefore offer sizeable opportunities to EPC dards, the government’s money is going into wastewater treatment. companies. In Malaysia, local companies will put up strong competi- Hong Kong and Singapore started tackling their wastewater problems tion to take a lead role in projects but in Thailand local companies are before others but they still have major plans for future project develop- more likely to be junior partners as they do not have access to the ment. The Hong Kong Drainage and Sewerage Department still has fi nance or technology required for the mega-projects. US$750m of projects under development and US$900m in the pipe- The World Bank estimates that US$3 per head a year would be enough line with a target completion date in 2009. In Singapore, the Deep to allow Asian developing countries to reach the Millennium Develop- Sewerage Tunnel System is now partly built but much works remains ment Goals. By this criterion, our estimates are grounds for optimism: to be done on this US$2.3bn project. the average expenditure for the low and middle income countries on Taiwan has also decided to do something about its appallingly low lev- water and sanitation comes in above that line, as US$3.39 as shown el of wastewater treatment. Between 2004 and 2008, the government in Table 1.2. is meant to spend US$3.2bn and is looking forward to as much private However, averages disguise important underlying disparities. The fi nancing as it can attract in the sector. Three wastewater BOT/BOO poorest countries spend much less than US$3 a head and, more wor- were signed in Taiwan in 2005. ryingly, two of the better off countries with very poor sanitation cover- In Korea, it is very much the same story. Decades of neglect are now age – Indonesia and the Philippines – also spend less than US$3. followed with Herculean plans, the like of which are only ever seen in A further major concern is that governments tend to invest much less command economies. But even if half of what Korean authorities are than they initially intend or announce (see Box 1). planning is built, there are serious opportunities to capture. The push towards wastewater treatment But the real wastewater El Dorado could turn out to be China. There, new wastewater projects go to tender almost every day and wastewa- It can sometimes seem as if Asia only discovered environmental ister treatment equipment is rapidly becoming big business. Assembly sues in the last decade. Even in a country like Japan, where munici- lines are already being built in China by foreign investors and it is only palities go to the extremes of laying concrete at the bottom of rivers, a matter of time before China becomes a net exporter of treatment the sewerage system only served 67% of the population in 2004. Like- technology. Table 1.3: Number of Investment Projects by Developer in the Asia Pacific (Active projects 2005) Biwater (UK) 5 Hyflux (Singapore) 5 Shenzhen Tonge Group (PRC) 5 Ranhill Utilities (Malaysia) 6 Anhui Guozhen Environmental (PRC) 6 Berlinwasser International AG (Marubeni - Japan) 6 Biotreat (Singapore) 7 EarthTech (US) 7 Halliburton (US) 4 Sincam Water Technology (Cambodia) 7 Tianjin Capital Environmental Protection Company (PRC) 7 RWE Thames (Germany) 8 Salcon (Malaysia) 9 Shanghai Industrial Holdings (Hong Kong) 9 Sime Darby (Malaysia) 9 United Utilities (UK) 9 Beijing Capital Company (PRC) 13 New World Infrastructure (Sino-French Water Company - Macau) 22 Ondeo (Suez - France) 39 Veolia Environnement (France) 58

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 6 Water Market Asia - Part 1: Analysis

Chart 1.3: Cumulative Investment Committed to Water and Wastew ater Projects US$m by Private Investors in Asia (1985-2005) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 1985 1987 1989 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Water Total Wastew ater Total

Chart 1.4: Annual Private Investment committed to Australian and Chinese water and sanitation projects US$m 1,600

1,400

1,200

1,000

800

600

400

200

0 1985 1987 1989 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Australia China

Box 2: The rise of the informal sector The extent to which governments do not or have not lived up to their investment commitments is sometimes made visible by looking at the extent of small-scale private provision. In many countries, informal private water companies of all sorts have sprung up, reﬂ ecting the extent of government services failure more than the ability of the private sector to deliver “value-for-money” to end-users. These small scale providers are often expensive and provide unregulated, below standard services. This may be a household reselling water to a neighbour, a water vendor selling water door to door, or a standpipe operator. These types of service provider generally make very little investment if any. However, there are an increasing number of entrepreneurs building small network systems in unserved areas. The information on capital investment is anecdotal. For example, the Hiep An Company in Ho Chi Minh City Vietnam has invested US$100,000 to serve around 100 households and is considering developing a system in a neighbouring area to service another 100 households. In the Tien Giang Province of Vietnam, it is estimated that small-scale private investors have invested over US$3.7m in piped water distribution systems. In Manila, Inpart Engineering invested US$134,000 in a system to serve 17,000 households in a low-income community in Metro Manila. Similarly, in Cambodia there are 16 BOT/BOO projects that have been operating since 1997-1998 serving between 400 and 3,600 families. The projects were backed by local construction companies and businessmen. A WaterAid report suggests that local investment may contribute between 3-8% of total investment in the region.

7 Water Market Asia - Part 1: Analysis

Chart 1.5: ODA US$ per capita 2000-2004 by country

Sri Lanka

Cambodia

Vietnam

Laos

Malaysia

Bangladesh

China

India

Indonesia

Pakis tan

Nepal

Thailand

Philippines

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00

2000 2001 2002 2003 2004

Chart 1.6: Total Water & Sanitation ODA 2000-2004 by country

China

India

Vietnam

Bangladesh

Sri Lanka

Cambodia

Indonesia

Pakis tan

Malaysia

Laos

Philippines

Thailand

Nepal

0 50 100 150 200 250 300

2000 2001 2002 2003 2004

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 8 Water Market Asia - Part 1: Analysis

Chart 1.7: Annual public investment in the water and sanitation sectors US$m, 2004 est. (see Note on p.4)

China South Korea India Australia Japan Malaysia Thailand Pakis tan Singapore Indonesia HK Taiw an NZ Vietnam Sri Lanka Philippines Cambodia Bangladesh Laos Nepal

0 1,000 2,000 3,000 4,000 5,000 6,000

Chart 1.8: Annual Public investment per capita in the water and sanitation sectors US$m, 2004 est. (see Note on p.4)

South Korea Australia HK Malaysia NZ Thailand Taiw an Japan Sri Lanka Pakis tan China India Indonesia Vietnam Laos Cambodia Philippines Nepal Bangladesh

0 102030405060708090100

9 Water Market Asia - Part 1: Analysis

Chinese municipalities are now required to treat between 40 and 60% list its water assets as a separate entity in 3-5 years when the projects of their wastewater depending on their size. Most of them have so far have matured. failed to achieve such targets. In effect, many still lack primary waste- This portfolio strategy makes better sense seen in comparison with water treatment capacity. But in 2005, the government promised an Tianjin Capital, which has pursued a very careful roll-out based on overall spending package of US$30bn for the sector next fi ve-year protecting investor value. However, with such a small number of proj- plan. ects, a delay in one has a profound impact on the company’s perfor- Wastewater treatment, which for a long time was perceived as an im- mance as a whole, and it is exactly this that brought the company’s pediment to economic growth, is becoming, both in central and pro- profi ts and share price tumbling in 2005. vincial government policies, a force of economic development itself. Singapore-listed companies are proving to be dynamic players in the This is now true across the region and, in wealthy or fast growing Chinese market, mostly at the more technologically sophisticated end economies, is becoming the single largest source of business for pri- of the project spectrum. Hyfl ux and Bio-Treat are at the top of this vate water companies. group, both providing membrane-based solutions to municipal and in- Desalination or recycling? dustrial clients, but many others are also successfully targeting niches in the Chinese market. Sinomem, for example, is focusing on treat- Desalination is a bit like nuclear power in the electricity sector. It is ment solutions for pharmaceuticals companies while Asia Water Tech- being tried in places (Singapore, Tianjin, Chennai) but is generally nology’s main client base is in the power industry. The predominant proving to be at odds with what Asia needs: the cheapest fastest way strategy of these companies is to move into DBO and BOT projects to to develop water supply. A desalination plant in Hong Kong has long supplement sales with stable long-term cash fl ows. been decommissioned and Sydney picked recycling over desalination in 2005, mostly for cost reasons. Among the most interesting smaller players in the region are the concession companies, Ranhill Utilities (Malaysia) and Manila Water Water re-use or recycling on the other hand is picking up. Chart 1.1 (Philippines). Both have demonstrated strong fi nancial and opera- plots the number of privately fi nanced and operated re-use and de- tional performance in their core concession contracts and listed on salination projects signed in recent years. There is no clear trend but their national stock exchanges in 2002 and 2005 respectively. Their public projects and policy pronouncements leave little doubt as to concession assets provide them with a strong fi nancial base for ex- which option is more likely to be favoured in the immediate future. pansion and the two companies have been considering new projects Singapore’s positive experience with NEWater is also inspiring other both nationally and regionally. However, despite concerted efforts by governments’ procurement choices. Ranhill in the state of Sabah and by Manila Water in the city of Cebu, Local Financial Markets neither has managed to secure a second concession contract in their home market. They are now looking to other countries for expansion. The development of local fi nancial markets is making it easier for both Ranhill is initially concentrating on Thailand where they have taken local and international utility companies to access long-term fi nance over the operations of KWI Far East after acquiring a majority stake in at reasonable rates. For foreign investors who have seen projects re- the company in 2005 and signed three further small deals in the same ceive a death blow from exchange rate risk, this development could year. Manila Water is looking to the Indian market, where it pre-quali- contribute to reigniting their interest in developing markets. In China, fi ed for the Delhi O&M contract in 2005. The deal was then postponed local debt fi nance is made available to Sino-foreign JVs more cheaply at the of the year. and on better terms than loans from the international market and require less stringent administrative procedures. However, these advan- Compared to their non-Asian counterparts, regional companies based tageous conditions should not be considered permanent, as Chinese in Malaysia and Singapore are optimistic about growth opportuni- banks will gradually raise rates to levels comparable to their inter- ties across most of the region, including the testing markets of India, national counterparts as Chinese authorities enforce tighter banking Thailand and the Philippines. Across much of the region, regional and regulations. international companies will be playing an active role in creating demand rather than just responding to it. In some developing countries, like Malaysia and Indonesia, corporate bond markets are now suffi ciently developed to provide utilities with Success and failures of international utilities medium to long-term fi nance. Previously, tenors had been limited to International investors have a surprisingly mixed attitude towards the 5-6 years. In Indonesia, foreign companies in several utility sectors Asia Pacifi c. Most are focusing on China in their growth strategies, have successfully issued bonds in the last year. Local companies are keeping their options open in Australia and reducing their activities also using equity markets to raise fi nance for expansion. In 2005, two everywhere else. water companies listed in the region, Asia Water Technology in Sin- gapore and Manila Water Company on its home exchange. Looking China’s biggest cheerleaders are Veolia and Suez. In a clear sign of outside the well established exchanges of Singapore, Hong Kong and its enthusiasm for mainland China, Suez is relocating its regional of- Tokyo, we fi nd water companies listed in Kuala Lumpur and Bangkok fi ce from Hong Kong to Shanghai. Of the two, Suez got off to a much and 2006 may see further listings on the Bangkok exchange. quicker start, putting together an impressive portfolio of 18 projects (not including their concession in Macau) by 2004, but it is Veolia that I.2 Actors has been much more successful recently. Veolia has had a run of The rise of local investors successes in the large tenders, winning the contracts for Shanghai Pudong (2002), Shenzhen (2003) and Changzhou (2005). Compe- Regional companies are increasingly active, whether competing with tition between the two French companies will come to a head over big international players in public tenders or through unsolicited pro- future contracts in Shanghai. posals in which they sometimes infl uence local decision making. In the top 20 companies in Asia, listed by number of active projects, 13 In mainland China, Veolia and Suez have adopted divergent ap- come from the region (see Table 1.3.) Five of the 20 are mainland proaches to geographical risk: Suez has confi rmed that it will look Chinese companies listed either in Beijing or Hong Kong. exclusively at contracts in the major urban areas of Beijing, Shanghai, Guangdong and Chongqing and in smaller urban areas on the East- In China, Beijing Capital and Shanghai Industrial have established ern seaboard. Veolia, meanwhile, is venturing much further afi eld, with themselves in the top rung of local companies. Both are pursuing projects in Urumqi and Hohhot. Veolia’s claim is that it is only the qual- aggressive strategies of asset acquisition with the powerful fi nancial ity of the contract that matters, not the rate of economic growth in the and political banking of their respective business groups and munici- location, and it is certainly the case that they will have little competition pal shareholders. Project-level profi tability is taking a back seat to from either local or other international companies in China’s Western increasing market share, but both companies see their investments regions. Veolia and Suez are concentrating almost all their resources as part of a portfolio in which variable performance will balance out on the Chinese market. across the board. Both of these companies are looking towards an eventual IPO. Beijing Capital announced a plan for a foreign listing for Veolia still has interests in Korea and Australia but no intention to the whole company back in 2004 in either New York or Hong Kong but expand, beyond bidding for contracts when they come up. Suez will there is no clear timeframe for the deal. Shanghai Industrial intends to maintain a presence in Jakarta, but as in Manila, it will seek to reduce

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 10 Water Market Asia - Part 1: Analysis

Table 1.4: Loan & Grant Assitance from Major Donors in 2004-2005 Country Project Name Date of approval Amount US$m JBIC China Huhhot Environmental Improvement Project March-04 83.14 Viet Nam Southern Viet Nam Water Supply Project(ii) March-04 28.22 India Bisalpur Jaipur Water Supply Project(transfer System) March-04 75.75 Viet Nam Hai Phong City Environmental Improvement Project (i) March-05 12.94 India Ganga Action Plan Project (varanasi) March-05 95.40 India Bangalore Water Supply And Sewerage Project (ii-1) March-05 358.23 World Bank Nepal Second Rural Water Supply & Sanitation Project June-04 25.3 Viet Nam Vietnam Water Supply Development Project December-04 112.64 China Cn-ningbo Water And Environment Project March-05 130 Indonesia Kecamatan Development Project 3b March-05 160 China Liuzhou Environment Management Project May-05 100 China Chongqing Small Cities Infrastructure Improvement Project June-05 180 Philippines Manila Third Sewerage Project June-05 64 China Shanghai Urban Environment APL Phase 2 July-05 180 India Third Tamil Nadu Urban Development Project (tnudp Iii) July-05 300 Viet Nam Red River Delta Rural Water Supply And Sanitation Project September-05 45.87 ADB Viet Nam Expanding Benefits Of The Poor Through Urban Environmental Improvements December-04 1 China Fuzhou Environmental Improvement July-05 55.8 China Jilin Water Supply And Sewerage Development July-05 100 Lao PDR Northern And Central Regions Water Supply And Sanitation Sector August-05 10 Bangladesh Dhaka Water Supply September-05 1 its own equity stake and any fi nancial obligations. The company is should be expected between international companies, and between adopting a similar attitude to Veolia in Australia, which it considers a international companies and Chinese companies. relatively attractive low-risk market that fi ts with the fi rm’s international strategy. Responsibility for other countries in South-East Asia and the United Utilities, by contrast, is not leaping into the Chinese market. Indian subcontinent now lies with sister company Degremont, a signal Through its regional offi ce in Australia, it is calmly focusing on the that the Group does not see potential for network service PSPs in Australia/NZ market and holding on to its residual stake in the Ma- these markets. nila Water Company in the Philippines. UUA has taken on a technical role in the Tirupur project in Southern India, but UUA has no plans to India is not a priority for either company, although, faced with the vast launch itself further into either of these markets. but unrealised potential of the Indian market, the two have adopted opposite strategies. For the Suez Group, Degremont has been tak- Some investors see the Asian market in a very different light. They ing the lead and has been very successful in winning design, build have withdrawn as quickly and as far as possible, even from China – and operations contracts, including the high profi le Sonia Vihar water Anglian and Thames are the main names here. In 2005, Thames sold treatment plant for Delhi. Unfortunately, Degremont declines to make off its assets in Australia and Thailand to its partners and has been public information about its activities in the Indian market, so the full searching for buyers for its stake in the China Water Company (the extent of its operations is unclear. Ondeo has no presence in India, investment vehicle for all its remaining interests in China). Thames and no plans to get involved. Veolia is doing things the other way has also been trying to withdraw from its concession contract for East round. Veolia Water has had an offi ce in India for six years which has Jakarta and the company is expected to announce its plans for this in so far failed to secure a sizable deal but EPC Veolia Water Solutions 2006. For Thames, this is a particularly dramatic shift from the 1990s and Technologies is setting up an offi ce in India in 2006, perhaps a when it was the one of the earliest and most aggressive international signal of their optimism about the EPC market, or else a competitive companies in Malaysia and Thailand. For both, the change refl ects a urge to make life a little more diffi cult for Degremont. turnaround in head offi ce policy as well as a series of disappointments including in the vibrant Chinese market. In Da Chang, Thames was Among other water and environmental services companies, Biwa- caught out by the implementation of regulations against guaranteed ter and Earth Tech are both cheerleaders for the Chinese and other rates of return, while Anglian’s plans for the Beijing No 10 Plant were Asia-Pacifi c markets. Earth Tech currently has a presence in China, stifl ed by disagreements over project specifi cations. Australia, Malaysia and Thailand. So far, it has adopted a risk-averse approach in China, concentrating on managing their existing projects, The role of IFIs but now the company is looking to expand municipal and industrial Investment in the poorer countries is driven by bilateral and multi- services sides of its business. Outside China, Earth Tech has identifi ed lateral funding. The pattern of funding is shown in Chart 1.5, which Australia and Malaysia as its core growth markets. Biwater is consid- shows donor funds committed in US$m. The big recipients are all very ering a diverse range of locations in its strategy for Asian growth, from populous countries, and with the exception of China, fall into the low- Malaysia to Macau. One of the few exceptions to its general enthusi- est income group of countries. The focus on China, however, refl ects asm is India, where the company has no plans to get involved. Biwater a partial misdirection of development assistance because the proj- is also considering the whole gamut of project types from service con- ects are located mostly in the richer coastal regions of the country, at tracts through to investment, including work on donor-funded projects the request of the Chinese government. Chart 1.6 of ODA per capita in Vietnam and projects for industrial clients in the Philippines. shows that funds are in fact relatively well directed towards the poorer Siemens has an ambitious growth strategy for the water market in Chi- populations, although India and Bangladesh come off comparatively na which will be carried through by the Industrial Services & Solutions badly. In India’s case, this should be rectifi ed by the World Bank’s group, supported by the integration of local assets from US Filter and 2005 commitment to quadruple its funding allocation for WSS. VA Tech Wabag. For Marubeni, which is already active in Chengdu, Development aid may be the only way in which the poorer countries the acquisition of Berlinwasser International should form the basis for are able to fi nance their investments, but it is clear from the graph further expansion in China. These examples and many others show that these fl ows are very variable and promised increases in alloca- that organic growth cannot deliver expansion at the speed these com- tions to water and sanitation are not yet showing up in the fi gures. It panies are hoping for, so more acquisitions and equity partnerships will be very diffi cult for countries to construct a coherent and effective

11 Water Market Asia - Part 1: Analysis

system for water supply and sanitation while relying on unpredictable Chart 2.1: GDP per Capita (2004 US$) project-based fl ows. An even more important drawback – which applies equally to public investment fi gures – is the proportion of funds wasted through ill-judged investments or lost to corruption. The World 40,000 Bank has estimated that in some countries as little as a third of funds 35,000 is actually used as planned under loan agreements. 30,000 Table 1.4 shows recent projects for the region’s three largest donors, the World Bank, the Asian Development Bank and the Japan Bank for 25,000 International Cooperation. Large recent projects of interest to private companies include the US$64m Manila sewerage project of the World 20,000 Bank that will be implemented by the private concessionaire for the US$ US$ 15,000 city’s East zone, Manila Water; and the US$358m Bangalore water supply and sewerage project funded by JBIC, which is most likely to 10,000 involve Japanese contractors. 5,000 Neither the ADB nor the World Bank has been advising governments 0 to implement further privatisation, although the ADB’s policy is to encourage recipient governments to consider this wherever practicable. m esia and ea The World Bank’s current ‘case-by-case’ approach is a pragmatic re- India hina Nepal Laos C Kor ealand Japan Taiwan Z sponse to a series of failed concession projects coupled with concert- PakistanVietna ThailMalaysia Australia Cambodia PhilippinesSri LankaIndon Singapore Bangladesh Hong Kong ed resistance from governments and reluctance on the part of private New companies to take on any investment risk. The role for private companies under donor projects will therefore be confi ned to consultancy, Chart 2.2: 2005 GDP (US$m) EPC contracting and small-scale service and management contracts. I.3 Policies 5,500,000 A lost decade? 4,500,000 Getting the private sector involved in the water sector not just as a contractor but as fi nancier and operator has undeniably been the big policy idea of the decade. However, it has not proved to be the miracle 3,500,000 solution to Asia’s water problems, contrary to what many, especially the World Bank, still advocated a few years ago. 2,500,000 In many of Asia’s developing countries, experiments with private sec- US$m US$m tor participation have come full circle, yet improvements in water and 1,500,000 sanitation services have been limited. In countries where public utilities were functioning relatively well, like Thailand and Vietnam, PSP 500,000 has been confi ned to a few BOT and technical assistance contracts and the government continues to dominate the sector. In countries that experimented more whole-heartedly with PSP through major con- e a -500,000 an cession contracts, both governments and investors have been disap- aysia India Laos Nepal KoreaChinaJapan ngapor Taiw pointed with the results. The Manila and Jakarta concessions have Vietnam Pakistan Mal Thailand Australia CambodiaSri Lanka PhilippinesSi ong KongIndonesi Bangladesh H been beset with contractual renegotiations and threats of terminations New Zealand from both sides. In 2006, one of the four contracts will be rebid after its major investor went bankrupt and a second is expected to be ter- Chart 3: Total & Urban Populations (2004) minated. Actual investment under the concessions has been much lower than the original contractual commitments and the residents of the two cities have seen rising tariffs accompanied by slow improve- 10,000 1,000 ments in service, on a par with those that were being achieved under public sector management. In South Asia, policies in favour of PSP have been adopted but never implemented and there is continued scepticism on the part of politicians and the public about the value of private sector involvement. 1,000 Asia’s high income countries have also shown their ambivalence to 100 PSP. In Japan, PSP has crept forward, while in Korea the government is fully behind PSP, but only for BOT type projects in the wastewater sector. Hong Kong and Singapore have well run public utilities and 100 have no reason to consider PSP except for special projects. Australia and New Zealand have a mixed attitude to PSP, more posi- (Log) Millions (Log) Millions 10 tive in principle than in practice. The chief reason that municipalities in Australia and New Zealand are resistant to PSP is that revenues from 10 water utilities can constitute a substantial share of local authority’s revenues. In places where good quality, well managed raw water demands only cheap treatment, like Australia, water utilities can turn out a decent profi t. In Indonesia, the fi nancial relationship between utilities 1 1 and local governments is even more striking: there, it is often the only reliable source of local revenue and many local governments insist on receiving ‘dividends’ from their water companies even when they are India Laos Nepal China Korea Japan making losses. Taiwan Vietnam Thailand Pakistan Malaysia Australia Sri LankaSri Indonesia Cambodia Singapore

Philippines At the other end of the spectrum, is the dramatic, all-important ex- Hong Kong Bangladesh ception of China, which has gradually but convincingly opened up to New Zealand PSP in all parts of the market. Yet there is a great deal of uncertainty Total Population Urban Population about Chinese government policy in the medium-term. The govern-

Opportunities in the Water & Wastewater Sectors in Asia & the Pacifi c 12 Water Market Asia - Part 1: Analysis ment has shown itself capable of reversing a policy with no warning, greater demands on its water and sanitation sectors. But it is not, and as it did when it enforced a ban on guaranteed rates of return in for- this implies less social and political pressure on the Thai government eign invested projects. Similarly, the government regularly changes its to reform and invest in water and sanitation (see below 2.6.) directives to public banks about priority lending sectors. For now, the Another interesting case is Malaysia: the country is still facing rela- environmental sector is a priority, but there is no reason to expect that tively high levels of urban population growth, having already achieved these favourable conditions will endure. substantial urbanisation and with the highest income per capita in the Across the region, the decade has seen gradual progress towards peer group “emerging Asia.” As Chart 2.7 shows, Malaysia is becom- stronger environmental policies and greater concern for water re- ing a ‘mature’ water market (see below 2.5). For its income group, it source management. Again, the most striking change is in China, has achieved impressive coverage rates for the urban water sector, where the government seems so far to be taking its own extremely on par with Taiwan. ambitious targets seriously. Environmental concerns have been im- Charts 2.7 and 2.8 also show the progress made in Chinese cities, portant in Australia and New Zealand for longer and continue to be especially relative to income. At the other end of the spectrum, the a driver in demand for sophisticated technological and engineering extent of public failure in countries like Indonesia or Sri Lanka is well solutions in water and wastewater treatment and disposal. In Japan exemplifi ed by the very low levels of both water and wastewater cov- and Korea, these issues are gradually becoming more important, set- erage in cities compared to their income levels. These countries do as ting in train a need for much greater capacity in wastewater collection badly as Cambodia or Bangladesh, which are twice as poor. and treatment. Chart 2.6 outlines the level of fresh water per capita available by coun- In South and South-East Asia, many countries have introduced poli- try. Countries that have low levels of available fresh water appear on cies for environmental protection and water resource management in the right hand side. The rich ones (larger bubbles) constitute natural the last ten years. Important new legislation covering the protection of markets for private water companies. However, Korea, Singapore and water resources was passed in Indonesia and the Philippines in 2004 Japan will present limited opportunities in the next decade (see below and 2005 respectively. 2.3 & 2.4). In the category of emerging markets that are short of wa- However, the perennial gap between policy and implementation ap- ter (Sri Lanka, China, India and Pakistan on Chart 2.6), China is the plies to environment and integrated water resource management, richest and the fastest growing (see below 2.2.) Economies on the especially in those countries where the new legal framework was de- left-hand side of Chart 6 have suffi cient, sometimes plentiful water signed by IFIs. There is little sign yet that these developing countries resources. They will often be interested in water management/ trans- are moving towards effi cient allocation mechanisms for water resourc- portation solutions more than securing extra supply. New Zealand is es, or that they are managing to enforce regulations on wastewater a prime example. discharges. Environmental concerns will only come to the fore when Charts 2.10 and 2.11 show the level of water resource stress in more governments can see the costs of degradation directly. detail. Countries on the right hand side of Chart 2.10 have high levels One area of improvement has been in the broad private sector invest- of per capita withdrawals, but varying levels of per capita resources. ment environment. Basic ideas such as competitive tendering, pub- Pakistan and Thailand appear to have extremely stretched resources, lic service delegation or customer service have started to seep into while Lao PDR and New Zealand are at very comfortable levels. Chart practice and are gradually becoming standard. Economic integration 2.11 confi rms that Pakistan, India, Korea, Sri Lanka, China, Thailand through the WTO and regional economic organisations is helping to and Japan have relatively high levels of total withdrawals as a share reinforce this trend. of their renewable resources. Pakistan stands out again as a country in which great pressure is being put on renewable resources, mainly Tariffs as a result of policies that encourage ineffi cient irrigation. Tariffs for water are on an upward trend throughout the region. In all Chart 2.12 shows what proportion of total water withdrawals is used countries, with the exception of Malaysia where tariffs will be harmon- by the industrial sector, and compares it with per capita renewable ised nationally, tariffs are set at the local level. Decentralisation has resources. Certain countries with low levels of renewable resources reinforced the powers of local governments to approve tariffs. As a have the highest levels of industrial use for water. These countries are result, central government policies to increase tariffs to cost recovery China, Vietnam, Korea and Japan, all of which should have plentiful levels (which exist in most countries) have only a recommendatory market opportunities in the area of industrial wastewater treatment force and will be implemented at the pace set by municipal leaders. and water re-use. In most major cities in the region, tariffs now cover operating costs. However, few utilities are also able to cover capital costs. A look at the fundamentals reveals wide divergence in patterns of supply and demand in the Asia-Pacifi c region. Asian countries have very Charging for wastewater has not yet been well accepted. PSP in the different levels of access to water and are facing varying levels of municipal wastewater sector is therefore very unlikely to be fi nanced pressure on their overall water systems, both natural and man-made. through consumer tariffs. Instead, private partners will need to receive Urbanisation, industrialisation and income levels play important roles payments from the local utility or municipality. Financial planning for in shaping the future demand for water services that each country will projects of this kind will need to take very careful account of the fi nan- need. But good or promising fundamentals do not necessarily trans- cial health of the relevant municipality. late into a growing market. The following sections review the invest- II. Country round-up ment potential of the different economies in the region. This section briefl y reviews the fi ndings of this report’s country-by- II.2 High potential: China country analysis and assesses their potential for private business. The Chinese water and wastewater sector was only fully opened in II.1 Comparative Fundamentals 2002. Until then, local players were offi cially barred from taking an active part and foreign companies were unable to take on water distribu- Private companies are primarily interested in urban areas where there tion projects. But the PSP market had already started to develop rap- are economies of scale to production and distribution. Looking at GDP idly in 2000, with between 25 and 35 new private investment projects per capita and urbanisation fi gures together (Chart 2.4 & 2.5) shows signed by foreign companies each year. Major international players that Asian countries fi t the classic pattern of poorer countries having now have a signifi cant portfolio of assets in China, while local Asian low levels of urbanisation but facing high urban population growth, developers have become a non-negligible source of competition and a and of rich countries following an inverted pattern. There are, how- small number of powerful Chinese developers have established them- ever, some exceptions: Thailand, for instance, continues to be a rural selves in the market. economy despite its higher income level and its urban population is not exploding like in Nepal, Cambodia or Indonesia. Contrary to most markets that have been opened to PSP, there has not been a decrease of public spending in the sector. For the next fi ve- To a lesser extent, the same is true of India: urbanisation there is year plan (2006-2010), China will spend RMB200bn (US$25bn) on not happening as fast as in other parts of Asia. The key difference water supply projects and RMB250bn (US$30m) on sewage disposal between Thailand and India, however, is in per capita incomes: for its between 2006-2010, Chinese construction minister Wang Guangtao level of wealth, Thailand should be facing faster urbanisation and thus

13 Water Market Asia - Part 1: Analysis

Chart 2.4: Urban Population Growth & GDP per Capita by Country (2004) (bubbles represent GDP perCapita in US$) % 7

Nepal 5 Laos Cambodia Bangladesh 4 China Indonesia Pakis tan Vietnam 3 Philippines Malaysia Thailand New Zealand Sri Lanka 2 India Singapore Korea 1 Australia Japan Taiw an 0 Hong Kong

-1

Chart 2.5: Level of Urbanisation & GDP per Capita by Country (2004) (bubbles represent GDP per Capita in US$) % 120 Hong Kong Singapore Korea 100 Australia

New Zealand 80 Japan

60 Taiw an Philippines Malay s ia Indonesia Bangladesh Vietnam 40 China Laos Pakis tan Cambodia 20 India Nepal Thailand Sri Lanka 0

Chart 2.6: Fresh Water per Capita & GDP per Capita (2004) (log) m3 (Bubbles represent GDP per Capita)

1,000,000

New Zealand Laos Cambodia 100,000 Thailand Australia Nepal Bangladesh Sri Lanka 10,000 Malaysia India Vietnam China Indonesia Japan Korea 1,000 Philippines Pakis tan

100 Singapore

Opportunities in the Water & Wastewater Sectors in Asia & the Pacifi c 14 Water Market Asia - Part 1: Analysis announced in November 2005. It is ambitious and exceeds proposed Suez’ new partnership is an example of how fi nancing new projects defence spending. While such high fi gures are often characteristic of has become easier in the PRC: the new company has a registered central planned economies (700 water treatment plants pledged in capital of US$30m-equivalent and is expecting to secure fi ve times the last fi ve-year plan never materialised), the commitment of Chi- that amount in debt fi nance from local banks. Chinese banks now offer nese authorities to deliver environmental protection seems genuine. loans with 15-year tenors and very competitive pricing structures. The Indeed, Shanghai plans to invest RMB40bn (US$5bn) on environ- possibility of fi nancing projects without taking foreign exchange risk is mental protection projects to prepare for the World Expo in 2010. The perceived as one of the great advantages of the Chinese market and focus of this investment programme will be new infrastructure such quasi-unique in emerging Asia. as water treatment plants, waste collection and recycling centres for both residential and industrial use. New construction projects alone II.3 Good but limited potential: Australia, Taiwan, New Zealand & will take 80% of this budget while the rest will be spent on cleaning South Korea up pollution. Australia is perceived as a strong, safe market but is often described as ‘tight’: few opportunities and intense competition. The needs, how- In a similar effort directed towards the Olympics in 2008, Shanghai’s ever, are important. New water treatment capacity is needed to cope main rival, the city of Beijing, was rewarded in 2005 for the best per- with population increases and sewerage systems are in need of up- formance in water pollution control among the provinces and munici- grading. The sewerage systems in most of Australia’s major cities are palities of key basins. In April 2005, Beijing had fi nished building 12 old and overloaded and infi ltration of rainwater and overfl ows of sew- new sewage projects among the 15 ones originally planned in the age are frequent problems. Large investments are needed to increase tenth fi ve-year plan. The remaining three, the Xiaohongmen plant, the sewerage capacity and improve their condition, as well as to improve Dingfuzhuang plant and the Beiyuan plant, should be completed by the quality of treatment. In addition, municipalities are turning to the the end of 2006. The city of Beijing has reportedly made an invest- practice of recycling wastewater in order to alleviate the pollution load ment of RMB3.561bn (US$440m) on sewage treatment plants alone of the country’s rivers and coastal waters. between 2001 and 2005. Water supply problems in Australia are not as urgent as wastewater Major new public projects are also in the pipeline in the rest of the ones, with nearly all the population connected to centralised water country. RMB26.6bn (US$3.3bn) should be spent during the next plan supply, most of which is treated to some degree, if only by disinfection. to correct water pollution in the Songhua River. The project covers The industrial wastewater treatment market is much smaller but has Jilin, Heilongjiang, and Inner Mongolia and spans 263 treatment proj- been growing recently as the regulatory requirements for pretreating ects (RMB7.51bn for 135 projects in Jilin, RMB196m for 3 projects in industrial effl uents become more stringent. The central government Inner Mongolia and RMB8.82bn for 125 projects in Heilongjiang). has also pledged to spend A$2bn before 2010 on water. Meanwhile, an ever greater number of Chinese municipalities want to Australia has some of the world’s cleanest water sources, which has attract private sector fi nance, increasingly in wastewater projects. It is helped keeping tariffs very low by OECD standards, but does not nec- in this recent drive towards wastewater projects that Chinese devel- essarily call for the kind of big treatment works that make private water opers have been able to catch up with international competitors who companies profi table. In water scare areas, however, hi-tech solutions have been focusing on water projects since the late 90s. Both public to complex water re-use problems are sought after and can generate and private projects will be needed to develop the required capacity. opportunities for subsidiaries of major multinationals, who face almost With the growth of Chinese cities, daily urban water demand could no competition from Australian companies in DBFO projects. Instead, reach 432.7 million cubic meters by 2010. However, at that point, the Australian companies are more likely to be partners on the construc- country’s urban water treatment capacity will only be able to produce tion side of projects. 282 million m3, according to the China Water Association. Interesting prospects include biofi ltration systems, sludge presses As a consequence, the past few years have confi rmed the place of and stabilisers, oxidation systems for industrial wastewater treatment, powerful local players in the water and wastewater sector. The two fi ltration equipment, and membrane technologies for water recycling. Chinese utilities that have been most active and successful in the mar- Local manufacturers dominate the equipment market in selected seg- ket are Beijing Capital Company and Shanghai Industrial Holdings. ments such as pumping equipment; but overall, 70% of water and These two red-chips have been working with foreign players and are wastewater equipment is imported. Some industrial wastewater treat- investing well outside their traditional home markets. Another poten- ment opportunities exist for gold and copper mines, wool scour mills, tial key player, Tianjin Capital, has so far failed to become a market steel mills, pulp and paper mills, breweries, petrochemical plants, leader. chemical and pharmaceutical plants, abattoirs, and food processing For international players, competition is becoming a more serious is- facilities. sue. China used to be perceived as a seemingly endless world of new Despite a budget surplus at the national level, Australia is going opportunities, but the big players now tend to compete for the same through a budget tightening period, which means less generous tax large projects. There has only been a limited number of such large transfers from the centre. And raising local taxes tends not to be a water projects (over US$100m in projected capex) in the PRC. So far, favoured policy option. As a consequence, many local authorities Veolia has been the main benefi ciary and captured the most signifi - have to rely on profi table public utilities (which they own) to generate cant projects in Chengdu, Shanghai and Shenzhen. revenues. As many traditional public sectors have now been opened With the exception of Chengdu, Veolia has relied heavily on a vari- to competition or privatised, the water sector has become one of the ety of local and regional partners to secure new projects. Chinese only steady and secured sources of revenue for local governments. partners have proven instrumental in providing contacts and, crucially, As a consequence, Australian local and central governments have not fi nance for most of Veolia’s large ventures. In return, Veolia brings necessarily adopted PSP/PPPs as a default policy option, often quite technology, know-how and a solid credit rating for Chinese lenders. the contrary. Suez has developed a more balanced portfolio of smaller projects and The long developments that led to the cancellation of the Kernell de- has been operating exclusively through its Sino-French 50-50 JV with salination project in Sydney, which was meant to be a PPP, exemplify Hong Kong partner, New World. With a steady revenue base to stand the present structure of the Australian water sector: a) strong incum- on (perhaps steadier than Veolia’s) Suez is planning an aggressive bent/ fi rst mover (Degremont’s Australian Water Services is suing the new strategy focused on Shanghai. municipality for breach of its contract which guaranteed a quasi-monopoly), b) un-willingness to pay (Australian water is cheap and even Suez, through Sino-French, also signed a JV agreement with a new the Prime Minister found it necessary to comment on the high price of local partner in Chongqing in late 2005. It already has a small con- the project and its output), c) reluctance to sign PPP deals and lose cession for three of the districts of Chongqing and with this new ve- control of future revenue streams (the project, if it is built, will be struc- hicle will explore further opportunities in the region including in the tured as a DBO instead). wastewater sector even though this sector is not a priority for Suez. Chongqing plans to spend RMB4.45bn (US$556 million) on wastewa- Apart from the ideological dimension of PSP, which appeals to the ter treatment by 2010. current Howard government, the driving force behind PSP in Australia has been the fi nancial sector. Contrary to most countries in the region,

15 Water Market Asia - Part 1: Analysis

Chart 2.7: Household water connections and GDP per capita by country (2004) - WHO data (Bubbles represent GDP per Capita)

120 Australia New Zealand Korea Malaysia Taiw an 100 Japan China

80 Singapore Hong Kong Thailand

60 Vietnam Philippines India Pakis tan 40 Indonesia Sri Lanka

Cambodia Nepal Laos 20 Bangladesh

0 Urban households connected to water grid (% pop) (% grid to water connected households Urban

Chart 2.8: Household w astew ater connections and GDP per capita by country (2004) - WHO data (Bubbles represent GDP per Capita)

120

Singapore Japan New Zealand 100 Australia

Korea Hong Kong 80

- 60 Pakis tan

China 40

Cambodia India 20 Bangladesh Philippines Indonesia Vietnam 0 Sri Lanka Urban households with wastewater connection (% pop (% connection wastewater with households Urban local fi nancial resources are such that water projects can be fi nanced tor needs a lot of new investment and the government has plans to using local private funds. But fi nancing PPPs simply because it can spend NT$100bn (US$3bn) in the sector between 2004 and 2008. be done has limits and where public utilities have performed well (e.g. However, such funds are considered insuffi cient and PSP is proposed Queensland or Western Australia) and generate profi ts, the rationale for numerous wastewater projects. The industrial waste reuse market for transferring those to the private sector is weak for local councils. is also growing rapidly in Taiwan and is currently estimated to generate US$33m per year. Wastewater reuse makes up around a quarter Where it has been implemented, PSP is working well in Australia. But of the industrial waste market, or US$7.6m. The best prospects for the cost structure of the sector, associated with the local preference foreign suppliers include advanced wastewater treatment and recy- for indirect “cross-subsidies” (the public utilities’ dividends replace cling technologies, advance oxidation equipment, sophisticated mem- direct taxes) and a sophisticated municipal bond market, make the branes and heavy metal recovery equipment. prospects for PSP limited in Australia. A few international investors have already been awarded contracts Taiwan is undergoing a period of budget contraints. However, its wa- for Taiwanese wastewater BOTs like Suez and Darco but there is very ter supply system seems able to meet most of the existing demand, little experience in this market. Pollution levels in Taiwan are very high except in remote areas. The public utility has also been developing its but, despite the limited funding available, the government seems com- desalination capacity and has plans to construct desalination plants mitted to resolve this problem over the long run. It has passed the to address supply to the Hsinchu Science-based Industrial Park and relevant legislation to prove it. offshore islands. New Zealand’s high environmental standards and solid growth pro- Wastewater, however, has been lagging behind and performance is vide opportunities for wastewater treatment companies with an indus- very low given the income level of the country. The wastewater sec- trial waste treatment capability. Business opportunities are also likely

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 16 Water Market Asia - Part 1: Analysis

Despite difﬁ cult times for the economy in general, Hong Kong con- Chart 2.9: 2004 Daily Organic Water Pollutant tinues to modernise its water and sanitation infrastructure and will be looking at new technologies (water re-use, desalination) in the future, Emissions to alleviate its dependency on mainland China for supply. The current per 1000 people (kg) water supply from Guangdong province is becoming more expensive and is itself constrained by the increased water use in the Pearl River Delta area. 16 Singapore is a very mature water and wastewater market. The role of 14 the public sector is pivotal and performance is excellent by regional 12 and international standards. There has been some experimentation 10 with PSP (2 projects) but the rationale for these had more to do with 8 industrial policy than getting value for money for public dollars. 6 Capacity is now in line with demand forecasts up to 2011 and beyond 4 so there will not be a new mega water project in Singapore for some time. Singapore is also the base of some of the most successful wa- 2 ter utilities in the region, the most famous of which is Hyﬂ ux. These 0 utilities have now turned their attention to the PRC and other developing markets in Asia and will need to expand regionally in order to

India survive. China Japan Korea Malaysia

Australia Singapore’s wastewater projects are also well under way, but some Sri LankaSri Indonesia Singapore Philippines

Hong Kong opportunities remain for contractors as new construction phases are

New Zealand planned for the coming years. Opportunities for the private sector in Japan have been stifl ed by the to arise in key environmental sites where municipalities will seek to country’s long years of recession which have left local and central procure advanced treatment products and services to meet stringent government with a huge debt overhang and little scope for invest- standards for discharges. ment works. Government spending on the water sector amounts to around JPY150bn (US$1.2bn) a year. However, the fundamentals of There will be fewer opportunities in the water sector where high quality the Japanese market suggest openings for EPC fi rms in wastewater raw water resources are plentiful and the quality of local government network and treatment facilities as the country has a very low level of provision is operationally and fi nancially adequate. For the two parts sewerage coverage for its income level. of the sector, NZ$5bn (US$3.4bn) of investment would be needed in 2000-2020 to upgrade infrastructure to meet current and future needs. Japan has been gradually opening up to the idea of private sector As local utilities are not dependent on central government transfers for participation in infrastructure, although since 1999 when the Private capital works, efforts to reduce public spending will not have a nega- Finance Initiative Law was enacted, only a handful of projects have tive impact on the sector. been pursued. This small market is dominated by Japanese construction companies (Obayashi Corp, Nippon Steel, Taisei Corp etc.) but Privatisation is not a “natural” choice in the New Zealand political con- the government is encouraging foreign participation in a few areas, text and local authorities expect to see high “value for money” in ex- including water recycling. So far, only two BOT projects have been change for awarding PPP contracts. signed in the sector and foreign companies continue to face serious Korea is a market with great needs for water and wastewater treat- challenges in breaking into the Japanese PFI market, from pre-quali- ment but there can be a signifi cant gap between government plans fi cation to performance specifi cation. It is not surprising that no inter- and reality, especially in the short run. There are also great disparities national water majors consider the Japanese market to hold much between large urban centres and the rest of the country in terms of potential for growth. service coverage and level of standards. For a long time, wastewater Japanese water and wastewater companies, meanwhile, are gravitat- and the environment was a priority only on paper and only recently ing towards the Chinese market. These companies tend to be highly has the government started to address the issue and to involve the integrated and fairly concentrated. Leading Japanese fi rms are tech- private sector as an operator. nology and equipment-oriented and compete as conglomerates or Public utilities fi nance operations with debt because tariffs are too low trading companies offering integrated systems (i.e. consulting, engi- and they cannot fi nance new projects. As a consequence, PPP-type neering, construction, equipment, supplies, materials, and fi nancing projects have succeeded in the wastewater sector. But privatization are all included). The Japanese government actively supports the de- remains very political, especially as it means disturbing cosy relation- velopment of business opportunities for Japanese fi rms by providing ships between local authorities, who have a history of resisting the attractive fi nancing along with technical assistance to promote their privatisation of management, and local construction companies. Be- products. tween 2003 and 2014, Korea needs KW4,000bn (US$4bn) of new The activated sludge process has been used in Japan extensively for investment for the piped water sector alone. decades for both municipal and industrial wastewater treatment. How- II.4 Very limited potential: Hong Kong, Singapore & Japan ever, in recent years, the anaerobic digestion process has become increasingly popular because of its smaller required installation space, The Hong Kong water and sanitation sector is wholly in the hands lower operating costs and sludge volume generated. This trend cre- of the public sector. While past performance has not always been ates opportunities for importers of this technology. Other good pros- impressive, recent years have seen great improvements and much pects include high-performance fi lters, industrial wastewater recycling needed capex. systems, sludge dehydration equipment, as well as sampling, analyti- Through their efforts to become and stay effi cient, the HK water and cal, and monitoring instrumentation. Machinery manufacturing, food drainage and sanitation departments are also attempting to fend off processing, steel, and chemical industries present the greatest oppor- any attempt to introduce private sector participation. Indeed, the only tunities for suppliers of industrial effl uent treatment equipment. known potential PPP has been on the cards for about ten years: the Sha Tin BOT, which, after long protracted negotiations with unions, II.5 A Case Apart: Malaysia might come back to life in a different form in the coming years. Malaysia is in the midst of sectoral restructuring which will close off some avenues for private investors, but should open others. Under However, a very active public utility means that a lot of contracting the reform, responsibility for water has been shifted from the states jobs are available on a regular basis. Local construction companies to the federal level in a constitutional amendment, while the shape of share most of this market, with the fi rst fi ve by market share holding sector is set out in two proposed laws, the Water Services Industry Bill more than half the market by value. and the National Water Services Commission Bill. The bills provide for

17 Water Market Asia - Part 1: Analysis

Chart 10:2.10: Total Total Withdrawals Withdrawals per per Capita Capita and and Total Total Renewable Renewable Resources Resources by by Country Country (2002) (2002) (Bubbles represent the size of renewable water resources per capita for each country)

m3 1,800

1,600

1,400 Thailand

1,200 Australia

1,000 Pakis tan

India Vietnam 800 Sri Lanka

China Laos Japan 600 Malay s ia Korea Bangladesh 400 New Zealand Indonesia Nepal 200 Philippines Cambodia 0

Chart 2.11: Withdraw als as a share of Renew able Resources 2002 % 80 70 60 50 40 30 20 10 0 India Laos China Nepal Japan Korea New Zealand Vietnam Pakistan Thailand Malaysia Australia Sri LankaSri Indonesia Cambodia Philippines Bangladesh

Chart 2.12: Proportion of Industrial Water Withdrawals in Total and Total Renewable Resources per Capita by Country (2002) % 30

25 China Vietnam Malay s ia 20 Japan Korea 15 New Zealand Philippines 10 India Australia Indonesia Laos 5 Nepal Thailand 0 Sri Lanka Bangladesh Cambodia Pakis tan -5

Opportunities in the Water & Wastewater Sectors in Asia & the Pacifi c 18 Water Market Asia - Part 1: Analysis the creation of SPAN, the National Water Services Commission, and II.6 High Risk: Thailand, Indonesia and the Philippines WAHCO, the Water Asset Holding Company. SPAN will take over the Thailand, Indonesia and the Philippines have proved to be frustrating management of water assets from states. WAHCO will own the as- markets for private developers. In part, this is due to timing, as a rush sets and use these to raise funds on the private capital markets, of an of foreign companies entered these markets in the mid-1990s and estimated MYR500m (US$133m) by 2007. The funds will be directed were then hit severely by plummeting exchange rates and a collapse towards a nationwide pipe replacement programme and further infra- in demand during the Asian crisis. Thailand was one of fi rst countries structure development. The pipe replacement programme has already in the region to launch PSP: in the mid-1990s it agreed several BOT begun in the capital area. projects and began negotiations for concession projects. Thames Wa- The reforms were prompted by the increasing indebtedness of the ter was an early participant in the Thai market and secured the major states to the federal government. States have debts of MYR7.8bn West Bangkok BOT project which it saw as a step towards winning (US$2bn) to the centre for past water projects. The sector restructur- an integrated treatment and distribution contract which never mate- ing plan proposes to cancel these debts in return for the transfer of rialised. assets to the federal government’s holding company. In the wake of the Asian crisis, the IMF recovery plan included exten- One possible consequence of the reform will be the renegotiation of sive requirements for privatisation of Thailand’s state-owned compa- existing private concession contracts. Although the federal govern- nies, including the MWA and PWA which provide water services in ment has confi rmed publicly that it will respect existing contracts with Bangkok and the provinces respectively. Consultants recommended the private sector, market insiders believe that concessions may be a concession model but this proposal was ultimately rejected by the transformed into O&M contracts when assets are transferred to the government, which confi rmed instead that the companies would be federal government. The government may also decide to operate the fl oated on the Bangkok exchange and that the government would re- sector in several large regional blocks and award O&M contracts for tain a majority stake in each. Almost a decade after the Asian crisis, these blocks to private companies. SAJ, the concessionaire for Johor the promised IPOs have still not taken place, pushed to the back- State, would be well placed to take on a block in Southern Malaysia, ground by telecoms and power sector reform. In the meantime, both while PBA, the corporatised utility in Penang, would be a strong con- companies are achieving good operational results. However, the Thai tender for the Northern region. market looks considerably more interesting for foreign EPCs, who should be able to pick up opportunities under the government’s infra- Malaysia has had a chequered history of privatisation in the water structure mega-projects initiative, details of which were announced and sanitation sectors. On the one hand, it was the fi rst country in the in January 2006. Thailand is unusual in this respect, as it is the only region to allow PSP in the water sector and it is still one of the only country in the region planning large increases in public spending on countries with a successful integrated concession contract, Ranhill infrastructure. Utilities’ concession in Johor (run by SAJ), and the only country to have signed a major concession deal in the last few years, the privati- Indonesia and the Philippines have had a very mixed history of water sation of Selangor’s water system to Puncak Niaga. Yet Malaysia has PSP. The two countries opened up the sector to private companies also seen a number of projects failed or terminated. The privatised na- in the mid-1990s, initially under the BOT model which was also be- tional sewerage works to the Indah Water Konsortium was taken back ing used in the power sector. Investors were keen to get involved in into the public sector in 2001, while Thames Water’s concession in what were seen then as dynamic emerging markets. Thames and Kelantan was terminated and reverted to the state government. Many Suez jockeyed for the Jakarta concession contract, before President water treatment BOTs have turned out to be too expensive for states Suharto decided that the city should be shared between them, and with disastrous consequences for the fi nancial health of state utilities the tender for the Manila concessions attracted participation from the in Selangor and Sabah. world’s largest water companies. Under the Ninth Malaysia Plan (9MP, 2006-2010), Malaysia will spend However, these large contracts have turned out to be very painful for between MYR150-190bn (US$40-50bn) on water, energy and com- most of the companies involved. In both Manila and Jakarta, the con- munications infrastructure. Of this, only a small proportion, perhaps cessionaries began their operations just months before the economic MYR5bn (US$1.3bn), will go to the water sector. This level of spend- crisis hit. In Indonesia, this was accompanied by a political crisis that ing will be roughly on a par with the allocations under the Eighth Plan. replaced President Suharto after months of civil unrest. The fi nancial The government estimates that MYR23bn (US$6.15bn) of investment models of the concessionaires were thrown into disarray by devalu- will be needed in the water sector in 2006-2011 and is looking to the ation and in the case of Maynilad, the Suez-Benpres JV for the West restructuring to generate the extra capital investment that will not be zone of Manila, this prevented them from securing long-term fi nance covered by 9MP. The plan allocation is expected to be announced in for their capital investment programme. The concessions in Manila 2006. and Jakarta have undergone repeated rounds of renegotiation. In Manila, the contract for the West zone is now being rebid, while in One of the largest and most important current projects in Malaysia Jakarta, Thames is expected to withdraw from its contract. Suez is is the Pahang-Selangor transfer project to bring extra water supply searching for a local partner to share equity risk. In contrast, Manila to the Kuala Lumpur area. The project will be fi nanced mainly by a Water, the Ayala-United Utilities JV that operates Manila’s East Zone MYR750m (US$200m) loan from JBIC. Other opportunities are the concession, has fl ourished. Langat Treatment Plant, the pipe replacement programme and a nationwide programme to increase metering. Despite all these problems, the Philippines and Indonesia are both very keen to attract more foreign investment into water and sanitation Malaysia’s market for long-term fi nancing is developing and water projects. Unfortunately for these two heavily indebted governments, sector companies are now able to raise local bond fi nance on reason- the high visibility problems in Jakarta and Manila have put off foreign able terms. MYR29.1m (US$7.74m) worth of bonds were issued in investors. The Indonesian government was unable to attract any pri- 2005, with infrastructure and utilities accounting for half of the total. vate sector interest in a list of projects presented to investors in 2005. The expected increase in capital investment resulting from the re- In the Philippines, a World Bank project for PSP in small-scale proj- structuring represents an opportunity for foreign fi rms to take on new ects did not get off the ground, as private operators felt the returns project works. Many of the international companies do not see it as offered were not commensurate with the risks involved. When the a market for expansion, but Earth Tech and Biwater have both ex- Manila West concession is rebid in 2006, competitors will be Filipino pressed an interest. companies. However, competition from local fi rms is strong and experience sug- In these countries, Suez, Veolia and United Utilities will continue to gests that preference may be given to Malaysian fi rms in privatisation operate their existing projects but have no intention of extending their contracts, which accounts partly for the decisions of Veolia, Suez and involvement. Cascal, the Biwater-Nuon JV will also stay involved in Thames Water to wind down their operations in Malaysia. Ranhill Utili- its concession contracts in Batam (Indonesia) and Subic Bay (Philip- ties and Puncak Niaga and possibly PBA will compete for any O&M, pines). Biwater itself is the only major international operator to have service and consultancy contracts that emerge after the restructuring, expressed an interest in expansion in the Philippines with industrial while Salcon, George Kent and other national construction majors will clients. compete for EPC works.

19 Water Market Asia - Part 1: Analysis

Earth Tech has a presence in Thailand which it will use as a base for Practitioners estimate that it will take 5-10 years for the sector to open mega-project bids, even though the country is not a target growth mar- up. One executive working in the region draws a parallel with the road ket for the company. On the other hand, Malaysian company Ranhill transport sector, in which PSP has gone from anathema to core strat- Utilities has identifi ed Thailand as a core location for its future growth. egy in just fi ve years. The same could happen in the water sector, as In 2005, RU signed three projects for water-related services on an the central and state governments come to appreciate the importance industrial estate. In Indonesia, another Malaysian fi rm, Gadang, that of water sector infrastructure to support economic growth. Another is taking an interest in the market. It recently acquired the concession veteran of the sector says that he has noticed a change in attitude in Sidoarjo and is planning two further investments. among government offi cials, although this is occurring very slowly: six years ago, private companies had to approach municipalities to try to II.7 No or Marginal Potential: The Mekong Delta & South Asia convince them of the value of PSP. Now, he says, it is the municipali- The countries of South Asia and the Mekong are the least promis- ties who are coming to him. Underlying this tentatively optimistic view ing markets for private investors and foreign EPCs. The South Asian is the logic that when shortages become too bad, or the economic cost countries covered in this survey – Bangladesh, India, Nepal, Pakistan of poor service becomes high enough, municipalities will be forced and Sri Lanka – have made very slow progress towards establish- to take action. This is certainly the pattern in Chennai, where severe ing, and more crucially, implementing a framework water policy which resource shortages have forced the authorities to engage in PSP. In could support PSP. The Mekong countries – Vietnam, Cambodia and Bangalore, the municipality has been motivated to engage private Laos – have gone further in policy development, following through companies in water reuse out of concern for the city’s attractiveness the recommendations of IFIs, but with the result that the gap between as a destination for FDI. policy and practice has become wider. Those who have tried to operate in India tell the same stories of slow- Policy coordination within the government is extremely poor in most moving bureaucratic systems and strong public resistance. Many of these countries and agricultural needs predominate over domestic projects have been on the cards for years but have barely moved and industrial needs. Access to water resources therefore poses a forward. It is clear that municipalities are not currently willing to con- long-term challenge for urban water projects. In India and Pakistan, sider handing over either the whole service area or the whole range of particularly, effi cient water resource allocation is undermined by pow- activities to a private company. In the near future, PSP will be limited er subsidies to farmers who pump free groundwater for irrigation. to operations and management contracts covering one or a few zones in the utility’s service area. This ‘pilot project’ approach is intended to All of these countries have low rates of sewerage network coverage demonstrate both to utilities and to the public that private operators and treatment for their urban areas. The poorest countries – Laos, can offer real improvements in the quality of service while improving Cambodia, Bangladesh, Sri Lanka and Nepal – also have low rates effi ciency. In particular, private operators hope to demonstrate that of piped network coverage for water and a clear priority for donors they can bring 24-hour supply to households currently accustomed to is to improve these numbers. As a result of heavily constrained pub- 2-3 hours of water per day. Veolia is currently engaged in a project of lic budgets, sector investment in these four countries is fi nanced al- this kind in three cities in Karnataka, fi nanced with bilateral aid from most entirely through multilateral and bilateral aid fl ows and donors France. Working outside India’s main metropolitan areas should allow have considerable infl uence over sector policy and the direction of the company to carry out the project while staying out of the eye of investment. However the three South Asian countries in the group anti-privatisation activists and the media. have proved much more resistant to policy reform than the two Me- kong countries. In Sri Lanka, a water reform law was abandoned by The risks of projects in key centres has been amply demonstrated in the government under pressure from opposition parties. Resistance Delhi where a water and wastewater O&M project supported by the comes from organised political groups as well as civil society activists World Bank was postponed after the pre-qualifi cation stage because who are strongly opposed to ‘privatisation’ of any kind and brand all of public opposition. The project is now being restructured without the PSP projects with this label. The Vietnamese Government is similarly involvement of the World Bank and is unlikely to go ahead before the unimpressed by the potential for large-scale private sector involve- end of 2006. Delhi’s only other PSP, the Sonia Vihar water treatment ment in water and sanitation. The only foreign company present there BOT, has foundered on inadequate raw water supply. The plant has is the Malaysian fi rm Salcon, which operates the one and only water been built by Degremont, by far the most active foreign EPC in the BOT project. Indian market. The only parts of these regions which look close to overcoming po- The demand for water and wastewater testing and analysis equipment litical resistance – and private sector scepticism – are a few Indian is primarily driven by regulatory enforcement. The growth in this mar- states, including Karnataka and Tamil Nadu, and Pakistan, which has ket segment has been relatively low in the last three decades. How- signalled its interest in PSP in its sector policy. The Veolia Group, ever, the recent trend to enforcement strengthening may create new for example, is beginning to take an interest in the Pakistani market: opportunities. Many state pollution control boards have undertaken it is currently implementing a design-build project in Islamabad with major programmes to enhance in-house monitoring and analysis ca- bilateral fi nancing from France and is looking at further opportunities pabilities. Still, the market for foreign companies is smaller than would in Lahore. be expected for such a large country because Indian municipalities continue to impose very low standards for the projects that they ten- In the Least Developed Countries in this study, private sector oppor- der. In these circumstances, it is impossible for foreign companies to tunities are limited to engineering and procurement contracts for IFI compete with bargain-price facilities provided by local companies. In- projects and small consultancy and possibly service contract oppor- dustrial customers with more stringent requirements might be a more tunities. Biwater is one company that is actively considering opportu- promising market. Large and medium-sized industrial facilities can be nities of this kind and has signalled its likely participation in current important buyers of state-of-the-art monitoring and analysis equip- IFI-supported projects in Sri Lanka and Vietnam. ment and services, since they are now required to regularly monitor None of these South Asian and Mekong countries has successfully their own discharges. implemented a contract for integrated treatment and distribution ser- * vices to the private sector. Several concessions of this kind have been developed with IFI support but were eventually abandoned, as in India The report covers 20 countries in the Asia-Pacifi c region. They repre- (Pune, Bangalore), Pakistan (Karachi), Nepal (Kathmandu) and Viet- sent the region’s largest and fastest growing economies and consti- nam (Thu Duc). In Bangladesh, Sri Lanka, Laos and Cambodia, no tute markets of actual or potential interest for the private sector. For concession projects for cities have been considered, let alone imple- ease of comparison, the countries have been divided into two peer mented. groups, high-income economies and “emerging” ones. India, by far the largest of this group of countries, would seem to have The authors’ unique database of privately-fi nanced water and waste- great potential for PSP as a rapidly urbanising country with several water projects was used to present known and future deals for each mega-cities and rising per capita incomes. Yet, private sector involve- country. ment in the sector has been very limited and talk about the potential in Other data comes from offi cial or reliable secondary sources, or was the market has not been matched by fi rm government commitments collected fi rst hand in interviews. or investment fl ows from the private sector.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 20 Water Market Asia - Part 2: Country Proﬁ les

Part 2: Country Proﬁ les

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 22 Water Market Asia - Part 2.1: High Income Asia

Part 2.1: High Income Asia

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 24 Water Market Asia - Australia

Australia

Australia is perceived as a safe and good market but often described as ‘tight’: few opportunities and intense competition. The needs, however, are important. New water treatment capacity is needed to cope with population increase and sewerage systems are old and in need of upgrading. The sewerage systems in most of Australia’s major cities are old and overloaded. Infi ltration of rainwater and overfl ows of sewage are frequent problems. Large investments are needed to increase sewer capacity and improve their condition, as well as to improve the quality of treatment. In addition, municipalities are turning to the practice of recycling wastewater in order to alleviate the pollution load of the country’s rivers and coastal waters. Water supply problems in Australia are not as urgent as wastewater ones, with nearly all the population connected to centralized water supply, most of which is treated to some degree, if only by disinfection. The industrial wastewater treatment market is much smaller but has been growing recently as the regulatory requirements for pretreating industrial effl uents become more stringent. The central government has also pledged to spend A$2bn before 2010 on water. Apart from the ideological dimension of PSP, which appeals to the current Howard government, the driving force behind PSP in Australia has been the fi nancial sector. Contrary to most countries in the region, local fi nancial resources are such that water projects can be fi nanced using local debt and capital markets. But fi nancing projects as PPPs simply because it can be done has limits and where public utilities have performed well (e.g. Queensland or Western Australia) and generate profi ts, the rationale for transferring those to the private sector can be diffi cult to fi nd for local councils.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Limited success Existing PSP opportunities have been Future Opportunities Numerous captured by the big players: Suez, Veolia, Anglian, Earthtech Local competition Negligible Equipment Markets Comments Future Opportunities Numerous Aging wastewater systems are the most Local competition Significant immediate refurbishment need for public utilities

Public Utilities Comments Track record Good Performance has been good but Sustainability Limited maintenance and future needs are outpacing current expenditure trends, Reliance on ODA None creating an investment gap.

Government Comments Commitment to deliver service Yes Some of the last public utilities, water Fiscal Resources Surplus companies are a significant revenue source for local governments and an important determinant of their credit rating when they go the debt market. Economy & Finance Comments Recovery since Asian crisis 1997 Average Local capital maket Sophisticated

25 Water Market Asia - Australia

I. General Information from the present 35% to improve pricing. I.1 Macroeconomic Situation - Legislating tax cuts. The Australian economy has recently shown signs of weakness with Despite popular misgivings over issues such as Australia’s involve- lower than expected GDP growth in 2004 (3.2%) and a forecast of 2.5- ment in Iraq and the US inspired “war on terror,” the government’s 3% for 2005 (see chart 1.1). More worrying is the level of the current hardline approach to asylum seekers, and the erosion of civil liberties account defi cit which has reached an all time high at A$15.2bn. Oil that has accompanied Australia’s anti-terror program, Howard enjoys and salary-driven infl ationary pressures have pushed the central bank solid popular support. to raise interest rates in March 2005 to 5.5%. Unemployment remains Water can be a political issue especially in dryer regions like West- at a 28 year low at 5.1%, but wages have never grown so fast (3.9% ern Australia. Recently, the choice between a US$1.5bn canal and yoy in 1Q05.) a US$300m desalination plant, both with signifi cant PSP, was a key As a consequence, the Australian Treasury is tightening the budget, issue in the WA election campaign. The desalination project at Kurnell expecting to maximise an already existing surplus to counter balance in Sydney has also been met with fi erce political resistance. the current account defi cit (see charts 1.5 & 1.6). At the end of 2Q05, government expenditure was up 0.4% against 0.7% yoy. A hard land- II. Water ing remains unlikely despite concerns over household indebtedness II.1 Sector Policy & Structure and a weakening property market. Moreover, the possibilities of an The water industry in Australia is estimated to generate direct annual export-led recovery seems unlikely given the loss of competitiveness revenues in excess of A$6bn and employs more than 30,000 people. of the Australian dollar (esp. to China) and a trade defi cit in free fall Just over 300 authorities provide water and wastewater services to since 2001. Australia’s 19m people. About 64% of the Australian population is I.2 Political & Investment Environment served by 21 major urban utilities that each serves more than 50,000 connections to residential and business properties. There are a further The Liberal Party of Australia/National Party of Australia (LPA/NPA) 69 regional utilities (non major urban) serving a further 17% of the coalition secured a solid victory over the opposition Australian Labor Australian population. These have between 10,000 to 50,000 connec- Party (ALP) at the October 2004 legislative elections. Given its control tions. The remaining water utilities generally have fewer than 10,000 of both the upper and lower houses of parliament, the Howard govern- connections. ment is likely to push ahead with economic reforms. These near-300 utilities do not represent the whole spectrum with re- The three top priorities are: spect to the management of urban water. Typically, local governments - De-regulating labor markets. PM Howard’s Workplace Plan is likely manage storm water and road drainage functions. As a number of to be the most contentious and unpopular reform. Attempts at liber- other bodies share the responsibility for how the resource is managed, alizing labor laws have been repeatedly rejected by the opposition integrated catchment management continues to present a challenge Labor Party in the past nine years. The new labor laws will seek to to policy-makers and regulators. introduce a new fl exible model targeted at improving productivity and The size, scope and responsibility of the water utilities vary consider- decentralising the wage fi xing system. ably. In the Australian Capital Territory (ACT), Northern Territory (NT), - Full privatisation of Telstra Corp Ltd. This was previously rejected by South Australia (SA) and Western Austrlia (WA) a single authority pro- the Senate. The government is proposing to sell its 51.8% stake (es- vides water and wastewater services. In the remaining States, water timated to worth A$30 bn) in Telstra in 2006. The government is likely and wastewater services are provided by either major regional water to consider lifting the limit on foreign ownership in the company to 49% utilities (such as Sydney Water Corporation) or local councils. In the

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 8.00 2006 639,611 6.00 2005 656,652 4.00 2004 607,755 2.00 0.00 580,000 600,000 620,000 640,000 660,000 680,000 -2.00 1998 1999 2000 2001 2002 2003 2004 2005 2006

Australia Dev eloping Asia (mean) High Income Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%)

12.00 10.00 Chart 1.3: 2004 Sector Share of GDP 8.00 Agricult. 6.00 3.63 3.89 4% 4.00 Industry 1.67 1.22 1.29 1.42 1.60 2.00 26% 0.00 1998 1999 2000 2001 2002 2003 2004 Serv ices Australia Dev eloping Asia (mean) 70% High Income Asia (mean)

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 26 Water Market Asia - Australia

Table 1.1: Sovereign Risk Indicators Australia Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 14,280.00 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 17.18 59.60 50.84 Short Term Debt / Total Debt 2004 (%) n/a 10.49 n/a Fitch Sovereign Rating (2004) AA+

Table 1.2: Legal Risk Indicators 2004 Australia Developing Asia High Income Asia Time to enforce a contract (days) 157.00 392.62 103.67 Time to register property (days) 7.00 62.82 16.50 Time to resolve insolvency (years) 1.00 4.45 1.15 Time to start a business (days) 2.00 67.08 14.33 Legal rights of borrowers and lenders (0=low) 9.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Australia Developing Asia High Income Asia Political Rights 1.00 4.23 2.43 Civil Rights 1.00 4.69 2.14 Corruption Perception 8.80 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 Australia Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 6.64 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 1,261.80 185.54 1,281.59 Roads, paved (% of total roads) 38.00 44.75 75.32 Electric power consumption (kwh per capita) 9,663.43 717.46 7,505.93 Water supply failures (days) n/a 10.00 n/a

Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) Chart 1.5: Current Account Balance as a share of GDP 2003-2006 (%) 1.20 2.00 0.78 0.90 8 0.29 0.54 6 0.00 4 2002 2003 2004 2005 2006 -2.00 2

-4.00 0 -2 2003 2004 2005 2006 -6.00 -4 -6 -5.70 Australia Dev eloping Asia (mean) High Income Asia (mean) -8 -5.97 -6.41 -6.20 Australia Dev eloping Asia (mean)

Chart 1.7: Inflation Rate 1999-2004 (%) High Income Asia (mean)

16.00 Brisbane City Council 14.00 Brisbane’s strong and dynamic economy, with population growth averaging about 2% per year, supports the council’s revenue base. 12.00 Brisbane City Council is unique in the Australian context for its size, 10.00 covering close to one million people, and its scope of responsibilities, including capital-intensive services such as water, sewerage, 8.00 and other infrastructure. Although the state government typically 6.00 funds part of large projects, and developers are required to provide 4.48 4.38 4.00 or fund the extension of some infrastructure services, Brisbane City 3.00 2.77 Council also faces pressure to fund its capital requirements. Bris- 2.34 2.00 1.47 bane City Council’s main equity investment is about A$81 million 0.00 in the South East Queensland Water Corp. Ltd. (SEQWC), representing a 45% minority interest. The State of Queensland (20%) -2.00 1999 2000 2001 2002 2003 2004 and 11 neighbouring local governments own the rest of the equity in this company. Although there could be some pressure on Brisbane Australia City Council to provide further funding to SEQWC in times of crisis, such a likelihood is very remote given the company is expected to Dev eloping Asia (mean) have a satisfactory credit proﬁ le. SEQWC retains monopoly powers High Income Asia (mean) over water wholesaling in the region. The local government owners themselves are the company’s customers.

27 Water Market Asia - Australia last decade the water industry has undergone signifi cant change in Main Cities of Australia (2003) Population '000 structure, regulation and funding. Most States have restructured their Sydney 4199.00 water utilities and dismantled the vertically integrated utility structures. Many of the Council of Australian Governments (COAG) reforms have Melbourne 3555.00 been implemented by most of the larger urban water authorities. Brisbane 1735.00 Perth 1432.00 Recent years have seen increased investment in renewals, improved Adelaide 1119.00 water treatment and reduced water losses from their systems. The amount spent on renewals is not, however, suffi cient to keep pace Canberra 323.00 with the rate of asset deterioration. Efforts are also required to further reduce water consumption and better integrate future water resource towns throughout Australia is about 3,400 gigalitres. The residential development projects as part of the total water cycle planning pro- consumption is about 2,200 gigalitres. While this volume of water may cess. seem high, it only represents about 5% of the total water extracted Transport networks for water and wastewater are the major invest- from the Australian environment and about 15% of the total water con- ment component of urban water businesses. The low density of Aus- sumption. Over 90% of potable water is sourced from surface water tralian urban development, compared to European cities, may result in and the remaining 10% from groundwater (see tables 3.2 & 3.3). higher costs of transport infrastructure per connetion. The overall cost The 1998 cryptosporidium scare in Sydney highlighted the importance of supply however remains very low by western standards. of water policy, and brought some focus on drinking water quality and Australia has developed its own brand of public-private partnerships new standards. A signifi cant proportion of the potable water supplies (PPPs) with the ‘Alliance’ model and private participation in the water are sourced from catchments that are protected from human activity. sector is growing steadily but slowly. Contracts have now been award- Such protected catchments have helped to reduce the level of treated for a range of water projects. These have included BOT schemes, ment and maintain the cost of water supply in Australia to one of the concession contracts and operation and maintenance contracts. In lowest in the OECD. spite of the limited private sector involvement in management, the re- The availability of relatively low cost water has led Australia to be one forms initiated in 1995-96 have increased effi ciency and helped imple- of the highest consumers of potable water on a per capita basis. Wa- menting the ‘user pays’ principle within the water sector in Australia. ter reforms have encouraged water utilities to move more towards a Still, underinvestment in the sector, as estimated by the Australian user-pays system for charging for water. This has resulted in a reduc- Council for Infrastructure Development (AusCID) amount to at least tion in unit consumption. As a consequence, and despite an increase A$3bn. For instance, given Adelaide’s high dependency on the Mur- in population, total water consumption has not increased over the past ray river for drinking water, there are potential recycling projects in this several years, but has stagnated and decreasd for the larger utilities city. There is also a serious shortage of catchment capacity develop- (see chart 3.3). ing in a number of coastal Queensland cities as a result of population At present many of the major urban centres have adequate potable growth. water supplies for the next one or two decades. The increase in population will require additional sources to be developed in the near future to meet the projected shortfall in demand. Thus, despite some taper- Gold Coast City Council ing off in unit water consumption rates in recent years, more work may The structure of local government in Australia ensures that cyclical- be done to encourage further water conservation with the potential ity and volatility are low. Like its Australian peers, Gold Coast does consequence of deferring major capital works by another one to two not hold any income or goods and services taxing powers. General decades. rate revenue is determined on the basis of its income requirements meeting obligations, rather than on the basis of potentially volatile Recent policy trends residential values. Although user charges are potentially volatile, The Australian Government’s responsibility is to assist with overall this is mitigated by degree to which the largest – sewerage and policy direction for the provision of water services by the States. This water – are skewed to a ‘per household’ basis, rather than a pure direction is provided on two fronts: a) Water quality and the environ- volume-related charge, and by the very strong population growth ment, which is provided via a number of Ministerial Councils; and b) projections. Finally, transfers from other governments represent Reform of the water industry in Australia, which is provided via the only about 6% of operating revenue and largely relate to discretion- Council of Australian Governments (COAG) and the National Compe- ary spending. tition Council (NCC). a) Water Quality and the Environment Alternative technologies The National Water Quality Management Strategy, defi nes the water A growing number of users are looking at alternative technologies quality goals for Australia, and is a joint strategy of two Ministerial such as use of rainwater tanks and more grey-water re-use to supple- councils, the Australian and New Zealand Environmental Conser- ment reticulated water. The general tendency in the past was for utili- vation Council (ANZECC) and Agricultural Resource Management ties to dismiss these options for cost and health reasons. In future, Council of Australia New Zealand (ARMCANZ), the two councils rep- utilities will consider the increasing use of these technologies as their resenting environment and water resource interests respectively. performance and reliability improve. In many cases they can offer a The current Australian Drinking Water Guidelines were developed by more cost-effective option in meeting fringe development water de- the National Health and Medical Research Council (NHMRC) and en- mands than do conventional systems. dorsed by ARMCANZ. A rolling review of these standards is carried Water uses out to ensure that their currency and relevance are maintained. The Australian Water Quality Guidelines for Fresh and Marine Waters are Australia uses 75% of its water production for agriculture, 10% for currently being reviewed by ANZECC. industrial uses and 15% for domestic uses (see chart 3.1). By world standards the great majority of Australians are supplied with reliable The National Environment Protection Council is a Ministerial Council and high quality potable water. of Federal and State Ministers and has the power to issue national environment protection measures to protect the environment. Wholesale utilities such as the Sydney Catchment Authority typically provide bulk storage and transfer functions and in some cases also b) Reform of the Australian Water Industry provide water treatment functions. Retailers predominantly distribute In February 1994, COAG started the reform process of the water in- potable water to the consumers although in some cases they also dustry. A set of generic national objectives was developed from this treat the water prior to distribution. At present, 98% of the Australian framework followed by development of specifi c objectives for each population is provided with reticulated water. federated State. As a reward for achieving these objectives, the Fed- It is estimated the annual water consumption of all the cities and eral Government makes substantial tranche payments to the States.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 28 Water Market Asia - Australia

Table 2.1: Income Level Australia Developing Asia High Income Asia GDP per capita 2004 (US$) 30,200.00 1,104.30 23,628.57 Population on less than US$1/day 2004 (%) 0.00 18.23 0.00 Unemployment 2004 (%) 5.53 6.73 4.89

Table 2.2: Area & Population Australia Developing Asia High Income Asia Population Growth 2003 (%) 1.06 1.67 0.64 Urban Population Growth 2003 (%) 1.54 3.48 1.18 Population Density 2002 (pop/km2) 2.53 231.45 2,335.17 Area (thousands Ha) 774,122.00

Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Urban Population (%) 2000-2003 (cst 2000 US$) (millions) 91.89 20.50 20.15 92.00 12,800 19.90 91.50 15,000 12,219 12,466 20.00 19.69 91.50 91.11 19.46 10,000 19.50 19.26 91.00 90.72 5,000 19.00 90.50 n/a 18.50 90.00 0 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002 2003

Table 3.1: Water Service Coverage Indicators 2002 (%) Australia Developing Asia High Income Asia Population with Access to Improved Water 100.00 76.85 100.00 Households Connected 100.00 22.27 99.00 Urban Population with Access 100.00 86.17 100.00 Urban Households Connected 100.00 48.27 99.50 Rural Population with Access 100.00 71.42 100.00 Rural Households Connected 100.00 14.58 97.00

Table 3.2: Water Resources Australia Precipitation Volume 2002 (bn m3/yr) 4 134 Precipitation Depth 2002 (mm/yr) 534.00 Groundwater: produced internally 1998-2002 (bn m3/yr) 72.00 Surface water: produced internally 1998-2002 (bn m3/yr) 440.00 Overlap: surface and groundwater 1998-2002 (bn m3/yr) 20.00 Water resources: total internal renewable 1998-2002 (bn m3/yr) 492.00 Water resources: total external 1998-2002 (bn m3/yr) 0.00 Water resources: total renewable 1998-2002 (bn m3/yr) 492.00 Agricultural water withdrawal 1998-2002 (bn m3/yr) 18.01 Domestic water withdrawal 1998-2002 (bn m3/yr) 3.52 Industrial water withdrawal 1998-2002 (bn m3/yr) 2.40 Total water withdrawal 1998-2002 (bn m3/yr) 23.93

Table 3.3: Water Resources II Australia Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 25,174.00 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 25,174.00 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 1 224 507.25 544.73 Dependency ratio 1998-2002 (%) 0.00 33.33 1.39 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 3.66 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 4.86 16.19 13.19

29 Water Market Asia - Australia

Payments are made under the Competition Policy Reform Act 1995, consistent with, and helps to achieve, the objectives, outcomes and which provides the legislative empowerment to the National Competi- actions of the NWI. The Fund is made up of three programmes: tion Policy and are distributed based on assessments by the NCC of - Water Smart Australia progress made by the States in achieving the milestones. - Raising National Water Standards, and The reforms under the National Competition Policy aim to develop a water industry that is economically viable and ecologically sustain- - Australian Water Fund Communities. able. Objectives of the reform are that: a) the industry becomes effi - The National Water Commission will advise and make recommenda- cient, fl exible, sustainable and capable of delivering a higher quality of tions to the Commonwealth in relation to two programmes under the water with greater security of supply; and b) water is priced in recogni- Australian Water Fund: Water Smart Australia and Raising National tion that it is a fi nite resource. Water Standards. Reforms had a greater impact on rural customers through the allocation and trading in sustainable water entitlements. One of the main sources of improved economic performance is the gains from water trading. However, there has been less progress in reform of water Australia Capital Territory The revenue generated by these PTEs to service their debt and pricing in the rural sector than in the urban sector. other obligations are subject to higher risk than are standard gov- The more signifi cant impact of the reforms on urban water supply ernment taxes and charges. ACTEW Corp. Ltd. is the largest PTE, are in the areas of: a) implementation of an independent regulatory accounting for about 70% of the sector’s debt. ACTEW owns water framework for pricing; b) water pricing (user pays) and surveillance; and wastewater assets and, through a 50% joint venture, owns elec- c) performance monitoring and best practice for the delivery of water tricity and gas distribution and retail assets that service the territory. services; and d) allocation of water for the environment. The business risk of ACTEW’s activities would be about mid-investment grade. National Water Initiative

In June 2004, COAG agreed to implement the National Water Initia- Water Smart Australia tive (NWI) with the objective of developing “a nationally-compatible market, regulatory and planning based system of managing surface The Water Smart Australia programme will accelerate the develop- and groundwater resources for rural and urban use that optimised ment and uptake of smart technologies and practices in water use economic, social and environmental outcomes.” across Australia. To gain greatest effect from these investments, competitive bidding will be the primary mechanism for allocating grants. The NWI is a continuation of the reforms previously agreed by COAG. Examples of the type of projects that could be eligible are outlined Elements of the NWI that are particularly relevant to urban communi- in the policy statement Securing Australia’s Water Future (Septem- ties include: a) a framework that assigns the risk of future reductions ber 2004.) They include: improving river fl ows on-farm water use, ef- in water availability; b) continued implementation of full-cost recovery fi ciency improvements, cost effective recycling and re-use of urban pricing for water in both urban and rural sectors; c) national standards stormwater and grey water, and more effi cient water storage and for water accounting, reporting and metering; and d) actions to better transmission facilities. manage the demand for water in urban areas, including a review of temporary water restrictions, minimum water effi ciency standards and Raising National Water Standards mandatory labelling of household appliances, and national guidelines The Raising National Water Standards programme will invest in Aus- for water sensitive urban design. tralia’s national capacity to measure, monitor and manage its water As part of the NWI, COAG has established a National Water Com- resources. These investments will be designed to help achieve NWI mission (NWC), which is responsible for assessing the progress of outcomes. Projects that could be eligible are outlined in the policy implementation of the NWI. Most States and Territories are now part statement Securing Australia‘s Water Future. They include the fol- of the NWI, with Tasmania signing in June 2005, only Western Aus- lowing areas: facilitating a nationally consistent system for collecting tralia is refusing to join despite increased pressure from the central and processing water data, strategic assessment of groundwater re- government. sources, working with local communities to improve the conservation of water systems with high environmental values through measures II.2 Financing such as planning, voluntary conservation agreements and improved knowledge, and establishing and promoting the Water Effi ciency La- Australian Water Fund belling Scheme for household appliances, and implementation of the In September 2004, the Prime Minister announced a commitment of Smart Water Mark regime for household gardens. A$2 billion over fi ve years to the Australian Water Fund. Investment under the Australian Water Fund will be made on the basis that it is Australian Water Fund Communities The Australian Water Fund Communities programme will provide grants to communities to promote wise use of water. This programme New South Whales will be administered by the Australian Government Department of the NSW’s public trading enterprises (PTEs) are making signifi cant re- Environment and Heritage. turns, and the most important PTEs operate in sectors with investment-grade business risk, the revenue generated by these PTEs II.3 Private Sector Participation to service their debt and other obligations are subject to higher Despite some successes PPPs have not turned into the gold rush risk than are standard government taxes and charges. The water many had envisaged, and the policy has not been adopted as widely wholesale and retail companies have gross debt of A$3.2 billion, and steadily as predicted. So far, A$9 billion worth of PPPs has been and business risk is consistent with a high investment-grade risk. contracted, and a further A$4 billion is estimated to be in the pipeline The electricity and water sectors are the biggest contributors to gen- for the coming decade; but this has to be compared with state and eral government distributions, accounting for an estimated 78% of commonwealth government capital spending of A$2bn per year (see distributions in fi scal 2005. The large capital expenditure program is table 3.4). dominated by spending by the electricity distribution and transmission businesses, as well as the rail authorities. Capital spending on Despite the comparatively small share of PPPs in total capital spend- water and wastewater is also signifi cant. ing, the concept continues to gain currency in Australia, but the num- In late 2005, NSW proposed a new A$34 million program to fund in- ber of projects has been relatively small in comparison with other sec- frastructure and manage water resources. A$18 million will be spent tors (Table 5.1). Moreover projects tend to be small. Private sector on dam improvements and upgrading water treatment plants while interest has generally been diminishing and projects that were meant the remaining A$16 million will go to the cap and pipe bores program to be developed on a PPP basis like the Gerrigong wastewater BOT or to reduce water wastage from the Artesian Basin, in the central west, the Bega concession were eventually done on a DBO basis (i.e. with- and reduce the amount of salt entering the Murray Darling. out raising private fi nance). So far the deal fl ow has been too limited to offer interesting bundling/ structuring solutions.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 30 Water Market Asia - Australia

Table 3.4: Financial statistics for the Australian water industry Gross turnover of water industry A$6.2 billion annually Chart 3.1: Water Uses 2002 (%) Total written down replacement value of A$68 billion (est.) infrastructure Value of water industry research A$100 m annually Indus. Value of capital works, annually A$2 billion, plus 10%

Table 3.5: Future investment needs Agricult. Future Project Investment needs (A$m) Dom. Sydney Wastewater 2,000 75% Perth Desalination 250 15% Additional r ecycling f or Brisbane/ Gold 400 Coast Melbourne stormwater and g rey water 300 recycling Other Projects 50 Source: AusCID 2005

Chart 3.2: Fresh Water per Capita 1999-2004 Table 3.6: Water Uses by State - Source: Water Services Association of Australia (m3/head) City Population Litres/hd/d Litres/hd/d 000's residential 26,500 25,945 Adelaide 1,115 471 282 25,708 26,000 25,429 Brisbane 1690 546 351 25,238 25,500 25,076 Canberra 323 522 295 24,874 Darwin 108 1,078 421 25,000 Melbourne 3,525 393 224 24,500 Perth 1,415 469 322 24,000 Sydney 4,172 417 227 Average 440 256 1999 2000 2001 2002 2003 2004

Table 3.7: Water sector assets Asset Group Major Urban 1 Non-Major Urban 2 Other 3 Estimated Total Bulk Storages/Weirs 300 310 250 860 Service reservoirs 1,300 1400 500 3,200 Bores 400 375 300 1,075 Aggregate length of water mains (km) 89,400 43,700 41,900 175,000 Water pumping stations 1,050 1,150 1,000 3,200 Water treatment plants 225 276 220 720 1 Major Urban represents 21 of the largest water utilities in Australia with more than 50,000 connections (WSAA) 2 Major Non-urban represents 69 of the larger water utilities mainly in regional areas serving between 10,000 and 50,000 connections (AWA) 3 Water utilities with less than 10,000 connections Source: Australia Water Association (AWA) and Water Supply Association of Australia (WSAA)

Chart 3.3: Residential Consumption by Utility Size

400

350

300

250

200

Consumption (litres/person/day) 150 1998 1999 2000 2001 2002 2003 2004

25000 to 125000 people served 125000 to 500000 people served >500000 people served

31 Water Market Asia - Australia

At present, there is no standard documentation for PPPs and transaction costs remain high. Private players complain that risk sharing South Australia structures tend to maximise transfer rather than optimise allocation South Australian Water Corp. (SA Water) is the most signifi cant of and risk management, a common problem in young PPP markets, the remaining trading enterprises and operates in the low-risk areas which was experienced in the UK in the mid-90s. Provisions for shar- of the sole provider of water and wastewater services in the state. ing the upside (refi nancing) also need to be developed. As the general government sector has recorded signifi cant improvements in fi nances, the PTE sector has recorded easing fi nancial Infrastructure spending by governments has been brought keenly into performance in 2003 and 2004 due largely to transitory factors. focus after the Commonwealth accused the states of underspending. The operating defi cit in 2004 was partly due to higher dividends to This has added to the perception of an “infrastructure crisis” and will the government owner. Further deterioration in net lending and the probably increase the number of PPP projects. “Having paid down cash defi cit after capital spending in 2003 and 2004 is due largely to debt and beefed up balance sheets, Australia’s state governments are some one-off capital programs of SA Water. receiving political pressure from above and below to spend more on infrastructure. It has also become clear that governments are currently not willing (but not construction) services for these assets. SA Water owns the to bend if contractors fail to meet requirements (the recent Spencer assets, and is responsible for customer service and billing. As noted Street PPP debacle in 2005 attests to that). For governments the ba- earlier, this is not too different from a service contract for O&M. SA sic premise behind PPPs is transfer of risk in infrastructure projects to Water is responsible for the raw water supply and storage for Ade- those private sector parties best suited to manage them. Since Spen- laide, as well as all the services in the rest of the state. The contract cer Street, however, contractors are more cautious about the level was not awarded on the basis of a competitive tender but through a of risk they are prepared to take on. Having been stung, there will request for proposals. The reimbursable costs to the utility are deter- be a tendency for contractors to cap their liability (through liquidated mined annually. However, there are provisions for sharing savings as damages caps). This tendency may also push up bid costs, but it has well as cost over-runs. The fee for services, decided at the outset of boosted confi dence that there will be no moral hazard on the govern- the fi rst fi ve years, is then subsequently re-negotiated. ments’ part in fostering precedent by bidding low and renegotiating The PPP or “Alliance” Model: This is a somewhat unique approach later, and can only be good for PPPs in Australia. It will add discipline (‘alliance contracting’) and was pioneered in the oil & gas sector and to the bidding process, providing investors greater clarity on the risks fi rst introduced in the Australian water sector by the Water Corpora- involved. tion of Western Australia. This involves forming a single company, Another positive development is greater co-ordination among the which (though not formally incorporated) is committed to maximizing state and Commonwealth governments on PPPs. Regular half-yearly achievements against an agreed set of objectives with an agreed risk meetings will help standardize PPP contracts, addressing a common and reward structure for the different alliance partners. bugbear that contracts differ between states, and are therefore expen- In 1995, the Water Corporation offered two contracts for the main- sive to draw up. These meetings will also coordinate the timing of PPP tenance and operation of the water distribution and sewerage infra- projects throughout the country. With a limited pool of contractors able structure for the city of Perth, with each contract worth around A$15 to provide the expertise and labour to build large-scale projects, and million per year over a period of fi ve years. The contractors were re- without the scale so far to entice foreign companies, there is a risk quired to set up a separate company, a ‘service company’, to perform projects would be vying for the same resources. the work involved. These companies were paid direct operating and The PPP deal fl ow is expected to be strongest over the next few years maintenance costs, a management fee, and an annual performance in Victoria and New South Wales. Opportunities may arise selectively bonus. The companies are run on an open book basis. An ‘alliance in Queensland and other states and territories but there remain im- board’, comprising two or more senior client and the contractor repre- pediments, political or market-related, to developing a healthy deal sentatives, meets at least quarterly. It makes the key decisions on the fl ow outside Victoria and New South Wales. There is scope for grow- works, and agrees upon an annual budget and performance targets. ing private investment in urban water reticulation, starting with the new Such decisions must be unanimous, otherwise the chairman (who is land releases in Sydney and in sewerage and wastewater services if appointed by the client organization) provides fi nal arbitration. The access to existing networks proceeds. performance bonus is based on a number of factors, including performance levels and the degree to which the budget is met or bettered. The most active investors are Veolia (through Veolia Water Systems), Bonuses are paid for a particular year’s achievement only, further im- Suez (through Degremont), Anglian (through Purac), Earthtech and provements being required if bonuses are to be paid for subsequent Clough Engineering. years. Examples of existing PSP The alliance model was adopted because of the complexity involved Service Contracts: Service contracts have been typically adopted in in the day-to-day operation of water and sewerage services in major Operation and Management (O&M), fl eet management, meter read- urban areas. To some extent, this arrangement alleviates the obvi- ing, engineering design, IT services, etc. The increase in service con- ous diffi culty and bureaucratic workload entailed in managing such tracts has resulted in a corresponding decrease in public servants contracts on a schedule-of-rates basis. Registrations of interest were within the water utilities. In certain cases, contractors and consultants invited and a shortlist of eligible contractors invited to tender. The in- have been required to offer positions to affected government employ- formation provided at the time of invitation to tender was brief in com- ees (whose other options have included voluntary severance pack- parison with the large volume that would accompany a traditional call ages). This has proved to be a useful means of reducing the numbers for tenders. The contract documents were then developed through a of public servants, given that most governments have policies that process of consultation (lasting several months) between the client’s preclude forced retrenchment. and the contractors’ staff. Both parties were mandated to assign staff to this negotiation process who would then take on the responsibility BOO/BOOT Schemes: The most notable example is the Prospect for the eventual operation of the contract. This negotiation process Water Filtration Plant, which treats the bulk of Sydney’s supply. This formed an essential part of the building of a cohesive team to focus on is run by Australian Water Services (AWS), a consortium comprising agreed ‘alliance’ objectives. Lyonnaise des Eaux, Land Lease Corp, and P&O Australia. Sydney Water pays a fee comprising an availability charge covering 80% of The contractors were required, prior to taking up the works, to offer the project’s fi xed costs, and a variable charge based on the quantum employment to each member of the Water Corporation’s indirectly-re- of water treated. lated workforce. It was stipulated that the terms of employment must be at least as favorable as those previously enjoyed. A total of 209 Management Contract: South Australian Water has contracted out the public service employees took up jobs with the contractors. Report- O&M of Adelaide’s water and wastewater systems to United Water, edly, this approach allowed the contractor to take over a ready-skilled for a period of 15 years. United Water: (a) manages, maintains, and group of workers, adding to its own (and the client’s) confi dence. operates the systems in the Adelaide urban area; (b) manages the associated capital works program; and (c) provides project management A further advantage of creating a separate service company is that it offers the Water Corporation the ability to change contractors more

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 32 Water Market Asia - Australia

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) Australia Developing Asia High Income Asia Population with Access to Improved Sanitation 100.00 54.64 100.00 Households Connected 90.00 7.22 99.29 Urban Population with Access 100.00 77.09 100.00 Urban Households Connected 100.00 18.11 99.00 Rural Population with Access 100.00 48.08 100.00 Rural Households Connected n/a 2.57 90.00

Table 4.2: Water Pollution 2001 (% of total BOD Emissions) Australia Developing Asia High Income Asia Water pollution, chemical industry 5.64 9.94 8.81 Water pollution, clay and glass industry 0.24 0.46 0.15 Water pollution, food industry 77.11 43.27 42.73 Water pollution, metal industry - 7.62 4.84 Water pollution, other industry - 6.08 13.17 Water pollution, paper and pulp industry - 9.38 26.14 Water pollution, textile industry 5.00 21.17 8.17 Water pollution, wood industry 5.00 2.67 2.17

Table 4.3: Other Environmental Indicators Australia Municipal waste generation 1995 (thousand tonnes) - Municipal waste generation 2002 (thousand tonnes) 13,200.00 Waste generation intensity 2002 (kg/capita) 690.00 Water extraction 1995 (million m3) 15,055.00 Water extraction 2002 (million m3) 24,071.00 Water extraction 2002 (m3/capita) 1,300.00 Nitrogen use 1995-97 (kg/ha agricultual land) 7.11 Nitrogen use change 87-97 (%) 8.75

Chart 4.1: Daily organic water pollutant emissions 1999- 2004 (kg) 101,121 102,000 99,645 100,000 98,151 98,000 96,468 95,369 96,000 94,323 94,000 92,000 90,000 1999 2000 2001 2002 2003 2004

Chart 4.2: Daily organic water pollutant emissions / 1000 people 1999-2004 (kg) 10.00

8.00

6.00 4.98 4.98 4.97 4.99 5.03 5.05

4.00

2.00

0.00 1999 2000 2001 2002 2003 2004

Australia Dev eloping Asia (mean) High Income Asia (mean)

33 Water Market Asia - Australia readily in the future. Under this model, incoming contractors can The funding requirements for water are similar to that of wastewater: choose to offer employment to the workforce of the existing service In order to make the provision of services affordable in some loca- company. From the Water Corporation’s point of view, it is seen to be tions, a Government subsidy is provided to water supply businesses. advantageous to retain skilled staff while changing contractors. The areas provided with subsidy are known as Community Service Obligation (CSO) areas. Fifteen of the non-major urban utilities, for ex- Woodman Alliance 21: This approach has been applied in Western ample, received some revenue from CSOs. Conversely, some water Australia to the design, construction, and initial operation of a A$150m utilities are subsidising other Government functions. Overall, most of expansion to the Woodman Point wastewater treatment plant. The the larger water utilities in Australia appear to have the fi nancial ca- project has been implemented by an alliance – called the Woodman pacity to fund their future capital and renewal works obligations. While Alliance 21 – of the Water Corp of WA (client), Kellogg Brown, and this varies considerably, on average, they have low debt to equity and Roots Pvt. Ltd. (KBR, consultant), and Clough (contractor). The ad- high interest cover ratios. vantage of the structure is that design and construction activities overlap. Payments for costs incurred were paid into the account of the The economic regulator has responsibility for both prices and cus- alliance, based on previous estimates of whole-life costs. In addition, tomer services standards. Western Australia (WA) and Queensland are exceptions, with the responsibility of the regulator in these states restricted to setting standards. Australian Capital Territory, New South Wales, Victoria, and Western Australia have economic regulators. Victoria With the exception of WA, the others are all multi-sector regulators. Following the sale of its energy assets, the state’s revenue is domi- Queensland relies on the existing competition agency (the Queensland nated by “core” government revenues and “low risk” government- Competition Authority, QCA) to ensure competitive neutrality and a owned trading enterprises engaged in areas such as water and level playing fi eld. Although price determination is in the domain of wastewater. Following the privatization of the state’s energy com- local bodies, the QCA has recommendatory powers. Initially (in 1996), panies in the mid-1990s, revenue from PTEs is small. This some- South Australia Water had been designated for price oversight by the what reduced fi scal fl exibility relative to other states. The remain- Competition Commission. Subsequently, this declaration lapsed and ing enterprises are dominated by various water companies, which the government determines prices. operate as regional monopolies for water and wastewater services in the state. Some states have systems of operating licenses dealing with performance and customer issues. There are various mechanisms for shareholders to exercise guidance, including Statements of Corporate the private partners were paid a pre-determined fee (to cover profi ts Intent (SCI), customer service agreements, and strategic plans in vari- and overheads). They got rewarded for saving on whole-life costs and ous forms required by legislation. losses were shared in case of cost over-runs. In this case, the project was completed in time at a cost of A$149 million, against an initial The regulatory structure adopted in New South Wales is the most ad- estimate of A$ 153 million. The model also reportedly allowed for a vanced, from the point of view of price regulation. The Independent number of effi cient and cost-saving innovations. Pricing and Regulatory Tribunal (IPART) is a multi-sector regulator that also regulates water prices, with stakeholder consultations as II.4 Tariffs an integral part of the process. Similarly, ACT has an independent Tariffs for water vary between A$0.30-0.40/m3, at the lowest end, to multi-sector regulator – the Independent Competition and Regulatory around A$ 0.90-0.95/m3 at the highest end. WCWA has tariffs as high Commission (ICARC) – that determines revenue caps for the utility. as A$1-1.40/m3 for annual usage above 750m3. Importantly, the actions of the other regulators, such as those in the environmental and health sectors, whose requirements can cause the Actual average annual bills per connection range from approximately costs of water services to increase, are also subject to the process of A$180 to A$450, with the modal value between A$200-300. Average public examination, scrutiny, and justifi cation. annual bills, based on an annual consumption of 200m3 range from A$150 to A$270. Northern Territory has the same arrangements as in NSW and ACT. In other states (Victoria and WA), even though an independent eco- II.5 Regulation nomic regulator exists, tariffs are set by the government. In Victoria, Most of the larger urban water suppliers are now practicing or imple- the Essential Services Commission earlier only held powers for price menting full cost recovery. Although this is not yet a common practice, oversight for gas and electricity, but has recently been provided with under the CoAG reforms, full cost recovery is intended to include ex- the same powers for the water sector. ternalities. In Tasmania, economic regulation is controlled by the government. The reforms also require that water services earn a fair rate of return Hobart Water submits its pricing proposal to an independent econom- that ensures that the water business is fi nancially viable and sustain- ic regulator, which then makes recommendations to the government, able. The ‘pay for use’ principle was adopted as part of the CoAG but these are not binding and may or may not be accepted. National Water Reform Agenda. South Australia is still undecided about the future of the regulatory A two-part tariff was fi rst adopted in 1978 by the Water Corporation in structure. Although there is no fi nal decision, the state has proposed a Western Australia, followed by the Hunter Water Corporation in 1982, somewhat similar arrangement to that in WA – for a multi-utility regula- and became national policy in 1994 through the CoAG National Water tor that deals only with service standards for water but with price-set- Reform Agenda. ting powers for other sectors. - All states have adopted a two-part tariff for water provision. This II.6 Performance (see table 6.2-1&2) comprises a fi xed access fee and a variable usage fee. The trend for water supply infrastructure is similar to wastewater, - A number of utilities use an increasing block tariff (IBT) structure for where the condition of water supply assets in the growth States of water use typically with two blocks. Queensland and Western Australia is relatively good, refl ecting a newer asset base. In the remaining States, the written-down value of Based on this tariff structure, the share of income from water and existing assets is below 70%. In Tasmania the value placed on current wastewater, can be separated according to access (39.5%), usage assets is less than half of their replacement value. (42%), and other charges (18.5%). Asset Management Price reform is generally leading to higher prices but the consequen- tial fall in water consumption has meant lower water bills, suggesting Contemporary asset management practices are fairly well developed that demand at the relevant usage levels may not be totally inelastic. in the water industry, although the quality and reliability of information The average water bill in urban areas declined in real terms by 5.5% is variable. Water distribution assets are more diffi cult to access to over the fi ve-year period ending 2000-01. Consumption-based pric- perform condition assessments than wastewater collection systems. ing, rather than property value-based pricing, has given customers the The majority of the water utilities have made good progress in ad- correct signal to control their water bills. dressing unaccounted for water. The urban utilities reported between 2.5 to 5% reduction in water losses since 1997/98, with total losses

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 34 Water Market Asia - Australia

Table 4.4: Wastewater Sector Assets Key Asset Group Major Urban 1 Major Non-Urban 2 Other 3 Estimated Total Length of sewers (km) 24,500 81,000 16,500 125,000 Pump stations 3,900 4,000 950 9,000 Sewage treatment plants 270 180 350 800

1 - Major Urban represents 21 of the largest water utilities in Australia with more than 50,000 connections (WSAA) 2 - Major Non-Urban represents 69 of the larger water utilities mainly in regional areas serving between 10,000 and 50,000 connections (AWA) 3 - Water utilities with less than 10,000 connections Source: Australia Water Association (AWA) and Water Supply Association of Australia (WSAA)

Table 4.5: 2004 Australian Water Utilities Water Reuse Statistics Infrastructure Percent of Percent of Utility name Leakage Index water recycled biosolids reused 2003-04* 2003-04** 2003-04*** ACTEW Corporation 0.90 8% 100% Barwon Region Water Authority n/a 10% n/a Brisbane Water 2.40 3% 0% Central Gippsland Region Water Auth 1.10 5% 7% Central Highlands Region Water Auth 1.70 7% 97% City West Water Limited 1.40 n/a n/a Coliban Region Water Authority 3.10 22% 64% Gold Coast Water 2.70 12% 100% Gosford City Council 0.70 0% 100% Goulburn Valley Water n/a 70% 0% Hunter Water Corporation 1.70 8% 53% Ipswich Water n/a 4% 96% Logan Water 3.60 5% 0% Maroochy Water Services n/a 4% 100% Melbourne Consolidated n/a 11% n/a Power and Water Corporation 4.90 3% 0% South Australian Water Corporation 1.20 21% 168% South East Water Limited 1.30 19% 122% Sydney Water Corporation 2.10 3% 100% Water Corporation 1.50 4% 93% Western Water n/a n/a n/a Yarra Valley Water Limited 1.00 3% n/a * The ratio of Current Annual Real Losses (CARL) to Un-Avoidable Real Losses (UARL). Both parameters are usually expressed in litres per service connection per day. The difference between CARL and UARL represents the opportunity for reducing leakage.

** % of all wastewater collected that is treated and re-used by either the water business itself or a business supplied by the water business. Recycled water can be provided for on site re-use, agriculture, irrigation, indistry, potable or other use external to the treatment process

*** Biosolids are the stabilised organic solids derived from wastewater treatment processes. Re- use invloves managing biosolids safely and sustainably to beneficially utilise their nutrient, energy or other values. % is measured by dry weight

averaging 11.69% of total water supplied (WSAA 2000). Since 2000, the major urban water utilities have increased their capital expenditure for both new works and renewals by more than 20%. The two main industry associations, Water Services Association of Furthermore, utility contributions to Government in the form of divi- Australia (WSAA) and Australian Water Association (AWA), have re- dends and/or tax equivalent regimes have doubled from A$490 million ported an increase in renewals. However this falls well short of what to over A$1 billion in the last fi ve years. will be required to cover the rate of asset deterioration. The increased investment in capital works and renewals has helped Financially the major challenges facing the water and wastewater improve the level of service of these utilities. However, even with utilities are: a) funding renewals and higher regulatory standards for these increased investments, the amount allocated for renewals is existing customers; b) achieving a respectable economic return; c) still less than 0.5%, which is not suffi cient to meet the rate of asset capping price rises for services below CPI and d) increasing dividend deterioration. contributions to Government. While there may be some further room for effi ciency improvements by A review of the fi nancial performance of the major urban water utilities extending the reforms to the smaller utilities, they are unlikely to match shows that since the implementation of the reforms, customer bills those achieved in the recent past. Many of the smaller utilities in re- have reduced in real terms by about 5%. This has been achieved with- gional Australia simply do not have the fi nancial resources to provide out impacting on the economic real rate of return for the businesses for renewals or improved standards from their existing rate base. that has hovered around 5% during this period.

35 Water Market Asia - Australia

A matter of some concern to the industry is the level of dividends that nity perception of the project, the alliance model was seen as a way are paid to Government, which in turn are not re-invested in the water of addressing these concerns. The members of the alliance set fi ve industry. In many cases 100% of the profi ts generated by the utilities performance criteria against which the success of the project would are paid to Government. be measured: time, cost, safety, environment, and community. Bench- marks were set for each criterion, to be scored and audited by inde- III. Wastewater pendent third parties. Failure to achieve success on any one of the III.1 Sector Policy & Structure criteria would lose the alliance 50% of its potential profi t. The sewerage systems in most of Australia’s major cities are old and III.3 Tariffs overloaded. Infi ltration of rainwater and overfl ows of sewage are fre- Actual sewerage charges vary between A$180-400 annually. The total quent problems. Large investments are needed to increase sewer annual charge for sewerage services, based on a 200 m3 annual con- capacity and improve their condition, as well as to improve the qual- sumption, varies from about A$330 (Goulborn Valley Water) to A$623 ity of treatment. In addition, municipalities are turning to the practice (WCWA). Given the manner in which water and sewerage charges of recycling wastewater in order to alleviate the pollution load of the are generally structured, a halving of water use has only about a 10% country’s rivers and coastal waters. impact on the total bill. Increasing awareness and concern about the environment and the Sewerage charges are generally fi xed, although, in some cases, they impact of wastewater discharges on the Australia’s waterways has re- are linked to property value. It is extremely diffi cult to meter sew- sulted in the introduction of more stringent environmental standards age from households because it is almost invariably gravity sewage. and a focus on the benefi cial use of treated wastewater. About 90% of Pumped sewage can be metered, but this means that it may be from the Australian population is connected to a sewerage collection sys- a housing development or an industrial site. Over time, volumetric tem, while the remaining population uses on-site systems. charges have been raised (and fi xed charges reduced) with a ‘de- At present less than 10% on average of the wastewater generated mand management’ objective. in Australia’s cities and towns is being re-used (see table 4.5). The major portion is discharged to waterways, either to rivers, estuaries or III.4 Regulation In general, wastewater businesses are funded directly by users or consumers using full economic cost of service models. Under the poli- Western Australia cy established by COAG returns on assets are capped at a nominated The Water Corp. is the state’s water, wastewater, and sewerage weighted average cost of capital (WACC). All other costs, including company, and operates at high investment-grade business risk. Al- depreciation (straight line) or average annual renewal annuity (AARA) though not as strong as in recent years, the operating performance are fully funded. Community service obligations (CSOs), where they is expected to remain adequate, with a surplus of less than 2% of exist, are required to be fully transparent. Utilities report the proportion operating revenues projected over the medium term. These out- of revenue from CSOs in public reports. comes will be set against a backdrop of reduced profi tability projections of WA’s largest trading enterprise. A substantial portion of the III.5 Facilities projected increase in net debt relates to capital spending scheduled for fi scal 2006. An increase in borrowings of A$1.2 billion in fi scal See Table 4.4 2006 has been budgeted on items such as the Perth Seawater De- The condition of wastewater assets in the growth States of Queensland salination project (costed at A$350 million). and Western Australia is relatively good. This probably refl ects a younger asset base. In the remaining States the written down value of existing assets is below 70%, which indicates a signifi cant level of directly to the ocean. With shortage of new sources of water, there is a depreciation and need for increased renewals expenditure. growing interest in re-use of effl uent for agriculture and industrial uses with some States (New South Wales –NSW, for instance) setting re- There is also a great lack of information on the condition of the waste- use targets. The proportion of re-use varies considerably throughout water assets and the inadequate allocation for renewal and rehabilita- Australia. In general, in the major coastal cities such as Sydney and tion. While there has been some improvement since 1999 there are Melbourne, the proportion of re-use is low. Many of the inland regional still signifi cant information gaps on the condition of the existing assets, cities and towns have much higher levels of re-use. especially those that are buried. These make up 70% of the replacement value of all the wastewater assets. Wastewater technology III.6 Performance In areas such as South East Queensland and the Hawkesbury-Nepe- an Valley there has been a dramatic increase in the number of nutrient Since 2000, the wastewater utilities have improved their performance reduction plants. The number of nutrient reduction facilities in these by increasing their investment in renewals and upgrading treatment two regions is amongst the highest in the world. This has placed Aus- plants performance. To achieve further improvement, they need to: tralia as one of the leading countries in use and operation of biological a) address the condition of ageing sewerage collection systems. This nutrient reduction plants. represents about 70% of the total replacement value of wastewater assets. Anecdotal information in the form of sewer overfl ows suggest Shortage of water supplies for industry and agriculture has helped that there are many collection systems that are suffering from ad- to create some innovative re-use projects. For example, the Vir- vanced deterioration; and b) increase the level of effl uent re-use. ginia Scheme in South Australia is one of the largest effl uent re-use schemes in the world involving irrigation of edible crops. In Brisbane IV. Environment and Legal Aspects a 20 megalitres per day L/d micro-fi ltration and reverse osmosis IV.1 Water and Wastewater Fundamentals plant supplies water to a major industrial facility. Similar schemes are planned throughout Australia. The government of Western Australia Water Resources has set the goal of reusing 20% of treated wastewater by 2012. The variability of Australian rainfall and runoff, one of the highest in Since 2000, there has been a signifi cant increase in the use of mi- the world, is a key driver of wholesale water supply costs in relation cro-fi ltration for water treatment. This has resulted from the adoption to customer volume requirements and drought security of water sup- of more stringent water quality standards, requiring the use of more ply systems. High service standards and customer requirements for advanced treatment processes, and dramatic reduction in the cost of continuity of water and wastewater services can affect the renewal of membranes. water and wastewater reticulation systems before their economic lives are reached. Requirements for minimum pressures or rates of fl ow III.2 PSP can directly increase both capital and operating costs. The alliance model was adopted for Sydney Water’s Northside sew- Similarly, fi re suppression requirements may infl uence the minimum age storage tunnel project, which would not have been completed size of basic water reticulation mains, and hence may drive capital before 2001 under normal contracting methods, but was required in investment up. time for the 2000 Olympics. Because of signifi cant negative commu-

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 36 Water Market Asia - Australia

Table 5.1: PSP in the Australian water sector State and PPP Stance Water & Sanitation PSP Contact Victoria BOT: 8 Partnerships Victoria The first state in Australia to release a PPP DBO: 8 Infrastructure policy in June 2000, leading the way with O&M: 1 Bob McDonald Partnerships Victoria, the benchmark against BOO: 1 Chief Finance Officer which the other state PPP policies are Level 22 measured. 80 Collins Street MELBOURNE VIC 3000 Phone: 613 9655 6652 Fax: 613 9655 8860 [email protected]

New South Wales BOT: 3 Department of Infrastructure, Released its Working with Government ROT: 1 Planning and Natural Resources policy in late 2001, along with a potential DBO: 3 Executive Director project list. NSW has aimed to be as Infrastructure Coordination Unit consistent as possible with Partnerships Level 5, Henry Deane Building Victoria, although there are some differences 20 Lee Street in processes. In December 2002 the SYDNEY NSW 2000 Government released a State Infrastructure AUSTRALIA Strategic Plan and information on Emerging Phone: (+61 2) 9762 8197 PFP Opportunities. Fax: (+61 2) 9762 8462 Email: [email protected]

Queensland BOO: 1 Department of State Development, Released its Public Private Partnerships DBO: 4 Trade and Innovation policy in late 2001 and released detailed PO Box 15168 PPP guidance documents in 2002. The BRISBANE CITY EAST QLD 4002 Queensland Government has committed to AUSTRALIA consider all projects requiring more than Phone: 13 26 50 (QLD callers only) A$30 million of government funding as a + 61 7 3001 6359 (Outside QLD) PPP. Western Australia DBO: 3 Released its PPP policy, Partnerships for Growth, in December 2002. WA has previous experience in PPP -type project delivery, and is considering a PPP for a desalination plant to meet Perth's current water problems.

South Australia BOT: 4 Projects Analysis Branch contact Partnerships SA, was released in mid-2002. DBO: 1 Telephone: (08) 8226 9448 A PPP unit in the SA Treasury was O&M: 2 Fax: (08) 8226 7990 established in November 2000.

Tasmania No PSP Has a private investment in infrastructure policy, released in July 2000, and is currently not looking to update it using PPP methodology. The number of projects delivered using private finance has been limited.

Northern Territory No PSP The Northern Territory Government's PPP policy is largely based upon the Partnerships Victoria policy. The Northern Territory Government has released a policy framework for Public Private Sector Partnerships. A PPP unit has been established in the Department of Finance and Administration and a set of Private Financing Principles released. Water Resources Policy Water utilities wishing to extract more water from the nation’s water systems are now under pressure from legislation and general com- The National Land and Water Resources Audit of 2000 found that: munity expectations, to demonstrate: - Many of the nation’s water management areas are either close to - There is a need for additional water; urban areas or overused when compared with sustainable ﬂ ow regime requirements; - They have taken all steps to reduce water demand by implementing water conservation programs; - The surface water quality in many basins exceeds water quality guidelines for nutrients, salinity and turbidity; and - They are recycling or reusing wastewater for non-potable purposes to reduce the need for more potable water; and - Many groundwater management units are either close to urban areas, or overused when compared with their estimated sustainable - That the beneﬁ ts of extracting more water take into account environ- yield. mental, social and economic factors.

37 Water Market Asia - Australia

In June 2005, the government of New South Wales, Australia launched separated the regulatory functions from the water businesses. In most a US$192m program to repair water and sewer mains throughout the States and Territories environmental, health and water resource (wa- state over the next four years. Sewer and water mains in the Sydney, ter allocation) regulators have been established or the responsibilities Illawarra and Blue Mountains areas have suffered from the area’s re- transferred to an appropriate body. In some States (Queensland, Vic- cent drought, with dry conditions causing pipes to shift and break, toria, New South Wales, Tasmania) the provision of wastewater ser- leaving water to spill out. The new repair program will see a 25% re- vices has been devolved to regional utilities (e.g. Melbourne Water) duction in the amount of water going to waste. and Local Government. The Federal Government’s role is generally in policy development and coordination. Environmental Policy Since water is a state or territory subject, the choice of the reform ap- The algal blooms and beach closures in the early 1990s highlighted proach and path has been left to the states. This has led to a number the need for improved wastewater management practices. Loss of of different models for water service provision emerging within the dif- seagrass beds is an ongoing issue in several areas and is a current ferent states. These differences can be attributed to a combination of driver for improvements. In response to these issues, authorities have factors – historical, technical, geographical, demographic, and politi- invested considerable capital to upgrade existing plants, improve the cal. Many texts and regulations impact on the provision of water and level of treatment and reduce the level of pollutants discharged to wa- wastewater services, with 35 different State and Territory departments terways. These initiatives have only addressed part of the problem. or boards administering some 29 different Acts. The contribution to waterway pollution from diffuse sources such as urban runoff and sewer overfl ows has not been as well addressed in While there is great overlap between the various Government acts Australia. This will become the next major issue that will require atten- and regulations there are also many inconsistencies and much dupli- tion in most urban areas in Australia. cation. For example, guidelines for effl uent and biosolids re-use vary from State to State. Several States have established their own guide- Sydney Water Corporation has recognised the impact from sewer lines that overlap with Federal Government Guidelines. The waste- overfl ows and is in the process of implementing a A$1.5 billion sewer water industry in Australia would benefi t from streamlining of Govern- overfl ow reduction program over the next 20 years. Urban encroach- ment regulations and legislation and the adoption of more national ment near existing treatment and transportation infrastructure is also guidelines. forcing many utilities to increase capital and operating expenditure to reduce odour and noise emissions from existing and new facilities. For Local government is charged by virtue of the Local Government Act example, the Water Corporation in Western Australia has allocated with front-line responsibility for the delivery of water and wastewater some A$80 million in capital works to reduce odour emissions from services. Relatively recent changes under the Water Act make provi- its existing facilities. sion for non-government “water service providers”, but there are only a few non-government suppliers at present, largely servicing private IV.2 Laws and Institutions developments. The Australian Constitution gives the State and Territory Governments In some areas, joint local government organisations have been formed responsibility for the provision of water services. The Commonwealth under the provisions of the Local Government Act to assist in the pro- Government’s role has increased through the development of Nation- vision of water. (For example, AquaGen in Caloundra City/Maroochy al Competition Policy. Shire and NQ Water in Townsville and Thuringowa Cities, in the State The National Competition Policy and Council of Australian Govern- of Queensland) ments (COAG) Water Reform Agenda are the two principal sources of Many of the larger water service providers have adopted a commer- government policy stimulating reform in the Australian urban water in- cialised business unit model, creating a “purchaser-provider split” in dustry at the national level. The National Competition Policy principles line with National Competition Policy reforms. Some have become relevant to the water industry include: corporatised such as Wide Bay Water. The intent of the commercial - Pricing oversight of water businesses as government business en- approach is to improve the transparency of any cross-subsidies be- terprises; tween the water businesses and other local government activities, and also provide the opportunity for the water businesses to operate and - Competitive neutrality e.g. tax equivalent regimes and removal of compete on a business footing. anti-competitive practices as defi nes in the Trade Practices Act 1974; Central & State Division of Roles (e.g. State of Victoria) - Structural reform of public monopolies; The following framework guides the allocation of roles and responsi- - Review of legislation, to identify anti-competitive elements; and bilities in the water sector in the State of Victoria. - Access to infrastructure of national signifi cance. The Minister for Water, supported by the Department of Sustainability A key feature is the requirement on the States and Territories to and Environment, is responsible for: a) allocating water resources; achieve defi ned reform objectives, which are thus rewarded with sub- b) collecting, analysing and publicising information on the status of stantial payments from the Commonwealth. water resources; c) State wide policy and strategic planning; and d) overseeing the performance of the water sector and catchment man- The COAG Framework for reform covers: - Water pricing and full cost recovery for urban services and metropolitan bulk supplies; Queensland in 2006-7, a new management authority is to take over responsibil- - Separation of institutional roles; and ity for water policy and planning in Queensland’s southeast. The region’s mayors have agreed to give up some of their powers over - Performance monitoring and best practice for delivery of water ser- water management to the authority in return for the right to on-sell vices. any water they do not use as part of a new allocation system for In 2003, the COAG Communiqué launched the National Water Initia- water resources. tive, which includes: Some councils may even cede control of their water treatment plants to new resource management bodies under the new sys- - Improving the security of water entitlements; tem, although responsibility for wastewater treatment is expected - Implementing regimes to protect ecosystems on a catchment scale; to remain with local government. The new authority will oversee the creation of a water services ‘’grid’’ for the southeast, ensur- - Expansion of the water trading system across state boundaries; ing a more reliable water supply for a region expected to absorb and a million new residents over the next 15 years. The Queensland - Encouragement of water conservation in cities, including better use government also considers raising the Wivenhoe Dam and extend- of stormwater and recycled water. ing desalination projects beyond the Gold Coast as a means of increasing the amount of water available to the region. States and Territories are responsible for the provision of water services, which brings specifi c requirements to each area. All regions have

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 38 Water Market Asia - Australia agement authorities (corporate planning, performance monitoring and board appointments). Average Performance indicators for Australian Water Utilities (1998-2004)

Year The Treasurer, supported by the Department of Trea- Year

1998 1999 2000 2001 2 20 2004

1998 1999 2000 2001 2002 2003 2004

sury and Finance, is responsible for ensuring the ﬁ nan- 002 cial success and viability of water authorities. Jointly 03 with the Minister for Water and the Treasurer have

Total Water Consumption Consumption (l/p

Wastewater - - Wastewater secondary treatment or or treatment responsibilities for corporate planning, performance better (%) monitoring and board appointments in the metropolitan er

61%11 .74.7 0.97 49.97% 0.57 1.16 86.10% 65%10 .35.5 0.83 50.15% 0.53 1.06 86.57% 69%10 .05.5 0.85 50.05% 0.50 1.02 86.98% 62%09 .65.8 0.80 50.58% 0.46 0.91 86.26% 85%09 .94.8 .2 / / / .913 0.68 1.38 2.19 n/a n/a n/a 0.82% 49.68% 0.49 0.99 88.52% 21%11 .64.3 .9 192 0.89% 49.83% 0.56 1.14 92.11% 16%13 .44.5 .3 224.0 0.93% 48.35% 0.64 1.34 91.63%

1.05.9 10%19 21.00% 55.39% 513.40 7.75.1 2 56.41% 471.77 8.757.3 484.47 9.058.37 498.10 465.52 6.15 463.91 3.459 433.84 water sector; son/day)

Regulation is separate from operations and service delivery. This is the role of the Essential Services Commis- sion, the Environment Protection Authority, Department

Residen Consumption (% of total(% consump

Aver Revenue Revenue W&WW ( sold)

of Human Services and other specialised regulators; S$/m water

87%2.8 36%40%259. 4.02% 13.61% 23.58% 58.79%

.7 32%1.8 .1 263.2 5.01% 11.98% 23.25% 9.77%

ge Catchment Management Authorities, the caretakers of 11.4 24.73% .24%

tial

tion) river health, have strategic planning and priority setting % responsibilities for catchments, and deliver waterway,

regional drainage and ﬂ oodplain management servic-

Industrial/ Industrial/ Commercial Commercial Consumption Consumption (% of to consumptio

Average Average revenue - - revenue water only (US$/m w es; sold)

23 21%1.7 3.73 15.77% 22.13%

.8 77%28%241 .51 0.35 264.13 2.88% 17.73% 2.98%

Publicly-owned Water Authorities are responsible for 0 1.07 0.33 264.16 3.49% 16.03% .09% ensuring the delivery of water supply and wastewater tal

ater ater

disposal services; and n)

by Institutes & by C Others (% of total consumption)

Revenue Sp Revenue % Water (% of total for Private sector participation in infrastructure provision is W&WW) supported in line with the Government’s Partnerships ons

Victoria principles. u

2%43%225 .010 .59.2 13.92% 99.92% 0.55 1.08 0.40 282.59 4.36% .25%

mption The Government does not believe that widespread 6%

change in roles and responsibilities within the water - lit

sector is required. However, speciﬁ c improvements

Bulk Treated Bulk Treated Supply (%

total consumption)

Total Revenues/ Total Revenues/ Serv (% GNI pe are needed in the arrangements for regulation of wa- capita)

ter trading, for monitoring compliance with bulk entitle- i

e Pop/GNI e Pop/GNI ments, for managing water storages, recycled 8.3 water 100.00% 0.69 0.97 0.35 242.73 .57%

7.903 1.04 0.34 277.39 %

/ / / .313 0.64 1.31 2.33 n/a n/a n/a % / / / .512 0.64 1.29 2.15 n/a n/a n/a % / / / .012 0.63 1.26 2.20 n/a n/a n/a % / / / .312 0.62 1.24 2.23 n/a n/a n/a %

and stormwater, and for shareholder governance of r water authorities. The Department of Treasury and Finance is respon-

Residential Consumption Consumption (l/person/day)

Residential Fix Component of Component Tariff sible for dividends and tax equivalence payments and (US$/conn/y for overseeing the Government’s “shareholder” interest ed including setting and administering the Government’s

0 53 3.020 .10.69 1.41 2.09 136.70 55.36 .06

203 .704 0.0 1 100.00% 0.48 0.87 0.30 42

.110 .8100%7.89% 100.00% 0.58 1.04 0.41 1 dividend policy. 0.72 1.51 2.07 160.31 63.77 9

The Essential Services Commission, as part of it’s re- r)

Pipe Breaks (breaks/ km/yr)

Residential Fixed Component of Component Tariff - Water sponsibility for the economic and pricing regulation of (US$/c the Victorian water sector, must oversee the economic consequences of the regulatory requirements placed on water businesses by other regulators (for example, on environmental or health regulations). The Essential n/yr) Services Commission’s role is set out in the Essential

Sewer System Blockages Blockages km/yr) (

Fixed R Component of Component Ta Wastewater Wastewater (US$/conn/yr)

Services Commission Act and the Water Legislation b

loc

(Essential Services Commission and other Amend- - iff

ide ments) Act 2003. The Essential Services Commission kages/

2 .39.8 13.41% 99.98% 0.53 .25

ntial ntial is currently evaluating the ﬁ rst water plans submitted by the Victorian metropolitan and regional urban water businesses (these water plans cover the three year

Uni Operational Cost W&WW (US$/m water water (US$/m sold)

Ope Cost Coverage Coverage regulatory period from 1 July 2005). (r

atio)

The Department of Human Services and the Depart- ating

.59.9 13.73% 99.99% 0.45 ment of Sustainability and Environment share respon- 12.96 99.95% .50 sibility for the regulation of drinking water quality under the Safe Drinking Water Act 2004, which requires the

Wastewater at least primary primary treatment treatment (%)

Average Average W&WW Re (US$/m urban water businesses to meet a schedule of water water sold) quality requirements and conform to the National Health

v and Medical Research Council’s 2004 Guidelines for en Drinking Water Quality in Australia. ue

The Environmental Protection Authority administers -

Wastewater - - Wastewater primary primary treatment onlytreatment (%)

Average Average revenue - water only water (US$/m water water (US$/m the State Environment Protection Policy (Waters of s

Victoria) and regulates the environmental performance ld) of the State’s water sector, including licensing for the 1.48% discharge of treated wastewater into waterways and 7%

% oceans, and the management of biosolids generated at treatment plants. The Energy and Water Ombudsman (Victoria) provides an independent dispute resolution and information service for Victoria’s utility customers.

39 Water Market Asia - Australia

Sydney Water Sydney Water is a state-owned corporation in New South Wales, which provides the essential services of water distribution, wastewater collection, treatment, and disposal, in the metropolitan and surrounding areas of Sydney. The government provides tangible fi nancing support through the New South Wales Treasury Corp., which is guaranteed by the New South Wales government. The privatization of Sydney Water is unlikely to occur in the medium term. The company has an aggressive fi nancial profi le, an extensive and largely essential capital-expenditure program, and uncertainty over the effect of future price resets. Sydney Water is in a position of natural monopoly even though it does not hold an exclusive license for the provision of water and sewerage services: large capital cost acts as a high barrier to entry. The independent, stable, and transparent regulatory framework that Sydney Water operates under provides certainty and stability for the company’s revenue and cash fl ows. A four-year price path due to begin on July 1, 2005, exposes Sydney Water to some regulatory-reset risk in the short term. Sydney Water enjoys robust underlying demand and a stable customer profi le. The company provides essential services in Sydney’s metropolitan and surrounding areas, including the densely populated area of central Sydney, which has a record of stable demand. Most of Sydney Water’s customers are residential, with demonstrated stable demand patterns. Despite the recent drought lowering water and wastewater service sales in 2004, together with the prospect that dry conditions may continue in the medium term, the volatility of Sydney Water’s revenues and cash fl ows is partly mitigated by the high-fi xed component in its pricing structure. The challenge of implementing its signifi cant capital-expenditure program, worth about A$2 billion, over the next fi ve years will continue to be a major issue. Despite the fact that the capital projects mainly involve low risk, proven technology, and include contingencies in the budgeted costs of the proposed projects, the large number of the projects will present challenges for timely execution. Any signifi cant cost and time over- runs would have negative effect on the company’s operations. Sydney Water’s aggressive fi nancial profi le refl ects debt funding of a signifi cant portion of its extensive capital expenditure, and an aggressive dividend policy. As a result, FFO interest coverage is expected to remain fl at at about 2.0x-2.5x, and FFO to total debt is likely to remain at about 10%, over the period to 2009. Weak internal funding resulting from the signifi cant capital-expenditure program is likely to constrain net cash fl ow at less than 60% of capital expenditure over the period to fi scal 2009. These factors are balanced by its fl exibility to defer dividend payments and its adequate underlying liquidity position. Sydney Water’s adequate liquidity position refl ects the company’s adequate cash holdings, balanced by its limited headroom under its current facilities, and a concentration of debt maturing in the short term. Sydney Water has A$552 million, or about 21% of its total debt maturing in 2006. Its adequate liquidity is mitigated, however, by the company’s surplus cash holdings of about A$10 million-A$50 million, and its access to an A$50 million revolving-credit facility. The company’s liquidity position is further enhanced by its ability to access same-day funding from Tcorp. The Independent Pricing and Regulatory Tribunal released its water pricing determination on Sept. 2, 2005. The determination included price rises of 8.7% in fi scal 2006 and CPI plus 1.1% per year for the three years thereafter. Sydney Water Performance Pretax Operating NCF/ Revenue EBITDA Total Total Net FFO interest FFO/TD TD/TC Date of profit FFO income/ capex (A$mil.) (A$mil.) assets debt debt coverage (%) (%) financials (A$m) sales (%) (%) June 30, 1,320.80 270.8 616.9 11,827.0 2,564.1 2,536.1 425.4 46.4 3.0 14.3 26.7 90.7 2004

FFO: funds from operations, FFO/TD: FFO/ Total Debt, TC: Total Capital, NCF: net cash ﬂ ow

The Department for Victorian Communities supports the Minister for attoirs, and food processing facilities. Seventy percent of the demand Local Government in assisting local councils to meet the requirements for water and wastewater equipment is supplied by non-Australian of the Victorian Local Government Act 1989, which captures the lo- providers (imports). cal council responsibilities as custodians of community assets (in this case the stormwater drainage system). VI. Sources EIU, AWA, Australia Engineer, AusCID, Interviews. Water allocations in Victoria are defi ned under the Water Act 1989. The Crown has the primary right to the use, fl ow and control of all VII. Useful contact water in waterways and groundwater. The Minister for Water allocates Andrew Foley, Project Director, Industry Regulation bulk water entitlements to the water authorities and the permissible annual volumes allocated via take-and-use licences. The bulk water Water Services Association of Australia 469 LaTrobe Street entitlements are precisely defi ned and include conditions on minimum Melbourne, Victoria, Australia, 3000 environmental fl ows. Water can be traded under the Australian Gov- Tel. +61 3 96060678, Fax. +61 3 96060376 ernment’s statutory framework and the Victorian Government estab- E-mail: [email protected] lished a State-wide water exchange — Watermove — which handled approximately 26 per cent of all water trades in 2003–04 V. Equipment Markets Interesting prospects include biofi ltration systems, sludge presses and stabilizers, oxidation systems for industrial wastewater treatment, fi ltration equipment, and membrane technologies for water recycling. Given the strength of local manufacturers, fewer opportunities exist for pumping equipment. Some industrial wastewater treatment opportunities exist at gold and copper mines, wool scour mills, steel mills, pulp and paper mills, breweries, petrochemical plants, chemical and pharmaceutical plants, ab-

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 40 Water Market Asia - Australia

City Water CWW is one of the three metropolitan water distribution and retail companies operating in Melbourne, the state capital of Victoria. Its operations include the delivery of potable water and extraction of sewage and trade waste from Melbourne’s central business district, the inner city, and the western suburbs. Wholesale water is received from Melbourne Water Corp., which also receives most of the discharged waste. CWW continues to operate a small treatment plant in Altona, which handles about 5% (or fi ve gigaliters) of the sewage, as this is more effi cient than directing the waste to Melbourne Water. Melbourne Water owns and manages the larger dams, reservoirs, and treatment plants that service metropolitan Melbourne. Corporatised in 1995, CWW is owned by the State of Victoria, but is overseen by a board of directors comprising individuals experienced in the fi elds of management, fi nance, law, and the water industry. CWW is a metropolitan-based retailer of water and sewerage services to around 279,000 customers. It receives direct support from the Vic- torian government. As well as holding all of CWW’s equity, the government provides tangible fi nancial support by borrowing from the capital markets on its behalf. No other obligations incurred by CWW, such as those under third-party contracts, are guaranteed by the Victorian government. CWW’s position as a protected monopoly retailer in its service area ensures the stability of its regulated revenue and cash fl ows. The company’s operating license protects it from competition in its service area. Demand for CWW’s services is robust. Although an expected slowdown in residential property development in the inner central business district is expected to affect developer fee revenues. CWW’s conservative fi nancial profi le and capital structure adds signifi cant fi nancial fl exibility to its fi nancial position. Funds from operations (FFO) interest cover remained strong in fi scal 2002, at over 9x, which was consistent with the company’s low cash fl ow gearing; FFO to total debt was over 50%. Despite the company’s conservative forecasts regarding customer growth and water consumption, FFO interest cover is expected to average a robust 7x and FFO to debt 30%-35% for the next fi ve years. Capital expenditure is expected to remain low in the medium term, allowing for further debt reduction and enhancing debt servicing and leverage ratios despite a spike in fi scal 2004 due to the planned upgrade of the Altona wastewater treatment plant. While a move to migrate the full economic regulation of CWW to the state’s independent regulator, the Essential Services Commission (ESC), from the Victorian government could result in greater independence, transparency, and stability, it nevertheless raises some uncertainty about the regulatory pricing regime in the longer term. Although the regulatory pricing determination of fi scal 2001 adds certainty to revenue levels until 2004, when the next pricing reset is due, the basis on which future prices will be determined remains unclear. The establishment of the regulatory pricing framework will be a key development in the current period.

Customer Profile 2002 Customer segments Water sales Total water revenue (000s) (%) (GL) (%) (mil. A$) (%) Residential 250.3 89.7 52.5 50.3 57.8 58.4 Commercial 28.5 10.2 20.2 19.4 18.0 18.2 Industrial 0.3 0.1 31.6 30.3 23.2 23.4 Total 279.1 100.0 104.3 100.0 99.0 100.0 GL – Gigaliters.

Sources of Revenue 2002 Fixed charge Variable charge Total revenue (mil. A$) (% of total revenue) (mil. A$) (% of total revenue) (mil. A$) (% of total revenue) Water supply 21.6 11.8 77.4 42.5 99.0 54.4 Wastewater services 23.4 12.9 42.0 23.1 65.4 35.9 Trade waste 0.0 0.0 17.5 9.6 17.5 9.6 Total 45.0 24.7 136.9 75.3 181.9 100.0

41 Water Market Asia - Australia

Table 6.2 (1): Comparative Performance Indicators for Australian Water and Wastewater Utilities (2004)

Utility name Utility

ACTEW CorporationACTEW Barwon Region Water Authority Brisbane Water Central Regi Gippsland Cent City West Water Limited Water City West Coliban Gol Gosford CityGosford Council Goulburn Valley Water Hunter Water CorporationHunter Water Ipswich Water Ipswich Logan Water Maroochy Water Services Melbourne Consolidated Power and Water Corporation South Corporation Australian Water South East Water Limited Sydney Water Corporation Water Corporation Western Water Yarra Valley Limited Water

d Coast Water

ral Hi

Region Authority Water

ghlands Region A Water

on Authority Water

uthority

T of People served

housands

2 o504.64.6328 48%2.2 .1 .4 241.68 8.34% 0.61% 26.22% 64.83% 372.82 46.56 45.56 125 to 500 2 o503.851. 36.38 125 to 500

2 o506.46.2351 17%2.7 25%06%219.21 0.67% 12.55% 25.07% 61.72% 355.19 64.52 69.04 125 to 500 2 o507.04.3253 72 295.35 46.93 71.50 125 to 500

2 o504.94.8402. 44.88 47.19 125 to 500 2 o503.33.6518 48 511.80 35.66 37.43 125 to 500 2 o505.54.2493.77 43.12 55.05 125 to 500

25 5t 2 62 19 8.95.4 65%1.3 0.00% 17.53% 26.53% 55.94% 386.69 41.90 26.29 25 to 125

5t 2 11 60 6.251 561.92 36.07 31.12 25 to 125

5t 2 92 07 4.55.0 01%98%00%322.96 0.00% 9.89% 40.11% 50.00% 645.95 40.78 29.24 25 to 125

5t 2 03 52 2.678 321.16 45.20 50.35 25 to 125

5t 2 45 16 5.647 953.26 61.63 34.51 25 to 125

5t 2 / / 5.66.4 77%1.0 .0 181.26 0.00% 12.30% 17.76% 69.94% 259.16 n/a n/a 25 to 125

0 61 98 4.038. 740.70 59.88 66.10 > 500

0 75. > 500

0 / / 3.76.5 70%1.4 .0 209.63 0.00% 11.24% 27.01% 61.75% 339.47 n/a n/a > 500

0 56 63 1.16.7 14%1.6 .0 281.98 0.00% 10.76% 21.48% 67.77% 416.11 66.35 55.61 > 500 0 10 24 1.26.9 33%1.8 .0 205.20 0.00% 12.08% 23.33% 64.59% 317.72 72.40 71.06 > 500 0 08 00 6.761. 368.07 70.00 80.84 > 500 0 37 62 3.77.2 08%86%00%303.34 0.00% 8.61% 20.87% 70.52% 430.17 56.28 53.73 > 500

0 13 95 0.76.5 91%1.6 .0 212.45 0.00% 11.26% 19.19% 69.55% 305.47 69.50 71.37 > 500

o153.83.417.61.5 40%78%0. 7.85% 74.00% 18.15% 1577.76 35.14 32.18 to 125

Density of water connections connections (#/km)

88.8445 57%4.6 00%00%212.49 0.00% 10.00% 44.26% 45.74% 464.56 85.88 78

Density of sewer sewer connecti (#/km)

8414 87%3.4 .2 .0 253.41 0.00% 6.82% 34.44% 58.74% 431.40 68

ons

Total Consumption (l/person/day)

Water

75.8 91%1.9 .9 221.32 0.89% 14.99% 29.14% 54.98% 57

Residential Residential Consumption (% of total) of

79%1.0 .0 06%236.75 40.66% 0.20% 11.20% 47.95%

8%2.4 06%00%291.40 0.00% 20.60% 27.54% .86%

3%1.9 06%00%213.63 0.00% 10.68% 16.99% .33%

7%2.1 70%00%249.32 0.00% 27.08% 24.21% .71%

2%1.0 .0 .0 251.15 0.00% 7.10% 14.70% .20%

7%3.8 18%00%454.98 0.00% 21.89% 30.38% .73%

1 90%99%3.5 286.76 32.25% 9.95% 19.08% 71%

8 94%1.6 .0 226.27 0.00% 19.06% 19.47% 48%

Indus./ Comm. Indus./ Comm. Consumption (% of total)

Consumption by Institutes & by Institutes & Others (% of total)

Bulk Treated Supply (% total)

0 286.34 00%

Residential Consumption (l

/person/day)

216.29

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 42 Water Market Asia - Australia

Table 6.2 (2): Comparative Performance Indicators for Australian Water and

Wastewater Utilities (2004)

YarraValley Limited Water

WesternWater

Water Corporation Water

SydneyCorporation Water

SouthEast Limited Water

South Australian Water Corporation SouthAustralian Water

Powerand Corporation Water

MelbourneConsolidated

MaroochyServices Water

LoganWater

Ipswich Water Ipswich

Hunter Water Corporation HunterWater

Goulburn Valley Goulburn Water

Gosf

GoldCoast Water

ColibanAuthority Region Water

City West Water Lim Water CityWest

CentralRegion Authority Highlands Water

CentralRegion Authority Gippsland Water

BrisbaneWater

Barwon

ACTEW Corporation ACTEW

Utility name Utility

ordCity Council

Region Authority Water

ited

sold)

(US

Cost W&WW W&WW Cost

Operational Operational

Unit

$/m water water $/m

.200%100%12 48.38 1.22 100.00% 0.00% 0.82

.342%9.0 .341.75 1.73 95.80% 4.20% 0.53

.77.0 11%14 70%292 96 1.61.85 219.56 49.65 269.20 47.05% 1.43 21.10% 78.90% 0.77

.300%100%12 61%179 32 46 1.51 84.65 23.27 107.92 46.15% 1.25 100.00% 0.00% 0.83

.500%100%16 48.1 1.69 100.00% 0.00% 0.55

.34.0 90%08 66. 0.88 59.00% 41.00% 0.53

.1nana12 92%nanana2.39 n/a n/a n/a 49.21% 1.21 n/a n/a 0.51

.600%100%25 44.91% 2.52 100.00% 0.00% 0.96

.10.00% 0.61

.400%100%15 15%368 0.6291 2.05 269.15 107.66 376.80 51.51% 1.52 100.00% 0.00% 0.74

.600%100%10 21%170 16 167.02 52.12% 1.09 100.00% 0.00% 0.56

.400%100%07 16%170 70 130.03 57.01 187.04 51.64% 0.75 100.00% 0.00% 0.54

.500%100%14 67%214 63 2.41.26 225.14 46.35 271.49 36.70% 1.45 100.00% 0.00% 1.15

.700%100%18 61%322 1.0260.07 112.20 372.26 46.18% 1.83 100.00% 0.00% 0.77

0.69

0.82

.000%100%13 47.53% 1.37 100.00% 0.00% 1.10

.200%100%04 50.31% 0.49 100.00% 0.00% 0.32

.700%100%09 46.60 0.94 100.00% 0.00% 0.37

.500%100%12 56.49 1.21 100.00% 0.00% 0.75

.100%100%17 94%307 10 2.11.69 229.71 81.07 310.78 49.41% 1.71 100.00% 0.00% 1.01

/ .0 0.0 / / 4.37.4104 n/a 170.49 73.54 244.03 n/a n/a 100.00% 0.00% n/a

only (%) only

treatment

primary primary

Wastewater - - Wastewater

.0 0.0 .64.9 1.46 215.14 48.99% 0.86 100.00% 0.00%

.0 0.0 .555.28% 1.15 100.00% 0.00%

better(%)

treatment or

secondary secondary

Wastewater - - Wastewater

0.0 .25.5 0.79.4201 1.82 210.13 94.04 304.17 51.95% 1.12 100.00%

sold)

(US$/mwater

Revenue W&WW RevenueW&WW

Average Average

totalW&WW) for

%Water (% of

RevenueS

9 7.46.7288 1.67 208.87 66.87 275.74 89%

%203 75 6.83.06 162.78 87.55 250.34 7%

2.23.48.81.50 82.08 38.34 120.42 %

4.59.3131 3.24 153.12 96.63 249.75 %

8.66.5205 2.50 220.51 64.85 285.36 %

5.16.58.61.61 83.86 68.55 152.41 %

plit - - plit

(US$/conn/yr)

Tariff

Component of

Fixed Fixed

Residential Residential

9.8101 9.52.61 292.95 100.14 393.08

1.05.65.41.40 59.54 54.76 114.30

6.43.4215 1.24 221.50 39.74 261.24

0.74.3131 1.52 163.14 46.73 209.87

(US$/conn/yr)

TariffWater -

Com

Fixed

Residential

ponent of

.4132 1.25 153.20 1.94

8 5.31.96 150.13 .89

Wastewater Wastewater

Tariff -

Component of Componentof

Fixed

Residential

(ratio)

Coverage

Operating Cost Cost Operating

1.40 2.38

43 Water Market Asia - Australia

Known PSP Projects in Australia

New South Wales

Bega wastewater

Bega Valley Shire New South Wales 15 -year DBO Total investment (USDm) 47.00

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Treatment n/a ton/d Contract awarded 2003

EPC contractor Tenix Alliance (Australia)

Operator Tenix Alliance (Australia)

Cronulla Wastewater

Sydney New South Wales 2 -year ROT Total investment (USDm) 67.50

Sector 1 Wastewater Sector 2 No data

Sydney Water contracted Bovis Lend Lease to design, construct and operate the Plant. Bovis Lend Lease formed a consortium with AWS and the Cronulla Waste Water Group, a joint venture between CH2Mhill and Sinclair Knight Merz. The management of the Plant was handed back to Sydney Water in April 2003 with full compliance on all contractual obligations including process performance, operating cost veriﬁ cation and training of the future operations team.

Capacity Timeline

Distribution 210,000 pop Contract awarded 2001

Production 52,700 m3/d

Operator Australian Water Services (Degremont)

Gerringong wastewater

Sydney New South Wales 20 -year DBO Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 Water re-use

The project was initially meant to be a BOT. Delivered by Veolia Water Australia for Sydney Water Corporation and operated by General Water Australia (a VW company), the Sewerage Scheme services the townships of Gerringong and Gerroa, located 120km from Sydney on the southeast coast of Australia. Before the project started in June 2001, the area did not have a reticulated system. The treatment plant, was completed ahead of schedule and was designed to meet the local community needs up to the year 2020 for an estimated population of 11,000.

Capacity Timeline

Distribution 11,000 pop Contract awarded 2001

Production 2,200 m3/d

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 44 Water Market Asia - Australia

EPC contractor Veolia Water Systems Australia

Operator Veolia Water

Illawarra Wastewater Strategy

Sydney New South Wales 15 -year DBO Total investment (USDm) 150.00

Sector 1 Wastewater Sector 2 Water re-use

The water is re-used (CMF/RO) in the industry sector. The project includes building a water recycling plant at Wollongong sewage treatment plant that will produce at least 20 million litres of near-drinkable treated efﬂ uent per day. The recycled water will be used, under a 15-year agreement, at nearby BlueScope Steel, and building a pipeline to transfer wastewater from the Bellambi and Port Kembla catchments to Wollongong sewage treatment plant for high-level (tertiary) treatment or treated efﬂ uent recycling.

Capacity Timeline

Distribution 250,000 pop Contract awarded 2001

Production 177,000 m3/d

EPC contractor Veolia Water Systems Australia

Operator Veolia Water

Kurnell Desalination

Sydney New South Wales BOT Total investment (USDm) 990.00

Sector 1 Water Sector 2 Desalination

The plant has met with strong political opposition, especially regarding the implied tariff rise. State water utility Sydney Water launched the tender in June 2005 with Fichtner and Australian ﬁ rm GHD advising. Expressions of interest from bidders were due in August 4, 2005 and the pre-submission brieﬁ ng was to be held in early June. According to the tender documents, Sydner Water was to seek approval for the project, secure project funding, acquire land and easements and assist in dealing with government agencies and community groups. Sydney Water however reserved the right to suspend or terminate the development if the NSW government decides not to proceed with the project. In July 2005, the government set up the Urban Growth Commission to look and co-ordinate the development of regional Sydney. Prime Minister John Howard commented on the high cost of the deal. In August, Sydney Water was said to go to tender the A$2bn 1000ml/day seawater desalination plant as a PPP, despite threats from Australian Water Services (Degremont) to sue for breach of contract, as the concession awarded in 1993 guarantees 85% of Sydney’s market to the Suez subsidiary. In November 2005, the NSW cabinet had decided against delivering Sydney Water’s desalination plant as a PPP project. The two bidders still in the race were Fresh Water Alliance consisting of John Holland Tunnelling & Underground Mining, Leighton Contractors, Veolia Water Australia, United KG, Sinclair Knight Mertz and Maunsell Australia; and Pure Solutions consisting of Theiss, Parsons Brinkerhoff, GE Ionics, GE Infrastructure and Black & Veatch. The project will be a DBO instead.

Capacity Timeline

Distribution 460,000 pop Announced 2005 June

Production 500,000 m3/d Cancelled/Re-tendered 2005 November Opportunity!!

Equity investor Unknown

Macarthur Water Treatment Plant

Sydney New South Wales 25 -year BOT Total investment (USDm) 93.00

Sector 1 Water Sector 2 No data

The Macarthur Water Filtration plant supplies water to over 230,000 Sydney Water customers in the Camden, Campbelltown and Wollondilly areas. Completed in 1995, the plant is jointly owned by a consortium comprising United Utilities Australia and Transﬁ eld which provided ﬁ nance, design and construction services as well as on-going operations and maintenance.

45 Water Market Asia - Australia

Capacity Timeline

Distribution 230,000 pop Contract awarded 1995

Production 265,000 m3/d

Equity investor United Utilities 50.00%

Equity investor Transﬁ eld Services Ltd 50.00%

Prospect Water Filtration Plant

Sydney New South Wales 25 -year BOT Total investment (USDm) 198.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Distribution 3,500,000 pop Contract awarded 1993

Production 3,000,000 m3/d

Equity investor Australian Water Services (Degremont)

Sydney Wastewater

Sydney New South Wales 50 -year concession Total investment (USDm) 1,500.00

Sector 1 Wastewater Sector 2 No data

The initial idea is to compete for Sydney Water Corp wastewater cutomers and ‘purchase’ wastewater from SWC network to a centralised WWTP. Based on a proposed 50% capture of the wastewater market. This proposal was introduced by Sydney Services Pty Ltd, in an attempt to trigger the deregulation of the wastewater market in Sydney. Services Sydney’s major shareholders and founders are John van der Merwe, a civil engineer and Tony Feitelson, an architect and investor. Services Sydney approached the National Competition Council to declare the treatment of sewerage (which is currently pumped out to sea) open to competition. The National Competition Council has ruled in favour of Services Sydney. The Premier ignored the NCC’s recommendation which was deemed a rejection and Services Sydney has now applied to the Australian Competition Tribunal for a review of the recommendation. The Premier has sought to intervene in the proceedings in his efforts to defend Sydney Water’s monopoly. In December 2005, the competition council ruled in favour of Sydney Services. Chairman of the council’s community environment committee, Cr Brad Pedersen, subsequently declared the State Government should now abandon its plans for a desalination plant. (See Kernell Desalination project)

Capacity Timeline

Treatment n/a ton/d Announced 2005 December

Equity investor unknown Opportunity!!

Wyunda Project: Illawarra/Woronora Water Treatment Plants

Sydney New South Wales 25 -year BOT Total investment (USDm) 135.00

Sector 1 Water Sector 2 No data

The design and construct phase was entirely debt-funded by a consortium of fi ve banks, with 20% equity introduced on commissioning. Debt fi nancing was fully non recourse. Refi nancing was initiated by Wyuna Water within six months of commencement of operations, resulting in increased returns to both Wyuna Water and Sydney Water through a profi t-sharing arrangement. Wyuna Water receives a two-part tariff (availability and usage) on a monthly basis from Sydney Water. The tariff is adjusted for performance penalties. Veolia sold a 70% stake to ABN Amro in 2003 for A$250m, while retaining the management contract.

Capacity Timeline

Distribution 500,000 pop Contract awarded 1994

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 46 Water Market Asia - Australia

Production 370,000 m3/d

Operator Veolia Water Systems Australia

Equity investor ABN Amro Queensland

Beenleigh WRF

Beenleigh Queensland 3 -year DBO Total investment (USDm) 9.68

Sector 1 Wastewater Sector 2 Water re-use The upgrade of the Beenleigh Water Reclamation Facility was a Design-Build-Operate (DBO) project with a three-year operations period which is now complete. Delivered by Veolia Water for Gold Coast City Council, it services the town and surrounding district of Beenleigh, located 35km southeast of the centre of Brisbane, for a population up to 60,000.

Capacity Timeline

Distribution 60,000 pop Contract awarded 2000

Production 15,000 m3/d

EPC contractor Veolia Water Systems Australia

Operator Veolia Water

Gold Coast

Gold Coast Queensland DBO Total investment (USDm)

Sector 1 Water Sector 2 Desalination

A consortium led by Veolia Water was appointed by the Council to begin phase 1 site selection and preliminary design and environmental investigations. The ﬁ nal design phase 2 will begin in April 2006 if the current drought continues. Desalination is listed as one of the preferred long-term options in the Gold Coast’s ‘Waterfuture Strategy’ to provide for up to 23% of the Gold Coast City’s water supply. In October 2005, mayor Ron Clarke’s push to build the plant on the Gold Coast has led to three sites being short-listed. Gold Coast Water and city councillors have looked at land west of the airport runway at Tugun, a site adjacent to the Coombabah waste water treatment plant, and land on Kerkin Road at Pimpama.

Capacity Timeline

Production 55,000 m3/d Announced 2005 December Opportunity!! Equity investor Veolia Water

Noosa Wastewater

Noosa Queensland 25 -year DBO Total investment (USDm) 40.00

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Distribution 45,000 pop Contract awarded 1995

Production 18,000 m3/d

Equity investor Australian Water Services (Degremont)

47 Water Market Asia - Australia

Noosa Water & Wasetwater

Noosa Queensland 15 -year DBO Total investment (USDm) n/a

Sector 1 Water Sector 2 Wastewater

The project upgraded the Noosa Water Treatment Plant to signiﬁ cantly improve water quality by adding an advance treatment stage of ozone dosing and BAC ﬁ ltration. The plant capacity was also increased by 20% to 45ML/d using the existing plant structures,

Capacity Timeline

Distribution 60,000 pop Contract awarded 2003

Production 45,000 m3/d

EPC contractor Veolia Water Systems Australia

Equity investor Veolia Water

Redcliffe Wastewater

Redcliffe Queensland 15 -year DBO Total investment (USDm) 10.00

Sector 1 Wastewater Sector 2 No data Environmental Group Ltd acquired Anglian Water Pty Ltd, a water utility company on 23 December 2005. The transaction included the Redcliffe and West Wodonga wastewater treatment plants. The plant manager is Peter Tolsher.

Capacity Timeline

Treatment n/a ton/d Contract awarded 2001

Equity investor Environmental Group Ltd (Australia)

South East Queensland Recyled Water

Queensland Total investment (USDm) 525.00

Sector 1 Wastewater Sector 2 Water re-use

The State Government has decided to focus on localised solutions to water supply shortages in the Lockyer Valley and the Darling Downs. Consultants have been engaged to undertake the Preliminary Assessment Stage of a proposal to develop a “Total Water Solution” for the Lockyer Valley and their fi nal report has been considered by the Government. Based on the fi ndings of this study the Government has commissioned a comprehensive independent survey on the demand for recycled water in the Lockyer, Warrill and Bremer Valleys and the willingness of Primary Producers to pay prices refl ecting the cost of delivering these supplies. This report was due in mid August 2005. This project is also known as the Lockyer Valley Water Reliability Project.

Capacity Timeline

Treatment n/a ton/d Announced 2004

Equity investor Unknown Opportunity!!

The QNI Water Reuse Facility

Yabulu Queensland BOO Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 Desalination

This desalination facility at Queensland Nickel’s Yabulu Reﬁ nery near Townsville is making possible extensive reuse of wastewater. As a result reliance on bore water has been reduced and the risk of discharges from overﬂ owing tailings ponds into environmentally sensitive waters near the Great Barrier Reef, has been eliminated.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 48 Water Market Asia - Australia

Capacity Timeline

Production 10,000 m3/d Contract awarded 2003

Equity investor United Utilities

Townsville Industrial Recycling

Townsville Queensland BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 Water re-use

Townsville City Council, with support from Public Private Partnerships and Infrastructure Delivery, has entered a Heads of Agreement with merchant bank, NM Rothschilds and Sons (Australia) to build, own and operate the recycling project, following a 12-month market conﬁ rmation period. The project will use treated efﬂ uent from the Cleveland Bay Waste Water Treatment Plant for public space irrigation and industrial purposes. Project Director: Dawson Wilkie; email: [email protected] phone: 07 4727 9230

Capacity Timeline

Treatment n/a ton/d Announced 2004

Equity investor Unknown Opportunity!!

Water Futures - Toowoomba

Toowoomba Queensland Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 Water re-use

The State Government and Toowoomba City Council have fi nalised a Business Case on the use of treated effl uent from the Wetalla Wastewater Treatment Plant for rural, industrial and mining purposes. This proposal has been included in the recently released South East Queensland Infrastructure Plan and Program. Toowoomba City Council has included this proposal for funding through the National Water Initiative (Australian Water Commission). Expected revenues from project A$50m per annum. Project Director: Kevin Flanagan; email: k.fl [email protected] phone: 07 4688 6702

Capacity Timeline

Treatment n/a ton/d Announced 2004

Equity investor Unknown Opportunity!! South Australia

Adelaide Water Services

Adelaide South Australia 15 -year O&M Total investment (USDm) 1,125.00

Sector 1 Water Sector 2 Wastewater

Six water treatment plants, ﬁ ve wastewater treatment plants, over 400,000 service connections, 9,900km of water mains and 7,000km of wastewater mains. The bidding process involved irregularities that led to two government investigations and an inquiry by a parliamentary committee: United Water had submitted its bid documents more than four hours after the deadline and after the other bids were opened and distributed. Fifteen months later Adelaide suffered a “big pong” over a three-month period in 1997, due to a failure to monitor one of the sewerage treatment plants. Between 1993 and 2000, prices for the basic water tariff increased by 59 per cent; over the same period, inﬂ ation was 11 per cent. Jobs were cut by 33%, from 2,707 to 1,790. United Water’s contract remains secret.

Capacity Timeline

Treatment 2,500,000 ton/d Contract awarded 1996

Distribution 1,000,000 pop

49 Water Market Asia - Australia

Production 1,000,000 m3/d

Equity investor Halliburton

Equity investor Veolia Water

Investment vehicle United Water (Veolia Water & Halliburton)

Bolivar wastewater

Adelaide South Australia DBO Total investment (USDm) 75.00

Sector 1 Wastewater Sector 2 Water re-use

Water re-used (DAFF) in the agriculture sector (14,000m3/d)

Capacity Timeline

Production 41,000 m3/d Contract awarded 1999

Equity investor Halliburton

Equity investor Veolia Water

Investment vehicle United Water (Veolia Water & Halliburton)

Onkaparinga wastewater

Onkaparinga South Australia 25 -year O&M Total investment (USDm) 33.75

Sector 1 Wastewater Sector 2 Water re-use

This 25-year-agreement covers redevelopment of the City of Onkaparinga’s six septic tank efﬂ uent disposal schemes (STEDS) to a stage enabling the water to be used for the irrigation of vineyards in the McLaren Vale and Willunga region.

Capacity Timeline

Treatment n/a ton/d Contract awarded 2002

Equity investor United Utilities

Riverland water (10 Water Filtration Plants)

South Australia 25 -year BOT Total investment (USDm) 86.25

Sector 1 Water Sector 2 No data

United Utilities Australia is the major shareholder in and operator for Riverland Water, a consortium that has provided 10 advanced water ﬁ ltration plants in rural South Australia. These plants have been provided under an innovative AUS$115m Build Own Operate Transfer (BOOT) contract with the South Australian Government. The contract awarded United Utilities and its partners, AMP Asset Management and Bechtel Enterprises, the right to operate the plants for 25 years after the completion of construction phases in late 1999.

Capacity Timeline

Distribution 150,000 pop Contract awarded 1999

Production 270,000 m3/d

Equity investor United Utilities

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 50 Water Market Asia - Australia

Upper Spencer Gulf Common Purpose Group Desalination

Adelaide South Australia BOT Total investment (USDm) 200.00

Sector 1 Water Sector 2 Desalination

The Upper Spencer Gulf Common Purpose Group (USGCPG) has been working together with Victorian company Aquasol, discussing the feasibilities of establishing water desalination site. The two interested parties are currently looking into using the disused salt works site at Point Paterson between Whyalla and Port Augusta.

Capacity Timeline

Production 30,000 m3/d Direct negotiations 2004

Equity investor Aquasol

Victor Harbour Wastewater

Victor Harbour South Australia 20 -year BOT Total investment (USDm) 31.50

Sector 1 Wastewater Sector 2 Water re-use

Water re-used (SBR) in the agriculture sector

Capacity Timeline

Production 5,000 m3/d Contract awarded 2004

Equity investor United Utilities

Operator Tenix Alliance (Australia)

Virginia Re-use

Adelaide South Australia 20 -year BOT Total investment (USDm) n/a

Sector 1 Water Sector 2 Water re-use

Commissioned in November 1998, the Virginia scheme provides over 10Mm3 (2.75 mg) per year of Class A recycled water from South Australia Water’s Bolivar treatment plant to more than 240 irrigators, through a 20-year design / build/ operate / ﬁ nance concession. It recycles approximately 10% of Adelaide’s wastewater and distributes the recycled water to horticultural users on the North Adelaide Plains.

Capacity Timeline

Treatment 27,000 ton/d Contract awarded 1998

Equity investor EarthTech Victoria

Aqua 2000 Project (Coliban Water)

Bendigo Victoria 25 -year BOT Total investment (USDm) 63.75

Sector 1 Water Sector 2 No data

The Plant uses submerged micro-ﬁ ltration technology.

Capacity Timeline

Distribution 80,000 pop Contract awarded 1999

51 Water Market Asia - Australia

Production 126,000 m3/d

EPC contractor Veolia Water Systems Australia

Equity investor Veolia Water

Ballarat North Water Reclamation Project

Ballarat Victoria 15 -year DBO Total investment (USDm) 23.00

Sector 1 Wastewater Sector 2 Water re-use

American Water Works, United Utilities, Earth Tech have expressed interest. CHW is paying for the construction (no private ﬁ nance). This is a Design-Build-Operate project, which seeks to initially upgrade the Ballarat North Wastewater Treatment Plant to consistently achieve tertiary efﬂ uent standards and compliance with Environment Protection Authority Licence Conditions. It will also likely involve further upgrades of the plant to achieve higher Reclaimed Water quality standards to enable Central Highlands Water to develop a reuse scheme. Design, build and 15-year operation within the framework of the state government’s Partnerships Victoria policy. Project status and schedule: Two offers were received by the 12 December 2005 deadline. One of the three groups was not expected to submit. Announcement of a preferred bidder is scheduled for March 2006.

Capacity Timeline

Production 10,000 m3/d Announced 2005

In tender 2005 December

Preferred bidder 2006 March Opportunity!!

Equity investor Unknown

Ballarat Water

Ballarat Victoria 25 -year BOT Total investment (USDm) 37.50

Sector 1 Water Sector 2 No data

Thames sold its share in United Water to Veolia in 2004. It still owns the project assets and has a management contract with United Water. In late 2003 Thames Water (Purac) was awarded a new 20 year contract with Central Highlands Water to construct four water treatment plants, ranging in capacity from 0.85-2.5 ML/d. United Water was again selected to manage, maintain and operate these facilities. Clough Engineering built the two plants for Thames.

Capacity Timeline

Distribution 100,000 pop Contract awarded 1999

Production 65,000 m3/d

Equity investor Halliburton

Equity investor Veolia Water

Investment vehicle United Water (Veolia Water & Halliburton)

Barwon Black Rock

Geelong Victoria 20 -year DBO Total investment (USDm) 50.00

Sector 1 Wastewater Sector 2 No data

This is a Design-Build-Finance-Operate project, which seeks to develop a sustainable programme for the treatment and beneﬁ cial use of biosolids. It is expected to operate over a 20-year period after the expected date of commissioning. Barwon Water has shortlisted three bidders which have to submit ﬁ nal proposals for an estimated A$30m (US$22m) biosolids plant. They are: Burns and Roe Worley; Plenary Group with Earth Tech and Deutsche Australia; and Veolia Water with Babcock and Brown. In January 2005, the Geelong Water Authority

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 52 Water Market Asia - Australia

tendered for an adviser for a construction of sewerage and treatment plant in Barwon Region. The brief was to include negotiating with Shell about how it treats and discharges water from its nearby reﬁ nery. Deloitte & Touche, PricewaterhouseCoopers and KPMG were bidding for the mandate. In March 2005, the project advisory mandate was won by Ernst and Young. The business case was completed by the municipality and was to go straight to EOI. The bidders had until June 29, 2005 to respond to the EOI. Capital expenditure was estimated A$20m to A$40m.

The RFP was expected to come out in September 2005 and ﬁ nal bids were due in January 2006. Signing of the concession was scheduled for May 2006 with commissioning by November 2007. In June 2005, parties came together to submit expressions of interest. ABN AMRO Bank teamed up with Veolia Water and Plenary Group with Tyco’s Earth Tech. The bidders asked for extension of the June 29 deadline. In July 2005, the EOI phase which was closed on July 6, attracted 11 proposals.

These included ABN Amro with Veolia Water; Plenary Group, with Tyco’s Earth Tech; and possibly United Utilities., Degremont, UKG, John Holland, Thiess, and Tenix. Bidders were given the option to convert the sewage into a fertiliser and soil conditioner or as a fuel for a power project. In October, tenders were out in the week of October 11. In November, Barwon Water had shortlisted three bidders: Burns and Roe Worley; Plenary Group with Earth Tech and Deutsche Australia; and Veolia Water with Babcock and Brown.

Capacity Timeline

Treatment n/a ton/d Announced 2005 January

In tender 2005 December Opportunity!!

Equity investor Unknown

Castlemaine Wastewater Treatment Plant

Castlemaine Victoria BOT Total investment (USDm) 18.75

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 0 m3/d Contract awarded 1998

Equity investor Unknown

Castlemaine Water

Castlemaine Victoria 25 -year BOT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

The plant has a CMF design

Capacity Timeline

Production 18,000 m3/d Contract awarded 1999

EPC contractor Veolia Water Systems Australia

Equity investor Veolia Water

Coliban Water Management

Bendigo & Castlemaine Victoria O&M Total investment (USDm) 10.00

Sector 1 Water Sector 2 Wastewater

Campaspe Asset Management, an equal joint venture between United Utilities Australia and Origin Energy Asset Management, is carrying out operations for regional Victorian water utility Coliban Water. Field services, water and wastewater treatment, IT, revenue collections, operations and maintenance, have been outsourced to the joint venture company. Centred on the old gold mining towns of Bendigo and Castlemaine, Coliban Water provides water and wastewater services to 130,000 customers across 16,500 km of central and northern Victoria. Its assets include: 1800km of water mains, 490 km of rural channels, 70 km of main channel, 8 major and 79

53 Water Market Asia - Australia

minor water storages including tanks, basins and reservoirs, 22 water treatment plants, 10 wastewater treatment plants, 174 water and wastewater pumping stations.

Capacity Timeline

Distribution 130,000 pop Contract awarded 2003

Equity investor United Utilities

Eastern Irrigation Scheme

Cranbourne Victoria 25 -year DBO Total investment (USDm) 22.00

Sector 1 Wastewater Sector 2 Water re-use

Earth Tech designed and built Australia‘s largest recycled water ultraﬁ ltration plant to supply 5GL per annum of Class A recycled water for the scheme. Earth Tech also designed and built a 50 km pipeline network to distribute recycled water to customers at over 60 locations. The Eastern Irrigation Scheme will be owned and operated by Earth Tech for 25 years under the brand TopAq in a partnership arrangement with Melbourne Water. The Eastern Irrigation Scheme is a joint project between Earth Tech and Melbourne Water that aims to deliver about 5,000 million litres of Class A recycled water each year to the Cranbourne-Five Ways area for the irrigation of market gardens, golf courses and a racetrack.

Capacity Timeline

Treatment 14,000 ton/d Contract awarded 2001

Equity investor EarthTech

Echuca/Rochester Wastewater Treatment Plant

Rochester Victoria 25 -year DBO Total investment (USDm) 30.00

Sector 1 Wastewater Sector 2 Water re-use

This is a Build-Own-Operate-Transfer project, which seeks to upgrade wastewater treatment operations at Echuca and Rochester to ensure sufﬁ cient capacity at the necessary Environment Protection Authority standards is available to meet anticipated requirements for the next 25 years.

Capacity Timeline

Treatment n/a ton/d Contract awarded 2002

Equity investor EarthTech

Enviro Altona

Altona Victoria DBO Total investment (USDm) 11.25

Sector 1 Wastewater Sector 2 Water re-use The project is an environmental and reuse partnership which seeks to redevelop the existing Altona Treatment Plant in order to meet new Environment Protection Authority License Conditions. The redevelopment will cater for signifi cant salt loads due to infi ltration reduction through the management of the Altona catchment and also the establishment of effl uent reuse systems.

Capacity Timeline

Production n/a m3/d Contract awarded 2003

Equity investor Unknown

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 54 Water Market Asia - Australia

Gippsland Wastewater

Gippsland Victoria DBO Total investment (USDm) 94.66

Sector 1 Wastewater Sector 2 No data

Transﬁ eld Services Ltd has won a contract to design, build, commission and operate a wastewater treatment and recycling facility in Gippsland, Victoria with a budget of A$128 million (US$94.66 million).

Capacity Timeline

Treatment n/a ton/d Contract awarded 2005 December

EPC contractor Transﬁ eld Services Ltd

Equity investor Transﬁ eld Services Ltd

Grampians Growth Corridor Water Project

n/a Victoria BOT Total investment (USDm) 13.50

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 1999

Equity investor Unknown

Kyneton

n/a Victoria 25 -year BOT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

The plant has a CMF design

Capacity Timeline

Production 8,000 m3/d Contract awarded 1999

EPC contractor Veolia Water Systems Australia

Equity investor Veolia Water

Melbourne Wasetwater

Melbourne Victoria DBO Total investment (USDm) 155.00

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 370,000 m3/d Announced 2004

Equity investor Unknown Opportunity!!

55 Water Market Asia - Australia

Murray Goulburn Co-Operative Co

Maffra Victoria 10 -year BOT Total investment (USDm) 11.00

Sector 1 Wastewater Sector 2 No data

Thames sold its share in United Water to Veolia in 2004. It still owns the assets and has a management contract with United Water.

Capacity Timeline

Production 2,000 m3/d Contract awarded 2001

Equity investor Halliburton

Equity investor Veolia Water

Investment vehicle United Water (Veolia Water & Halliburton)

Recycled Water to Gippsland

Gippsland Victoria Total investment (USDm) 750.00

Sector 1 Water Sector 2 Water re-use

Transfer of treated efﬂ uent from Eastern Treatment Plant via a 135km pipeline for use in power stations and other industry.

Capacity Timeline

Production n/a m3/d Announced 2004

Equity investor Unknown Opportunity!!

Wodonga Wastewater Treatment Plant

Wodonga Victoria DBO Total investment (USDm) 11.25

Sector 1 Wastewater Sector 2 No data

This is a Design-Build-Operate project, which seeks to upgrade the West Wodonga Wastewater Treatment Plant to consistently achieve tertiary standards to satisfy immediate and future demand and meet the speciﬁ ed efﬂ uent quality requirements and Environment Protection Authority License Conditions.

Environmental Group Ltd acquired Anglian Water Pty Ltd, a water utility company on 23 December 2005. The transaction included the Redcliffe and West Wodonga wastewater treatment plants.

Capacity Timeline

Production n/a m3/d Contract awarded 2001

Operator Environmental Group Ltd (Australia)

Yan Yean Water

Melbourne Victoria BOO Total investment (USDm) 18.10

Sector 1 Water Sector 2 No data

The plant will cost the consortium about A$24 million and Melbourne Water will pay North West a monthly fee for the puriﬁ cation service relating to the quantity of water supplied and the quality of the service.

The tariff structure has a ﬁ xed and a variable component. Melbourne Water and the State Government have guaranteed that the privatisation will not increase rates paid by consumers, who will pay through their normal water bill. Yan Yean, built in 1857, is Australia’s oldest operating reservoir and is used for only six months of the year. It supplies about 15% of Melbourne’s water.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 56 Water Market Asia - Australia

Capacity Timeline

Production n/a m3/d Contract awarded 1992 August

Equity investor United Utilities 50.00%

Equity investor Transﬁ eld Services Ltd 50.00% Western Australia

Kwinana Wastewater Recycling Plant

Perth Western Australia DBO Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 Water re-use

The plant is owned by the Water Corporation of Western Australia. Water re-used (CMF/RO) is for the industry sector. With John Holland Pty Ltd.

Capacity Timeline

Production 16,700 m3/d Contract awarded 2004

EPC contractor Veolia Water Systems Australia

Equity investor Veolia Water

Multiplex Desalination

Perth Western Australia 25 -year DBO Total investment (USDm) 298.00

Sector 1 Water Sector 2 Desalination

The Multiplex Degremont Joint Venture brings together Multiplex Engineering Pty Ltd and the Australian branch of Degremont S.A of France, though its local branch Austrlian Water Services. The shortlist of ﬁ ve bidders included IDE advised by PricewaterhouseCoopers, a team of Ondeo and Multiplex advised by KPMG, Thames Water and John Holland advised by Deutsche Bank, a Clough/Ionics/ Halliburton consortium advised by ABN Amro, and a team of Vivendi, United Utilities and Walter Construction advised by Macquarie Bank.

Capacity Timeline

Distribution 1,500,000 pop Contract awarded 2005

Production 137,000 m3/d

Equity investor Australian Water Services (Degremont)

The Kimberley Canal

Perth Western Australia Total investment (USDm) 1,500.00

Sector 1 Water Sector 2 No data

3,700 km Canal from Fitzroy to Perth

Capacity Timeline

Production n/a m3/d Announced 2004 Opportunity!!

Equity investor Unknown

57 Water Market Asia - Australia

Woodman Alliance

Woodman Point Western Australia DBO Total investment (USDm) 112.50

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 1999

Equity investor Clough Engineering

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 58 Water Market Asia - Hong Kong

Hong Kong

The Hong Kong water and sanitation sector is wholly in the hands of the public sector. While past performance has not always been impressive, recent years have seen great improvements and much needed CAPEX. Through their efforts to become and stay effi cient, the HK water, drainage and sanitation departments are also attempting to fend off any attempt to introduce private sector participation. Indeed, the only known potential PPP has been on the cards for about ten years: the Sha Tin BOT, which, after long protracted negotiations with unions, might come back to life under a different format in the coming years. However, a very active public utility means that a lot of contracting jobs are available on a regular basis. Local construction companies share most of this market, with the fi rst fi ve by market share holding more than half the market by value. Despite diffi cult times for the economy in general, Hong Kong continues to modernise its water and sanitation infrastructure and will be looking at new technologies (water re-use, desalination) in the future, to alleviate its dependency on mainland China for supply. The current water supply from Guang- dong province is becoming more expensive and is itself constrained by the increased water use in the Pearl River Delta area.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Non-existant The only known BOT, Sha Tin, has been in the Future Opportunities Very few pipeline for years and is contested by unions and the public sector. It may happen in 2006. Local competition Significant

Equipment Markets Comments Future Opportunities Numerous A good deal flow in recent years with significant Local competition Significant competition from the local construction sector.

Public Utilities Comments Track record Good HKWD is a good example of a well-run public Sustainability High utility. Reliance on ODA None Government Comments Commitment to deliver service Yes The HK government has launched an extensive Fiscal Resources Limited wastewater treatement programme and is commit- -ted to achieving high standards.

Economy & Finance Comments Recovery since Asian crisis 1997 Limited Hong Kong has just come out of a long period of Local capital maket Sophisticated deflation.

59 Water Market Asia - Hong Kong

I. General Information public works, will further reduce unemployment. Some of the major projects in the pipeline are extensions of railway lines; a 29-kilometre I.1 Macroeconomic Situation bridge to link the city with Macau and Zhuhai; and a new ocean liner The economy grew faster than expected in 2004, expanding by 8.1%, terminal. compared with 1.9% average growth in the previous 3 years. Private consumption, benefi ting from the property market rebound, stronger I.2 Political & Investment Environment household balance sheets, and rising employment, grew by 6.7%. To- The 10 March 2005 departure of Tung Chee-hwa as Hong Kong’s chief tal investment grew by 3.2%. executive served as confi rmation of the rumors that had been building since late December that mainland China’s leadership, the real power Services, which account for nearly 90% of the economy, rebounded behind Hong Kong, had grown tired of his inability, or unwillingness, after being hit hard by the SARS outbreak in 2003. Inbound tourism to prevent mounting popular protests over a range of issues from the was particularly strong, with a record 21.8 million foreign visitor ar- holding of free elections to teachers’ pay levels, or to impose Beijing- rivals, up by about 6 million from 2003. More than half of the visitors inspired anti-subversion legislation that would have extended the ban- came from the PRC, a result of a further easing of restrictions on indi- ning of organizations in mainland China into Hong Kong and made it vidual travel to Hong Kong. far more diffi cult, and dangerous, to oppose government policy. Median monthly employment earnings during the fourth quarter of Tung has been replaced by Donald Tsang, former Chief Secretary. But 2004 stood at HK$9,500, the same as a year earlier; median house- a new election is meant to happen in 2007 when Tung’s second term hold income edged up to HK$15,500 in the fourth quarter, from would have ended. This period will allow Beijing to test Tsang’s ability HK$15,000. Yet poverty remains a concern. According to the Hong to reign in dissent and pass pro-Beijing legislation. Kong Council of Social Service, for every 100 children below the age of 15 in Hong Kong almost 25 live in families with household income With a target to balance the budget by 2008, the authorities in 2004 below half the median. maintained a policy of expenditure cuts, including reducing the number of civil servants and cutting the pay of the remaining personnel Inward FDI rose sharply to US$34.0 billion in 2004, more than double by 3% from January 2005. While the economic recovery pushed up the 2003 fi gure. The increase apparently was related in part to PRC revenues in 2004, the debate on a goods and services tax (GST) con- enterprises setting up businesses in Hong Kong. tinued. About 40% of Hong Kong, China’s income in its general rev- Government revenues, too, received a lift from the economic rebound enue account is derived from salary and profi t taxes; 30% comes from and buoyant property market. General revenues, including operation- direct land-based revenues and investment receipts; the balance is al and capital income, rose by 14% in 2004 (ended 31 March 2005), indirect taxes and fees. A GST would be a way to broaden the narrow while operating expenditures declined by 1%. tax base, ensure a more stable revenue fl ow, and reduce the number of people who do not pay any taxes. The 5% GST under discussion Defl ation concerns faded in the fi rst half of 2004. In July, the consumer could raise US$3 billion-4 billion a year. price index rose by 0.9% from July 2003, the fi rst year-on-year increase since November 1998. For the full year, though, the composite On the monetary front, the Government and the Hong Kong Monetary CPI recorded a small decline of 0.4%. Authority reaffi rmed their intention to maintain the exchange rate link at HK$7.8 to the US dollar. Under this arrangement, interest rates Factors underpinning growth will be continued expansion of the PRC should move in tandem with US rates. economy; low, though rising, interest rates; a soft US dollar; and FDI infl ows. Investment growth is forecast in the 7-9% range. Construction Concerns that Shanghai could seriously erode Hong Kong’s role as activity is likely to revive now that the property market recovery is well a fi nancial centre and gateway to the PRC in the medium term seem under way. A revival of building activity, residential, commercial, and overstated. In terms of regulation, rule of law, transparency, and cor-

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 15.00 2006 168,868 10.00 2005 157,028 5.00 2004 158,577 0.00 -5.00 1998 1999 2000 2001 2002 2003 2004 2005 2006 150,000 155,000 160,000 165,000 170,000 -10.00

Hong Kong Dev eloping Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean) 37.45 40.00 Chart 1.3: 2004 Sector Share of GDP 30.00 Agricult. 20.00 15.30 14.60 0% Industry 8.94 8.64 11.00 6.05 10% 10.00

0.00 1998 1999 2000 2001 2002 2003 2004

Hong Kong Dev eloping Asia (mean) Serv ices High Income Asia (mean) 90%

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 60 Water Market Asia - Hong Kong

Table 1.1: Sovereign Risk Indicators Hong Kong Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 9,930.00 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 1.99 59.60 50.84 Short Term Debt / Total Debt 2004 (%) n/a 10.49 n/a Fitch Sovereign Rating (2004) AA-

Table 1.2: Legal Risk Indicators 2004 Hong Kong Developing Asia High Income Asia Time to enforce a contract (days) 211.00 392.62 103.67 Time to register property (days) 56.00 62.82 16.50 Time to resolve insolvency (years) 1.10 4.45 1.15 Time to start a business (days) 11.00 67.08 14.33 Legal rights of borrowers and lenders (0=low) 10.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Hong Kong Developing Asia High Income Asia Political Rights 5.00 4.23 2.43 Civil Rights 3.00 4.69 2.14 Corruption Perception 8.00 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 Hong Kong Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 12.33 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 1,638.10 185.54 1,281.59 Roads, paved (% of total roads) 100.00 44.75 75.32 Electric power consumption (kwh per capita) 5,612.20 717.46 7,505.93 Water supply failures (days) n/a 10.00 n/a

Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%)

12 10.84 0.00 9.74 9.90 9.60 10 2002 2003 2004 2005 2006 8 -2.00 -0.36 -2.10 -2.00 6 -4.00 -3.29 4

2 -6.00 -4.94 0 2003 2004 2005 2006 -2 Hong Kong Dev eloping Asia (mean) High Income Asia (mean) Hong Kong Dev eloping Asia (mean) High Income Asia (mean) Chart 1.8: Real Interest Rate 2000-2003 (%) Chart 1.7: Inflation Rate 1999-2004 (%) 18.00 16.72 20.00 16.00 14.00 15.00 12.00 10.67 10.00 10.00 8.00 8.24 6.00 7.15 5.00 4.00 -0.43 2.00 0.00 -2.58 -1.61 -3.04 0.00 1999 2000 2001 2002 2003 2004 2000 2001 2002 2003 -5.00 -3.96 -3.75

Hong Kong Hong Kong Dev eloping Asia (mean) Dev eloping Asia (mean) High Income Asia (mean) High Income Asia (mean)

61 Water Market Asia - Hong Kong porate governance, other cities in the PRC are unlikely to be competi- The term BOT (build-operate-transfer) was invented in Hong Kong to tive for many years. describe tunnel concessions. As the main fi nancial centre of East Asia, Hong Kong has more PPP specialists and consultants per square me- II. Water tre than anywhere else in the region. The Hong Kong Government Ef- Key facts: fi ciency Unit is fi rmly in favour of public-private partnership solutions. - Fresh water consumption: 974 Mm3 (2003) or 6.8 m people Still, the HKWSD does not see the need for PSP and they make it known as often as they can. One only has to look at their annual re- - Per capita: 143m3 ports to see that WSD thinks it can and does perform just fi ne as a - Seawater consumption: 241 Mm3 or 5.34 m people publicly funded and managed body. II.1 Sector Policy & Structure The only potential water PPP in Hong Kong is the Sha Tin BOOT. It would consist of the in situ re-development, ownership and operation The Hong Kong Water Supplies Department (HKWSD) is managing a of the Sha Tin Waterworks as well as distribution and customer ser- system with an installed treatment capacity of 3.6Mm3/d and 7,500km vices in at least one customer area. The three service areas are Sha of network. Its recent performance has been very high by regional Tin, the entire Kowloon peninsula and East Kowloon from Choi Hung standards and more improvements are being planned. HKWSD is re- and Kowloon Bay to Lam Tin. The three zones account for a third of sponsible for both water treatment and distribution and the Drainage HK’s water clients or approximately 860,000 accounts. Project value Services Department (HKDSD) is in charge of all sewerage works and is estimated at HK$6.7bn (US$850m). treatment. The Hong Kong Government will be focusing on the following prioritized water and wastewater projects: Situated in HK’s New Territories, the existing Sha Tin plant was built in 1964, with a nominal output of 1,230,000m3/d, or 40% of HK SAR’s to- - Trials of various advanced fi ltration methods to ensure potable water tal demand of treated water. The HK authorities acknowledge that real quality output is signifi cantly lower. The plant’s three service areas are Sha - Setting up water recycling and desalination pilot schemes Tin, the entire Kowloon peninsula and East Kowloon from Choi Hung and Kowloon Bay to Lam Tin. A HK$2m feasibility study by Metcalf & - Rehabilitation of water mains Eddy completed in October 2003 suggested a BOOT scheme. Under a 20-year programme, HK$11bn is to be spent on a plan for the It also suggested the project include distribution and customer ser- replacement and rehabilitation of the Hong Kong water mains system. vices in one of the three service areas to allow the private operator Work has already begun on the fi rst stage of the programme cover- to generate economies of scale. Billing would remain the WSD’s re- ing 350 kilometres of mains at a cost of HK$2.2bn and scheduled for sponsibility. In January 2004, WSD conducted a study to determine completion by 2008. Designs have been completed for a further phase potential contractor interest in assuming both supply and distribution of the work and will continue as the plan progresses. services. The trenchless method will be used where possible as work on some The project is still in the consultation stage and a way forward seems 3,000 kilometres of mains is carried out. This will include close-fi t lin- unclear. The Water Supplies Department has had a few rounds of ings, cured-in-place pipe, pipe jacking or ramming, as well as pipe- consultation with the staff unions but they were not convinced of the bursting and horizontal directional drilling methods. benefi t of a PPP and, furthermore, they consider this to be the fi rst Plans are underway to refurbish the Sha Tin Water Treatment Works step towards privatised water supplies. – the largest in Hong Kong; Biwater was awarded some of the refur- Following this, the government has re-scoped the project. It may now bishment work. In operation for 40 years, which meets 40% of daily include only the water treatment portion and not the water distribution water demand. The present programme is for this work to be done in side, which would have entailed transferring some 900 civil servants phases from 2007 for completion by 2020. The alternative of adopting to the private sector. With the project being narrowed down to the a public-private partnership to deliver the project is also being studied water treatment portion, only about 80 personnel will be involved. The but is generating huge resistance in HKWSD (see II.3). RFP to undertake the project is expected to be issued within the fi rst There are plans to double the daily treatment capacity of the Siu Ho half of 2006. Wan Water Treatment Works to 300,000 cubic metres per day. This Deal contact: Mr. Bobby Ng, Assistant Director responsible for the extension work is planned for completion in 2011 to tie in with the project ([email protected]) North Lantau development. II.4 Tariffs HK$120 million will be spent on construction by 2007 of a fresh water service reservoir at Ping Che. It will serve to support the existing water Domestic consumers are usually billed for their water charges at 4- supply system and provide for the demand resulting from the develop- monthly intervals according to the meter readings taken. The charges ments in the Sheung Shui and Fanling areas. payable are calculated on a tariff structure which consists of 4 tiers with progressively increasing prices aimed at limiting wastage. In terms of leakage control, the Hong Kong Government has been using GSM data loggers for continuous monitoring of the water distri- - The fi rst tier of 12 cubic metres is free of charge; bution system. To ensure the maintenance of water quality throughout - The second tier of 31 cubic metres is charged at HK$4.16 per cubic the water supply network, in the next couple of years, the Government metre (all tariffs refer to 2005); will embark on a series of water main replacement projects with contract sums exceeding US$1 billion. - The third tier of 19 cubic metres is charged at HK$6.45 per cubic metre; and The “Master metering proposal” - The fourth tier for any consumption above the level of 62 cubic me- The master metering scheme will cover the whole territory along the tres is charged at HK$9.05 per cubic metre. following lines: a) installing a master meter for all new developments and where feasible in existing ones, b) installing meters for fi re servic- For the purpose of calculating water charges, a 4 month period is es supply for monitoring any misuse, c) identifying leaks and demand defi ned as 121.64 days in the Waterworks Regulations. Since water for repairs, d) WSD would also consider levying charges for water meters will not be read at intervals of exactly 121.64 days, the volume consumption registered in the difference in meter readings between covered by each tier is adjusted on a pro-rata basis according to the the master meters and those of the aggregate of all individual me- actual number of days in the period between two meter readings. ters. Non-domestic Tariff II.2 Financing Non domestic consumers are usually billed for their water charges at The Sector is fi nanced exclusively by the public sector. See table 4-monthly intervals. For consumers having large water consumption, 3.2. they are billed at monthly intervals. The charges payable are calculated at a fl at rate dependent on the purpose of the supply. II.3 Private Sector Participation

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 62 Water Market Asia - Hong Kong

Table 2.1: Income Level Hong Kong Developing Asia High Income Asia GDP per capita 2004 (US$) 22,730.00 1,104.30 23,628.57 Population on less than US$1 /day 2004 (%) 0.00 18.23 0.00 Unemployment 2004 (%) 6.84 6.73 4.89

Table 2.2: Area & Population Hong Kong Developing Asia High Income Asia Population Growth 2003 (%) 0.20 1.67 0.64 Urban Population Growth 2003 (%) 0.20 3.48 1.18 Population Density 2002 (pop/km2) 7,028.18 231.45 2,335.17

Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban 2000-2003 (cst 2000 US$) (millions) 6.88 Population (%) 6.90 120.00 100.00 100.00 100.00 100.00 15,000 6.85 6.79 6.80 100.00 14,792 6.80 14,800 14,639 6.73 80.00 6.75 14,487 60.00 14,600 6.70 6.67 14,400 14,300 6.65 40.00 6.60 20.00 14,200 6.55 0.00 14,000 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002 2003

Chart 2.4: Consumer Exp. on Water 1999-2004 (US$m) Chart 2.5: Consumer Exp. on Water Growth Forecast 2005-2009 (%)

1,200 1,040.15 4.00 969.94 979.39 929.49 1,000 883.93 847.68 3.00 2.79 800 2.57 2.46 600 2.00 400 1.82 200 1.00 0.62 0 0.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Hong Kong Dev eloping Asia (mean) High Income Asia (mean)

- For trade: HK$4.58/m3 but are billed separately to the registered consumer who is usually the management offi ce, agent, incorporated owner or development - For construction: HK$7.11/m3 company. - For non ocean-going shipping: HK$4.58/m3 II.5 Facilities - For ocean-going shipping: HK$10.93/m3 See tables 3.3. & 3.4 Flushing Supplies II.6 Performance Sea water supply for fl ushing is free of charge, while fresh water sup- See tables 3.5 & 3.6 ply for fl ushing is usually billed at 4-monthly intervals according to the meter readings taken. There is only one meter installed in each III. Wastewater building to record the total consumption of all fl ats in the same build- Key Facts: ing. The charges payable are calculated on a tariff structure which consists of two tiers. - Daily sewerage production: 2.6Mm3 - The fi rst tier of 30 cubic metres per fl at is free of charge; and - Water consumption of sewered accounts: 508 Mm3 - The second tier of any consumption above the level of 30 cubic me- - Sewerage charge: HK$405.2m tres per fl at is charged at HK$4.58 per cubic metre. - Trade Effl uent Surcharge: HK$172.8m Charges for fl ushing supply are not included in individual water bills,

63 Water Market Asia - Hong Kong

III.1 Sector Policy & Structure which consists of 9,000 restaurants and several sizable food processing companies. In less than a century, the population of Hong Kong has increased by 13-fold to almost 7 million by the end of 1999 and should reach 9 To reduce expenditure on TES, some restaurant owners and large million by 2016. The continuous growth of Hong Kong has resulted in food processing companies have installed grease traps and micro dramatic increases in sewage generated. Today Hong Kong produces wastewater treatment plants on their premises respectively. However, 2.6Mm3/d of sewerage. these units require regular and costly maintenance. Proven technologies, such as ultra-fi ltration or biotech (enzyme), have been well ac- About 95% of the population is now served by the public sewerage cepted by industrial entreprises. system with over 98% of the sewage produced being collected and treated. In 2003-04, a compliance record of 98% was achieved aris- In March 2003, the Hong Kong Government launched a new SME ing from 6,297 tests conducted in all DSD operated plants. The en- Loan Guarantee Scheme, which allows any eligible local SME to re- vironmental performance target for DSD-operated sewage treatment ceive a US$250,000 loan guarantee for equipment and installation, plants in 2004-05 is to achieve a compliance percentage of 95% in within or outside of Hong Kong. This funding scheme is likely to stimu- all samples tested under the self-monitoring scheme specifi ed in the late demand for machinery and equipment, including water pollution DLC. prevention equipment. This system includes a sewerage network of over 1,525 kilometres in III.3 Sewage Charges total length and around 260 plants ranging from preliminary treatment The Sewage Charging Scheme, introduced in April 1995, requires a (screening) plants to secondary treatment (biological) plants treating polluter to pay for the cost of sewage services provided according to sewage from residential, commercial and industrial premises in the the quality and quantity of wastewater discharged. Since the introduc- territory prior to disposal to the sea for dilution and dispersion through tion of the scheme, the charges have been kept at the same level. submarine outfalls. The First Tertiary Treatment Plant with effl uent re- However, in response to the economic downturn, the Government use is to be developed at the Ngong Ping Sewage Treatment Works reduced part of the Sewage Charge and Trade Effl uent Surcharge in the near future. (TES) from 1 April 2002 to 31 March 2003 and from 1 August 2003 In the past, whilst new towns in the New Territories have been provid- to 30 November 2003. Premises that are connected, directly or in- ed with modern secondary sewage treatment works, the sewage indirectly, to a communal drain or a communal sewer pay a sewage frastructure for the older urban areas has not been upgraded to cater charge based on the volume of water supplied. There are about 2.59 for the level of development of Hong Kong. In order to cope with the million water accounts of which about 2.39 million are liable to pay development and the rise in people’s standard of living, the sewage sewage charge. infrastructure is now being upgraded under a territory-wide sewerage Domestic users: Domestic consumers are billed for their sewage rehabilitation and improvement programme. charges at a 4-month interval. The sewage charges are calculated at The Hong Kong Government has invested more than US$2.5bn to HK$1.20 per cubic metre of water consumed, with an exemption for implement Stage I of the Harbor Area Treatment Scheme (HATS) (for- the fi rst 12 cubic metres for a 4-month period. merly known as the Strategic Sewage Disposal Scheme) and plans Business: For trade, business and manufacture consumers, the sew- further investments in the subsequent stages. The new sewage in- age charges are calculated at HK$1.20 per cubic metre of water sup- frastructure is meant to collect sewage on a catchment-by-catchment plied. There is no sewage charge for shipping supplies if there is no basis and then divert the fl ow to treatment facilities. connection to a communal drain or a communal sewer. Under HATS, a deep tunnel network collects screened sewage from Some trades are eligible for 30% discount on their sewage charges all the preliminary treatment works (PTWs) around Victoria Harbor payable, including bleaching and dyeing businesses, soft drinks and and delivers it to centralized facilities for chemical treatment and dis- carbonated waters industries, breweries and distilleries, restaurants. infection prior to discharging it into the sea. HATS Stage I consisted of building a 23km deep tunnel conveyance system, a centralized pri- For 30 types of trade/business/manufacture which discharge trade mary treatment plant at Stonecutters Island and a 1.7km submarine effl uent, an additional Trade Effl uent Surcharge is paid, which is cal- discharge oceanic outfall. culated based on the volume of water consumed and at a rate corresponding to the trade/ business/ manufacture operated - as defi ned in These were completed in 2001. Before moving forward to subsequent the Sewage Services (Trade Effl uent Surcharge) Regulations. stages, the Government conducted further studies, and accepted recommendations that the treatment level be upgraded to tertiary stan- In the non-domestic category, about 17,000 accounts are liable to pay dard. As a result, a pilot plant involving the use of Biological Aerated TES as they operate one of the 30 trades designated in the Sewage Filters (BAF) technology for treatment has been set up. Other plans Services (TES) Regulation. are underway to re-design the fl ows for the system, to study the possibility of enhancement to the primary treatment facility at Stonecut- IV. Environment and Legal Aspects ters Island, and to examine the fi nancial and program implications of IV.1 Water and Wastewater Fundamentals possible Design, Build, and Operate contracts. Water Resources In the territory-wide sewerage rehabilitation and improvement programme, the whole territory was divided into 16 catchment areas Hong Kong’s average annual precipitation of about 2,214mm is insuffi - 3 and the sewerage network and sewage treatment facilities are be- cient to meet its daily demand of fresh water, which is roughly 2.5Mm . ing upgraded on a catchment by catchment basis in order to improve The territory relies on the adjacent Chinese province of Guangdong to the performance of the whole system. Some older sewage treatment provide approximately 80% of its fresh water supply. Currently, Hong works will be upgraded. Kong receives about 700 million cubic meters of water from Guang- dong Province each year. The authorities anticipate average annual The Hong Kong Government is continuing to invest considerable re- water demand growth rate to be below 0.5% for the next 20 years. sources in the sewerage infrastructure in order to improve the environment. The subsequent stages of the project is thought to cost even Hong Kong’s two main sources of water are rainfall from natural catch- more than stage 1. ments and supply from Guangdong. The scope of HKWSD’s activities covers the whole process from the collection of natural yield from Industrial Wastewater rainfall, the reception of raw water from China to the provision of a supply with a quality of accepted international standards to end users. Starting in 1995, the Hong Kong Government has been levying a Trade HKWSD also supplies sea water for fl ushing purposes to over 80% of Effl uence Surcharge (TES) upon 30 trades and industries, based on the population. the pollutants level – the chemical oxygen demand (COD), biochemical oxygen demand (BOD), and oil and grease – in the wastewater Fresh water and sea water are supplied through two entirely separate discharge. Since most of Hong Kong’s manufacturing industries have systems of pumping stations, service reservoirs and water mains. The moved to south China, the majority (almost 40%) of the sewage rev- water is pumped and, in some cases it fl ows by gravity, after leaving enue, TES included, come from the local food & beverage industry the treatment works or being extracted from the sea to the service res-

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 64 Water Market Asia - Hong Kong

Table 3.1: Water Service Coverage Indicators 2002 (%) Hong Kong Developing Asia High Income Asia Population with Access to Improved Water 100.00 76.85 100.00 Households Connected n/a 22.27 99.00 Urban Population with Access n/a 86.17 100.00 Urban Households Connected n/a 48.27 99.50 Rural Population with Access n/a 71.42 100.00 Rural Households Connected n/a 14.58 97.00

Table 3.2: HK Capex on Water and Wastewater Treatment (in US$million) 2001 2002 2003 Growth Rate for the next 3 years Capital Expenditure on Water Treatment 235 170 180 5% Capital Expenditure on Sewage Treatment 232 168 170 5% Total Expenditure 467 338 350 5%

Table 3.3: Hong Kong Waterworks Installations (2004) Installations Nos. Capacity Impounding Reservoirs 17 586.05 Mm3 Water Treatment Works 21 4.80 Mm3/day Fresh Water Pumping Stations / Houses 147 30.80 Mm3/day Salt Water Pumping Stations / Houses 30 1.65 Mm3/day Fresh Water and Salt Water Pumping Stations / Houses (Combined) 7 0.26 Mm3/day Fresh Water Service Reservoirs 153 3.84 Mm3 Salt Water Service Reservoirs 44 0.30 Mm3

Table 3.4: Details of Major Installations Impounding Reservoirs Storage capacity (Mm3) High Island 281.12 Plover Cove 229.73 Shek Pik 24.46 Tai Lam Chung 20.49 Total 555.8

Water Treatment Works Output Capacity (Mm3/day) Sha Tin 1.23 Pak Kong 0.8 Au Tau 0.33 Tsuen Wan 0.32 Tuen Mun 0.3 Yau Kom Tau 0.25 Ma On Shan 0.23 Ngau Tam Mei 0.23 Total 3.69

Pumping Stations Installed capacity (Mm3/day) Muk Wu No.2 & No. 3 5.89 Tai Po Tau, Tai Po Tau No.2,No.3 & No.4 3.74 Tai Mei Tuk & Tai Mei Tuk No.2 2.17 Harbour Island 2.05 Total 13.85

Water Mains and Tunnel Total Length (km) Fresh Water Mains (20mm – 2,400mm diameter) 5,797 Sea Water Mains (20mm - 1,200mm diameter) 1,483 Catchwater 120 Water Tunnel 199 Total 7,599

65 Water Market Asia - Hong Kong ervoirs which are located at various places and elevations throughout and hence to Sha Tin Treatment Works or Plover Cove Reservoir via the territory, each serving a particular area. Plover Cove Stage I and Stage II tunnels respectively; and Water from the service reservoirs is distributed to customers by grav- - Eastern Route via River Indus Pumping Station and Nam Chung Aq- ity via networks of water mains. The pressure in the system is gener- ueduct to Plover Cove Reservoir, and hence to High Island Reservoir ally suffi cient to provide a direct supply to six or seven storeys above or Pak Kong Treatment Works via Harbour Island Pumping Station, street level. Upper fl oors of tall buildings are supplied from their own Tolo Channel Aqueduct and High Island tunnels. roof tanks, fi lled by their own pumping systems. For higher level areas, These three routes are inter-connected through the Tai Po Tau Pump- such as mid-level developments on Hong Kong Island, it is necessary ing station complex to provide maximum fl exibility in system opera- for the water to be pumped in stages to service reservoirs situated tion throughout the year; this is particularly crucial during the annual at different suitable levels. For remote village areas, the pressure in Guangdong water shutdown period in December when reverse fl ow distribution network system is normally suffi cient to provide a direct from Plover Cove Reservoir and High Island Reservoir is required to supply to three storeys above ground level. maintain the necessary throughput at the treatment works in Sha Tin The distribution system serves to transfer water from one location to and other parts of the territory. another by means of mechanical pumping or by gravity. Most of the To cope with increasing supply, a new project was launched in 1990 to pumping equipment is electrically powered and the Water Supplies expand the capacity of the Guangdong water reception and distribu- Department is one of the largest consumers of electricity in Hong tion facilities in stages. The Stage I works include the construction of a Kong. new pumping station/reception tanks complex at Muk Wu for connect- The HKWSD uses supervisor control and data acquisition system ing with a new delivery point at the northern bank of Shenzhen River, (SCADA) to improve the centralised monitoring and control of the vari- as well as increasing the transfer capacities along the three major ous processes of water distribution. This system links up the real-time supplying routes by laying some 21 kilometres of additional pipelines data of the various installations and provides data for effective means of 2.2 to 2.4 metres in diameter in the western route and central route of on-line monitoring and control. and by uprating the pumping capability of the system at strategic locations at Au Tau, Tai Po Tau, Tai Mei Tuk and Sai O. The Stage I works, In 2005, the Water Supplies Department had a staff of 4,706. at a total cost of about HK$1,700 million, were completed in 1995. Water from Guangdong Implementation of the remaining stage, at an estimate of HK$900 million, will depend on the growth rate of demand over the longer term. The supply of water from Guangdong, a province in southern China, is now the major single source of supply for Hong Kong. It has a history Use of Seawater dated back to 1960 when a scheme was fi rst formulated for receiving An unusual aspect of the HK waterworks is its seawater system. Since a supply of 22.7 million cubic metres a year. the late 1950’s, the Water Supplies Department has supplied seawa- In 1964, the Second Agreement was reached with the Guangdong au- ter, primarily for fl ushing, in government and government-aided high thorities whereby Hong Kong would purchase 68 million cubic metres density development schemes, but subsequently for fl ushing supplies of water each year. This was increased to 84 million cubic metres in throughout the urban areas and the new towns. About 80% of the 1972 and to 109 million cubic metres in 1976. In the Third Agreement population is now supplied with seawater for fl ushing. The extensive in 1978, the Guangdong authorities agreed to progressively increase use of seawater has helped to reduce the demand on fresh water. the yearly supply from 145 million cubic metres in 1979 to 182 million During 2003, an average of 670,000 cubic metres per day of seawater cubic metres in 1982. was supplied for fl ushing purposes. Seawater is not treated to the same standard as fresh water. It is screened by strainers to remove Further discussion in December 1979 resulted in the signing of a sizeable particles, disinfected with chlorine or hypochlorite before be- supplementary agreement in May 1980 providing for further progres- ing pumped to service reservoirs and for distribution to consumers. sively increases in supply after 1982. This agreement was amended in October 1981 and again in 1982 when it was agreed that Guangdong IV.2 Laws and Institutions would supply 220 million cubic metres in 1982 with provision for annual increments thereafter up to 1995. In 1987, the Fourth Agreement Environmental Legislation was also reached to provide for further progressive increase in yearly All discharges, other than domestic sewage to a foul sewer or unpol- quantity form 1989 up to 1995. luted water to a storm drain, must be covered by an effl uent discharge licence. The licence specifi es the permitted physical, chemical and The latest long-term water supply agreement with Guangdong au- microbial quality of the effl uent and the general guidelines are that the thorities signed in 1989 has secured suffi cient water supplies to meet effl uent does not damage sewers or pollute inland or inshore marine Hong Kong’s needs well into the next century. It provides an annual waters. Details of the effl uent standards can be found in the Technical increase from 690 million cubic metres in 1995 to 780 million cubic Memorandum on Effl uent Discharges. metres in 2,000, through a system with a maximun designed capacity of 1,100 million cubic metres per year. During 1986, water from Legal controls also apply to sewerage connections. The Government Guangdong represented only about 52% of the total demand. Since is extending public sewers to some major rural areas in an effort to 1996, the annual supply has been raised to 720 million cubic metres improve the environment there. In areas where these new sewers be- which is over 70% of Hong Kong’s demand. come available, a notice would be issued asking owners to connect their sewage to the public sewer. If necessary, a further notice may be The Waterworks System issued asking the owner to demolish or fi ll in any redundant sewage Dongjiang, or the East River, is the source of water from Guangdong. treatment facilities or septic tanks and soakaway-pits. Initially, water extracted from the river at a point some 83 kilometres The Water Pollution Control Ordinance, enacted in 1980, is the main north of Hong Kong is pumped over a series of dams and open chan- legislation to control water pollution in Hong Kong. The ordinance and nels built across the Shima River, one of its tributaries. It eventually its subsidiary legislation allow the government to declare Hong Kong discharges into the Shenzhen Reservoir before being fed by pipelines waters into ten water control zones (WCZs). Control of discharges in to Shenzhen Special Economic Zone and across the border at Muk these zones to achieve and maintain water quality objectives is exer- Wu to Hong Kong. Subsequent to the commissioning of the closed cised mainly through a licensing system. The fi rst water control zone aqueduct system in June 2003, the new Dongjiang water supply route is “Tolo Harbour and Channel Water Control Zone” which commenced is now segregated from all pollution sources along the Shima River. on 1 April 1987. The rest of Hong Kong waters were progressively Water, after it is received at Muk Wu is then delivered along the follow- brought under legislative control over the next 12 years. ing three aqueduct systems for transfer to territory wide storage and Additional provisions on water quality management are also contained treatment facilities: in other pieces of legislation. - Western Route via Au Tau Pumping Station to Tai Lam Chung Res- ervoir; The Hong Kong Water Supplies Department HKWSD is responsible for all aspects of the management of the water - Central Route via Tau Pass Culvert to Tai Po Tau Pumping Stations,

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 66 Water Market Asia - Hong Kong

Table 3.5: Service Coverage Hong Kong Resident Population (2003) 6,810,100 Population Served 6,803,000 Percentage of Population Served 99.90%

Number of Customer Accounts (2004) Domestic 2,325,475 Trade 232,800 Government 10,972 Flushing 22,314 Miscellaneous 1,800 Total 2,593,361

Chart 4.1: Daily organic water pollutant emissions 1999- 2004 (kg)

40,000 34,404 35,649 27,408 26,305 30,000 25,396 25,771

20,000

10,000

0 1999 2000 2001 2002 2003 2004

Chart 4.2: Daily organic water pollutant emissions / 1000 people 1999-2004 (kg) 10.00

8.00 5.35 6.00 5.21 4.08 3.74 3.82 3.70 4.00

2.00

0.00 1999 2000 2001 2002 2003 2004

Hong Kong Dev eloping Asia (mean) High Income Asia (mean)

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) Hong Kong Developing Asia High Income Asia Population with Access to Improved Sanitation 100.00 54.64 100.00 Households Connected 95.00 7.22 99.29 Urban Population with Access 100.00 77.09 100.00 Urban Households Connected 100.00 18.11 99.00 Rural Population with Access 100.00 48.08 100.00 Rural Households Connected 90.00 2.57 90.00

Table 4.2: Water Pollution 2001 (% of total BOD Emissions) Hong Kong Developing Asia High Income Asia Water pollution, chemical industry 3.46 9.94 8.81 Water pollution, clay and glass industry 0.05 0.46 0.15 Water pollution, food industry 30.17 43.27 42.73 Water pollution, metal industry 1.20 7.62 4.84 Water pollution, other industry 5.78 6.08 13.17 Water pollution, paper and pulp industry 43.34 9.38 26.14 Water pollution, textile industry 16.00 21.17 8.17 Water pollution, wood industry 0.00 2.67 2.17

67 Water Market Asia - Hong Kong

staff. Table 3.6: HKWSD Expenditures (millions of HK$) Recurrent 2004/2005 2005/2006 The Sewage Services Branch is responsible for the collection of sewage charges and the implementation of the Harbour Area Treatment (Actual) (Estimate) Scheme which is the capital works scheme to improve the water qual- Salaries 1,318.40 1,279.70 ity of Victoria Harbour. The Operations and Maintenance Branch is Departmental Expenses 1,362.30 1,301.10 responsible for the operation and maintenance of the sewerage and Purchase of Water 2,528.90 2,528.90 stormwater drainage systems in the territory. It has four divisions, with three district divisions taking care of the drainage and sewerage mat- Capital Account 2.3 11.6 ters on HK Island and Islands, Mainland South and Mainland North. Total 5,211.90 5,121.30 The fourth division, the Land Drainage Division, is responsible for fl ood control, planning of drainage infrastructure, drainage legislation Capital Works and the improvement and maintenance of natural watercourses. The Projects and Development Branch is responsible for the implementa- Civil Engineering 5.8 3 tion of capital works projects, including the design and construction New Towns 5.7 6.6 of stormwater drains, fl ood control and relief works, sewerage and System Equipment - 49.7 sewage treatment plants. The Electrical and Mechanical Branch is re- Waterworks 1,317.50 1,280.50 sponsible for the design, installation, operation and maintenance of the electrical and mechanical facilities of sewage treatment plants, Computerisation 160.8 1.5 sewage pumping stations and fl ood water pumping stations. Housing 129.1 219.5 HKDSD does not generate a surplus. The total revenue from Sewer Total 1,618.90 1,560.80 Charges and Trade Effl uent Surchage has been quite steady in the past years, mainly because the level of charges has remained static since the introduction of the charging scheme. However, these rev- sector. Its principal functions are: enues were lower than that of the preceding two years in 2001/02, - To plan and manage water resources and water supply systems: 2002/03 and 2003/04 due to the granting of preferential tariffs as part HKWSD plans water resources, prepares outline proposals for new of the package of relief measures due to the outbreak of the Severe water supply schemes and improvements to the existing system to Acute Respiratory Syndrome (SARS) in 2003. On the other hand, meet growth of demand in existing and developing areas, monitors the the overall expenditure for 2003/04 was reduced by HK$2m as com- adequacy of water resources and installations and collates hydrologi- pared with 2002/03. As a result, the defi cit of sewage services was cal information necessary for the management and development of HK$1,021m for 2003/04. the waterworks. Contacts: - To design and construct waterworks projects: HKWSD carries out Director: F K LAI, JP Tel: 2594 7001, Fax: 2827 9477 design and supervision of construction of waterworks projects which includes catchwater, tunnels, reservoirs, water treatment works, ac- Deputy Director: W H KO Tel: 2594 7003, Fax: 2827 9477 cess roads, pumping stations and pipeworks. Specialist works such Head Offi ce Address: as laying of submarine pipeline, dam construction and major water supply projects are usually undertaken by consulting engineers. The 43/F, Revenue Tower, 5 Gloucester Road, Wan Chai, Hong Kong Consultants Management Division will vet and approve consultant’s Tel. +852 2877 0660 proposals and monitor and administer work and agreement. http://www.dsd.gov.hk/ - To operate and maintain water supply and distribution systems: HK- WSD monitors water storage, operation and maintenance of catchwa- V. Construction & Equipment Markets ter, intakes, impounding reservoirs, pumping stations, water treatment International engineering consulting companies and equipment sup- works, service reservoirs, trunk and distribution mains to ensure a reli- pliers are participating in large-scale water quality and sewage control able water supply to the customers. projects in Hong Kong. Contracts vary from implementing advanced - To control the quality of water supply to customers: HKWSD checks fi ltration technology, rehabilitation of major water mains and providing and controls the quality of water supplied. It regularly carries out chem- consulting services to installing industrial water treatment systems. ical, bacteriological, limnological, biological and radiological examina- Government capital expenditure on water and wastewater treatment tion of samples taken from raw, treated and customer tap sources. amounts to more than US$300 million annually. - To provide customer services and to enforce the Waterworks Ordi- The Market in 2004-2005 nance: HKWSD is responsible for the administration and enforcement While Hong Kong offers no PPP opportunities, most construction of the Waterworks Ordinance and Regulations. The department also works are outsourced and tendered on a competitive basis. Waste- scrutinises plumbing proposals for new and revised plumbing system water projects and contracts dominate this market with two thirds of of building and inspect the works. Provision of metered supplies and the overall contracted amount for 2004-05. This is in line with Hong customer enquires and complaints regarding new connections and Kong’s clean environment policies. The majority of the US$290m disconnections of water supplies are also handled by the depart- of various works contracts tendered out by HKWSP and HKDSD in ment. 2004-2005 goes to local Chinese companies or Sino-Western Joint Contacts: Ventures. (Tables 5.1 & 5.2) Director: KO Chan Gock William, JP Tel: +852 2829 4400 Wastewater projects Deputy Director: CHAN Chi Chiu Tel: +852 2829 4466 A long pipeline of wastewater works remains to be built and this is refl ected by HKDSD’s projected capital works. Over a twenty year period Head Offi ce Address: (1989-2009) HKDSD will have spent US$3.2bn on major wastewater 48th Floor, Immigration Tower, 7 Gloucester Road, Wanchai, Hong works. US$900m of that is still being developed, while US$750m is Kong still at the planning stage. Tel. +852 2829 4500 (Table 5.3 & Chart 5.1) http://www.wsd.gov.hk/ Consulting The Hong Kong Drainage Services Department WSD and DSD also subcontract studies and consulting jobs. Here there has been more work on the water side of things, which accounts HKDSD was established in September 1989. As at March 2001, it had for two third of contracts by value. Western fi rms are clearly dominat- 2,100 staff comprising professional, technical and general supporting ing this market of US$7m in 2004-05.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 68 Water Market Asia - Hong Kong

Table 5.1: Contracts Awarded 2004-2005 HK$m US$m % Water Supplies Department 881.92 107.55 37.29% Drainage Services Department 1,482.90 180.84 62.71% Total 2,364.82 288.39

Table 5.3 : DSD Wastewater Projects 1989-2009 HK$m US$m Completed Projects HKD 13,036.00 $1,589.76 Under Construction HKD 6,929.80 $845.10 Design Stage HKD 6,114.00 $745.61 Total HKD 26,079.80 $3,180.46

Chart 5.1: Past, Present and Future Wastewater Projects by HKDSD (HK$m) 3,000 2,500 2,000 1,500 1,000 500 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Completed Projects Design Stage Under Construction

Table 5.2: Contractors and market shares Contracted Mkt Share Amount HK$m 04-05 Shun Yuen Construction Company Limited HKD 240.00 10.15% China State Construction Engineering (Hong Kong) Ltd. HKD 220.18 9.31% ATAL Engineering Ltd. HKD 213.06 9.01% Chevalier (Envirotech) Limited HKD 175.80 7.43% Ming Hing Waterworks Engineering Co., Ltd. HKD 169.70 7.18% Lam Woo - Preussag Joint Venture HKD 167.80 7.10% China State Construction Engineering (Hong Kong) Li HKD 167.00 7.06% China Harbour Eng Co (Group) HKD 163.00 6.89% Leader Civil Eng Corp Ltd HKD 160.00 6.77% Costain - China Harbour -Aarsleff Joint Venture HKD 134.40 5.68% Wo Hing Construction Co Ltd HKD 113.60 4.80% Sun Fook Kong (Civil) Limited HKD 106.00 4.48% Paul Y. Consturction Co Ltd HKD 60.00 2.54% Kenworth Engineering Ltd HKD 43.70 1.85% Fine View Engineering Ltd HKD 40.00 1.69% Shanghai Urban Construction (Group) Corporation HKD 39.00 1.65% StrongBase Engineering Ltd HKD 31.00 1.31% Wai Kee (Zens) Construction & Transportation Company Limited HKD 24.00 1.01% Hing & Cheong Co. HKD 19.85 0.84% The Jardine Engineering Corporation, Limited HKD 16.26 0.69% Kin Shing Construction Co Ltd HKD 12.94 0.55% Unistress Building Construction Litmited HKD 10.90 0.46% Biwater Man Lee Ltd HKD 7.28 0.31% Ryoden Engineering Company Limited HKD 7.25 0.31% Vibro (H.K.) Limited HKD 6.30 0.27% Mitsubishi Corporation (Hong Kong) Ltd. HKD 5.66 0.24% United Soundfair Engineering Co. Ltd. HKD 4.10 0.17% ALS Technichem (HK) Pty Ltd HKD 3.50 0.15% Shun Cheong Electrical Engineering Co., Ltd. HKD 2.56 0.11%

69 Water Market Asia - Hong Kong

Table 5.4: Consulting Contracts Awarded HK$ US$ % Water Supply Department HKD 36,040,871 $4,395,228 64.35% Drainage Services Department HKD 19,967,500 $2,435,061 35.65% Total HKD 56,008,371 $6,830,289

Table 5.5: Consultants Amount Contracted Mkt Share 04-05 Metcalf & Eddy Ltd HKD 21,343,000 38.11% Black & Veatch Hong Kong Ltd HKD 16,553,980 29.56% Maunsell Consultants Asia Ltd HKD 15,100,500 26.96% Atkins China Ltd HKD 3,010,891 5.38%

Equipment suppliers interested in this market normally maintain an The territory’s fi rst desalination plant (managed by a UK fi rm and with excellent working relationship with engineering consulting fi rms that Japanese equipment) opened about three decades ago. Owing to are active in Hong Kong’s water projects to obtain up-to-date project high operating costs, the plant was decommissioned. With desalina- information and equipment requirements. The Hong Kong Govern- tion technology becoming more cost competitive, in 2001, the Water ment purchases equipment and services through a competitive bid- Supplies Department conducted a feasibility study on the develop- ding process. Normally, the engineering consulting company winning ment of desalination facilities. The study identifi ed reverse osmosis the detailed design contract will manage the whole project including (RO) as being the most suitable technology in terms of cost effi ciency specifying equipment requirements. There are several international and effectiveness. engineering consulting fi rms active in Hong Kong’s water projects, including Camp, Dresser & McKee International (CDM), Montgomery Laboratory equipment and instruments Watson Holdings (MWH), Black & Veatch (formerly Binnie Black & The Water Supplies Department monitors fresh water quality through- Veatch), Maunsell, Ove Arup & Partners Hong Kong Limited and Scott out the entire supply system with examination of chemical, bacte- Wilson. Local companies, such as ATAL, act as sub-contractors. riological, biological, and radiological contents in water samples to ensure the quality complies with the drinking water quality guideline Equipment recommended by the WHO. Currently, there are more than 100 test- With water quality deteriorating and an increasing awareness of en- ing parameters and the Department performs 150,000 tests a year. In vironmental protection, Hong Kong is utilizing and assessing various the next couple of years, WHO will be setting new guidelines, which advanced fi ltration technologies to improve the quality of potable water translate to new testing parameters, and hence, a demand on new and to reduce wastewater pollutants. These water treatment technolo- testing instruments. gies include micro- to nano-fi ltration, membrane technologies, reverse osmosis and UV disinfection technologies. Hong Kong is a service- VI. Sources oriented territory and local production of advanced water treatment EIU, HKWSD, HKDSD, ADB, Interviews. equipment is not signifi cant. Cutting-edge technology providers are able to participate in Hong Kong’s water and wastewater treatment projects. Trojan Technologies, a Canadian based company, has sold US$12 million worth of UV disinfection systems to Hong Kong. An- other Canadian fi ltration technology pioneer, Zenon, is well positioned to compete in Hong Kong as soon as there are concrete plan to use membrane bioreactors. Japan has been participating in Hong Kong’s water treatment projects for several decades. Recently, Mitsubishi Rayon provided hollow fi ber membranes for wastewater treatment. Filtration Hong Kong uses sedimentation processing in its fresh water treatment. With improving technology, Sham Tseng Water Treatment Plant has now adopted a technique of water clarifi cation called Dissolved Air Flotation (DAF); Ma On Shan Plant now uses membrane fi ltration technique. The new Ngau Tam Mei Water Treatment Plant won the American Academy of Environmental Engineers (AAEE) Award by being the fi rst in the world to utilize dual-stage biological fi ltration with granular activated carbon to remove ammonia. Disinfection The Government is currently investigating several disinfection technologies including ultra-violet irradiation, ozonation, chlorination/de- chlorination and membrane fi ltration. A number of criteria must be met when making a decision, such as performance level, undesirable disinfection by-products, land requirement for the installation, and running costs. One of the territory’s sewage treatment plants has installed a large ultra-violet (UV) disinfection system to destroy microorganisms such as E. Coli. The Stonecutters Island Wastewater Plant employs ozone disinfection, a technology with no undesirable by-products. Desalination

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 70 Water Market Asia - Hong Kong

Future PSP Projects in Hong Kong

Sha Tin Water

Hong Kong Hong Kong SAR BOT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data Situated in HK’s New Territories, the existing Sha Tin plant was built in 1964, with a nominal output of 1,230,000m3/d, or 40% of HK SAR’s total demand of treated water. The HK authorities acknowledge that real output is signiﬁ cantly lower. The plant’s three service areas are Sha Tin, the entire Kowloon peninsula and East Kowloon from Choi Hung and Kowloon Bay to Lam Tin. A HK$2m feasibility study by Metcalf & Eddy completed in October 2003 suggested a BOOT scheme. It also suggested the project include distribution and customer services in one of the three service areas to allow the private operator to generate economies of scale. Billing would remain the WSD’s responsibility. In January 2004, WSD conducted a study to determine potential contractor interest in assuming both supply and distribution services.

The project is still in the consultation stage and a way forward seems unclear. The Water Supplies Department has had a few rounds of consultation with the staff unions but they were not convinced of the benefi t of a PPP and, furthermore, they consider this to be the fi rst step towards privatised water supplies. Following this, the government has re-scoped the project. It may now include only the water treatment portion and not the water distribution side, which would have entailed transferring some 900 civil servants to the private sector. With the project being narrowed down to the water treatment portion, only about 80 personnel will be involved. The RFP to undertake the project is expected to be issued within the fi rst half of 2006.

Deal contact: Mr. Bobby Ng, Assistant Director responsible for the project ([email protected])

Capacity Timeline

Treatment 1,230,000 m3/d Announced 2004 April

Re-tendered 2006 Opportunity!!

71 Water Market Asia - Hong Kong

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 72 Water Market Asia - Japan

Japan

Opportunities for the private sector in Japan have been stifl ed by the country’s long years of recession which have left local and central government with a huge debt overhang and little scope for investment works. Government spending on the water sector amounts to around JPY150bn a year. However, the fundamentals of the Japanese market suggest openings for EPC fi rms in wastewater network and treatment facilities as the country has a very low level of sewerage coverage for its income level. Japan has been gradually opening up to the idea of private sector participation in infrastructure, although since 1999 when Private Finance Initiative Law was enacted, only a handful of projects have been pursued. Water reuse is the only area of the market where the central government is really interested in pushing PSP. Even here, it will take time for municipalities to adjust to this new role. This small market is dominated by Japanese construction companies (Obayashi Corp, Nippon Steel, Taisei Corp etc.) So far, only two BOT projects have been signed in the sector. Foreign companies face serious challenges in breaking into the Japanese PFI market, from pre-qualifi cation to performance specifi cation so it is not surprising that no international water majors consider the Japanese market to hold much potential. Japanese water and wastewater companies, meanwhile, are gravitating towards the Chinese market. Japanese companies tend to be highly integrated and fairly concentrated. Leading Japanese fi rms are technology and equipment-oriented and compete as conglomerates or trading companies in which every component required for a project is included (consulting, engineering, construction, equipment, supplies, materials, and fi nancing). The Japanese government actively supports the development of business opportunities for Japanese fi rms by providing attractive fi nancing along with technical assistance to promote their products. Cosy relationships between local governments and contractors are still in place. Tenders under the Private Finance Initiative are no exception, effectively keeping foreign companies out of the pre-qualifi - cation rounds. Constrained government budgets will mean the continued decline of standard municipal procurement business. Industrial treatment holds out much more potential as the macroeconomy perks up and environmental discharge standards are tightened. Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Non-existent (very recent) PSP is just beginning to appear in Japan Future Opportunities Few and the water sector still is the fiefdom of municipal governments. Local competition Significant Equipment Markets Comments Future Opportunities Numerous The construction and equipement sector is Local competition Very significant the backbone of the Japanese economy. Cozy relationships all around.

Public Utilities Comments Track record Good High quality water services but wastewater Sustainability High is very far behind. Local governments are now committed to change this. Reliance on ODA None

Government Comments Commitment to deliver service Yes With the Koizumi cabinet, new laws are Fiscal Resources Limited being prepared to liberalise basic services.

Economy & Finance Comments Recovery since Asian crisis 1997 Below average Japan seems to have finally emerged from Local capital market Sophisticated 15 years of quasi-recession.

73 Water Market Asia - Japan

I. General Information tries. I.1 Macroeconomic Situation Prices for utilities like water and electricity are also among the highest in the world. The government has gradually liberalised the electricity Japan is the second largest economy in the world after the US in GDP sector, but consumer charges remain high. The water and wastewater per capita, even after 15 years of slow or negative growth. sectors, on the other hand, have not been the target of reforms. The most serious policy issue since the early 1990s has been how to Construction is one of the most important economic sectors, which deal with the aftermath of the collapse of the 1980s asset bubble. The in 2003 accounted for nearly 7% of current-price GDP and in 2004 collapse of asset prices in 1990-2000 left the country with cumula- employed around 6% of the labour force. The industry’s economic tive losses of more than JPY1,000trn (around US$10trn). Domestic importance has also made it politically signifi cant. During its period demand plummeted as a consequence of this huge loss of national of single-party rule between 1955 and 1993 the LDP saw construc- wealth and has struggled to recover ever since. tion companies as natural allies and sought to cultivate their support The government has sought to deal with the crisis through ten fi scal through generous public-works programmes. Management and em- stimulus packages in the 1990s worth more than JPY100trn in total, ployees of the big construction fi rms and their subcontractors consti- including injections of funds into public works programmes and tax tuted an important group of potential voters for the party. Largely ow- cuts, combined with loose monetary policy. ing to the close links between politicians and the industry, construction prices in Japan are much higher than in other developed countries These policies failed to set the economy back on track to self-sustain- and this relationship between the construction industry and political in- ing growth throughout the 1990s, but inevitably, these policies have terests has made it diffi cult for foreign fi rms to break into the market. led to a serious deterioration in the government’s fi scal position: gross government debt rose to 150% of GDP, not including obligations under ODA the state pensions and credit programmes. The trend seems to have Since the mid-1980s Japan has made substantial transfers to devel- reversed since 2003, however, with the Japanese economy register- oping countries, particularly in the Asian region, for diplomatic and ing strong growth driven by exports and an upturn in consumer con- economic reasons, as these transfers reduce the current account sur- fi dence. The appreciation of the yen in 2003-5 refl ects this renewed plus. Between 1991 and 2000, Japan was the world’s most generous confi dence in the economy. cash donor of offi cial development assistance (ODA), and donations I.2 Political & Investment Environment reached a peak in 2000, at US$13bn, although they have fallen in each year since. Pressures to reduce public spending are likely to Snap elections were held in 2005, giving reformist Prime Minister Ju- result in further cuts to future ODA. Asian countries are the primary nichiro Koizumi a strengthened mandate to push through changes in recipients of Japan’s assistance, receiving around 60% of the total the economy. The election was prompted by opposition to the priva- in 2002. tisation of the Post Offi ce, one element in Koizumi’s programme of radical economic reform, which is strongly opposed by vested inter- II. Water ests within the ruling Liberal Democratic Party (LDP). Koizumi enjoys great personal popularity: his approval ratings of 70-80% when he II.1 Sector Policy & Structure took power were unprecedented. In Japan, municipal (prefecture, city, town and village) governments own and manage water supply entities. Water supply services are un- The quality of infrastructure for transport, power and communications der the jurisdiction of the Ministry of Heath, Labour and Welfare (here- is generally high. One striking gap in infrastructure is the sewerage after MHLW) and the Waterworks Law is the relevant law concerning system: only 66% of households are connected to the sewerage sys- water supply services. tem, compared to coverage of 95% or above in most developed coun-

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 8.00 2006 5,507 2005 5,370 6.00 2004 4,669 4.00

4,200 4,400 4,600 4,800 5,000 5,200 5,400 5,600 2.00 0.00 Thousands -2.00 1998 1999 2000 2001 2002 2003 2004 2005 2006

Japan Dev eloping Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean)

12.00 10.00 Chart 1.3: 2004 Sector Share of GDP 8.00 Agricult. 6.00 1% 4.00 Industry 2.00 26% 0.08 0.28 0.17 0.15 0.23 0.15 0.20 0.00 1998 1999 2000 2001 2002 2003 2004

Japan Dev eloping Asia (mean) Serv ices 73% High Income Asia (mean)

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 74 Water Market Asia - Japan

Table 1.1: Sovereign Risk Indicators Japan Developing Asia High Income Asia External Debt Per Capita 2004 (US$) n/a 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 156.54 59.60 50.84 Short Term Debt / Total Debt 2004 (%) n/a 10.49 n/a Fitch Sovereign Rating (2004) AA

Table 1.2: Legal Risk Indicators 2004 Japan Developing Asia High Income Asia Time to enforce a contract (days) 60.00 392.62 103.67 Time to register property (days) 14.00 62.82 16.50 Time to resolve insolvency (years) 0.50 4.45 1.15 Time to start a business (days) 31.00 67.08 14.33 Legal rights of borrowers and lenders (0=low) 6.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Japan Developing Asia High Income Asia Political Rights 1.00 4.23 2.43 Civil Rights 2.00 4.69 2.14 Corruption Perception 7.00 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 Japan Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 4.56 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 1,150.87 185.54 1,281.59 Roads, paved (% of total roads) 76.60 44.75 75.32 Electric power consumption (kwh per capita) 7,718.45 717.46 7,505.93 Water supply failures (days) n/a 10.00 n/a

Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%) 0.00 8 -2.00 2002 2003 2004 2005 2006 6 -4.00 3.69 3.40 3.50 4 3.17 -6.00 -6.12 -8.00 2 -7.94 -7.68 -7.80 -7.90 -10.00 0 2003 2004 2005 2006 -2 Japan Dev eloping Asia (mean) High Income Asia (mean)

Japan Dev eloping Asia (mean) High Income Asia (mean) Chart 1.8: Reat Interest Rate 2000-2003 (%)

Chart 1.7: Inflation Rate 1999-2004 (%) 10.00

16.00 8.00 14.00 12.00 6.00 10.00 4.42 4.00 4.10 8.00 3.55 3.08 6.00 2.00 4.00 2.00 -0.01 0.00 0.00 -0.67 -0.73 -0.92 -0.25 -0.34 2000 2001 2002 2003 -2.00 1999 2000 2001 2002 2003 2004

Japan Japan Dev eloping Asia (mean) Dev eloping Asia (mean) High Income Asia (mean) High Income Asia (mean)

75 Water Market Asia - Japan

The law states that abundant, clean, and inexpensive water should be cal nature of the process to establish a private water utility, requiring available to improve public health and living conditions, in addition to the approval of the Minister of MHLW and the local assembly (MHLW stating the legal responsibility of municipal governments to own and 1957), and the legal stipulation that water supply utilities should be manage water supply entities (MHLW 1957). managed by municipal governments. The legal defi nition of water supply entities as expressed in the Wa- Amendments to the Waterworks Law were made in 2001, and a sys- terworks Law states that they are designed to provide water to more tem was created that enables a third party to provide technical assis- than 101 people . As of March 2004, municipal governments own and tance to water utilities for water treatment quality and the maintenance operate 17,709 water supply utilities which can be divided into four of water facilities (i.e. water intake, transmission, purifi cation, distribu- types (JWWA 2005). tion and storage facilities). - ‘Water entities’ are water supply utilities designed to provide water to However, this third party need not necessarily be from the private sec- more than 5,001 people. There are 1,926 of these utilities tor. The only requirement is that the organisation that provides the service should be different from the organisation that has contracted - ‘Small water entities’ which are designed to provide water to more out the service, so another municipal utility would be eligible. For in- than 101 people and less than 5,000 people. There are 8,360 of this stance, if the Tokyo Waterworks Bureau contracted out services to the type of utility. Yokohama Waterworks Bureau, this would be considered a “PSP” un- - ‘Private water suppliers’ which refers to water supply entities that der the terminology used in Japan. As of March 2004, there were six provide water to hospitals, schools and for commercial use. There are such public-public arrangements, of which three had been completed. 7,314 of these entities. Moreover, there were fi ve public-private arrangements of which two have been completed. All of these projects were management con- - ‘Water wholesalers’ that provide treated water to the water supply tracts in which the third parties were responsible for the maintenance utilities mentioned above. There are 109 of these entities across the of water intake and treatment facilities and water quality control. country. In addition, there are 10 private companies that provide water and classifi ed as ‘water entities.’ Only two full PSP projects under a BOT structure have been awarded in Ookubo and Edogawa. Altogether there are 17,719 utilities providing water services in Japan, which are owned and managed by either municipal governments (at There are also 10 privately operated ‘water utilities,’ but their services the prefecture, city, town or village level), publicly owned water sup- are restricted to the provision of water by tanker to holiday resort ar- ply authorities or private companies. Water supply authorities man- eas (JWWA 2005). They provide water to only 3,732 people or 0.003% age water supplies to more than two cities/towns/villages. Among the of the total population. 1,926 water utilities, give are owned and operated by prefectural governments, 652 by cities, 1,109 by towns, 86 by villages, 74 by water II.4 Tariffs supply authorities and 10 by private companies. Under the Waterworks Law, water tariffs should refl ect the cost of effi - cient operation of the water utility (MHLW 1957). However, there is no The broad aim of the government’s water policy is to establish a water legal basis for setting the water tariffs for full cost recovery. The Wa- supply system that provides safe water to all by 2013, and ensures a terworks Law does not say anything about the interpretation of cost constant supply of water at all times, particularly during natural disas- recovery or the method that should be used to calculate it. ters, whilst improving management effi ciency. There are no specifi c performance targets for the sector set at the national level. Each local The Japan Waterworks Association (JWWA) has prepared Guidelines government sets its own targets for coverage, operating and fi nancial showing what kind of operating costs should be built in to the water effi ciency and use of water resources. tariff, but these Guidelines are voluntary and have no legal authority. Information on the extent to which utilities in fact follow these Guide- Three water treatment methods are widely used: rapid sand fi ltration, lines is not available. The guidelines do not take into account invest- slow sand fi ltration and chlorination. An advanced water treatment ment costs as they seem to assume that capital costs will be covered system, the Ozone-GAC treatment using membrane fi ltration technol- by bond issue or transfer rather than through tariffs. ogy, is also increasingly being introduced. As of March 2004, water entities are to some extent covering their re- II.2 Financing current costs. The average collection effi ciency for water utilities was Water supply utilities are managed on a self-fi nancing basis with op- 89.2% (JWWA 2005) erations and management costs covered by tariffs (Ministry of Inter- Water tariffs are a political decision of the municipal assembly. In the nal Affairs and Communications: MIC 1952). This is stipulated in the case of private operators, in addition to the decision of the local as- Public Enterprise Law which is under the jurisdiction of MIC. Water sembly, the approval of the MHLW is also necessary to set their water entities may also raise revenues from the sale of assets (i.e. land) and tariffs. Water tariffs consist of two parts, the service charge and volu- from small-scale construction works such as connections for indus- metric charge (JWWA 1998). trial clients (JWWA 2005). For capital works, the three main sources of fi nance are municipal bonds, transfers from the central and/or the The service charge is levied irrespective of the volume of water used. prefectural government and tariffs. 16.5% of the fi nancing comes in Service charges are basically set for 10m3 of water although some transfers from central and prefecture governments. Each water sup- water utilities set their service charges for water per 5m3 and others ply entity decides what investment projects it will undertake (MHLW for 7m3. There are three varieties of volumetric charge: single charge, 1957). increasing block charge, and decreasing block charge. There is great variety in tariff structures between municipalities, but the overall trend As of March 2004, there are approximately 4 million people who are is that tariffs are rising in Japan. There is also disparity between utili- not served by a water utility. These households are located in sparse- ties in terms of the degree and nature of metering. Some utilities levy ly populated areas. The government is prioritising the construction water tariffs on the basis of size of the meters (meter size system); a of water facilities in such areas to achieve 100% coverage (JWWA second group levies water tariffs on the basis of customer class (cus- 2005). In 2004, JPY133bn was invested in the water sector, compared tomer class system); and a third levies water tariffs on the basis of the to JPY147bn in 2003 and JPY155bn in 2002. volume of the water by a single rate (single commodity system). Some The government has not announced any targets for the expansion water utilities combine these systems. This means, for example, that of water treatment assets or network extension. However, two key the service charge is levied on the basis of the meter size system and concerns are the development of new water resources to secure wa- the volumetric charge is levied on the basis of the customer class ter supply in conditions of increasing scarcity and the replacement system. of existing water plants, reservoir and pipe networks with earthquake resistant water facilities. II.5 Regulation Water supply services to households are under the jurisdiction of the II.3 Private Sector Participation MHLW whose role is to ensure the supply of safe, potable water to Under the current Waterworks Law, private sector participation is pos- all. The MHLW has the responsibility to a) secure water resources, b) sible but its roll-out is improbable. Two key hindrances are the politi- monitor the quality of water, c) set technical standards of water supply

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 76 Water Market Asia - Japan

Table 2.1: Income Level Japan Developing Asia High Income Asia GDP per capita 2004 (US$) 36,660.00 1,104.30 23,628.57 Population on less US$1 per day 2004 (%) 0.00 18.23 0.00 Unemployment 2004 (%) 4.72 6.73 4.89

Table 2.2: Area & Population Japan Developing Asia High Income Asia Population Growth 2003 (%) 0.12 1.67 0.64 Urban Population Growth 2003 (%) 0.34 3.48 1.18 Population Density 2002 (pop/km2) 337.30 231.45 2,335.17 Area (thousands Ha) 37,789.00

Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban 2000-2003 (cst 2000 US$) (millions) 127.33 Population (%) 127.40 127.21 79.40 79.24 21,550 127.07 21,600 127.20 79.20 79.08 21,347 21,400 21,206 127.00 126.89 79.00 78.91 126.70 21,200 126.80 78.75 20,900 78.80 21,000 126.60 20,800 78.60 126.40 20,600 126.20 78.40 20,400 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002 2003

Chart 2.4: Consumer Exp. on Water 1999-2004 (US$m) Chart 2.5: Consumer Exp. on Water Growth Forecast 2005-2009 (%) 23,540.47 25,000 21,401.20 21,034.11 4.00 19,549.28 19,256.3119,254.63 20,000 2.00 0.56 15,000 -0.92 0.00 -0.06 10,000 -0.48 2005 2006 2007 2008 2009 -2.00 5,000 -3.69 0 -4.00 1999 2000 2001 2002 2003 2004 -6.00 facilities (i.e. water intake, transmission, purifi cation, distribution and storages facilities) and d) create the enabling environment for third Japan Dev eloping Asia (mean) parties in management contracts for water supply entities (JWWA High Income Asia (mean) 2004; 2005). In June 2004, the MHLW established a Water Vision which is intended to elaborate in more detail the four responsibilities of the MHLW as mentioned above. III. Wastewater Another ministry that has the jurisdiction is the Ministry of the Environ- III.1 Sector Policy & Structure ment (hereafter MOE) which is responsible for the protection of water Municipal governments (cabinet-ordered designated city, town or resources. village) build, own and operate sewerage networks and wastewater II.6 Performance treatment plants. Wastewater services are under the jurisdiction of the Ministry of Land, Infrastructure and Transport (hereafter MLIT) under Although water entities do collect various performance indicators, the Sewerage Law In 2003, 13.9bn m3 of wastewater was produced of there is no national level performance target or standard that is set which 10.2 billion m3 was treated giving a total of 73% treated waste- as a benchmark. Again, the JWWA does have guidelines that explain water in total discharges. (MIC 2005). what kind of performance indicators can be used to assess the effi - ciency of the water supply entity but again the guidelines have no legal Wastewater is treated in three stages (JSWA 2005). In Japan, methods weight and there is no obligation for water entities to adopt and make of second-stage treatment include fi fteen different types of technolo- public their performance against these indicators. gies. The most commonly used technology is the Oxidation Ditch. The performance indicator that utilities generally use to assess their Turning to tertiary treatment, there are four types of technology that performance is the operating ratio as this appears in the statistical are used of which the most common is Anaerobic-Oxic Activated tables that utilities put together to demonstrate their performance to Sludge. the local government. Each water utility is therefore able to set perfor- Both the volume of wastewater produced and treated are increasing. mance requirements for themselves

77 Water Market Asia - Japan

Main Cities of Japan (2004) Population Mn Although a comprehensive legal framework has not yet been put in place, the central government is already pushing municipal govern- Tokyo 8.30 ments to involve the private sector in effi ciency improvements in the Yokohama 3.50 wastewater sector. Osaka 2.60 Private companies do have a legal basis for O&M contrcts under the Nagoya 2.20 Local Administration Law (under the jurisdiction of MIC). This law stip- Sapporo 1.90 ulates that private companies are allowed to participate in the opera- Kyoto 1.50 tion and management of publicly owned facilities. Under the current legal system of set out in the Sewerage Law, private companies are During 2002, 13.2bn m3 of wastewater was produced of which 10 bil- able to participate in procurement for wastewater services. lion m3 was treated or 75% (MIC 2005). Lower levels of discharge may be accounted for simply by lower levels of economic activity. Three BOT projects are currently under development by the MLIT. About 1% of the treated water is reused annually (approximately III.4 Tariffs 150Mm3) for ‘snow melting’, industrial water, fl ushing toilets and fi re There is no legal basis for setting wastewater tariffs to achieve full extinguishing (JSWA 2002). cost recovery. The recommendations of the Sewerage Finance Com- As of March 2004, the percentage of the population served by waste- mittee state that wastewater tariffs should be levied on the basis of a water facilities was 66.7% (JSWA 2005). Another remaining 11% use progressive charging system and that the charge should not exceed household facilities such as septic tank and the remaining 23% have the unit cost of wastewater treatment (MLIT 2004) and that consum- no access to sanitation (MLIT 2005). Municipalities that have less than ers should cover costs. By contrast, the recommendations state that 50,000 people have a lower rate. They have on average 33.9% cover- stormwater costs should be covered by the public sector. age (JSWA 2005). However, since the Public Enterprise Law states that wastewater ser- The remaining 22.5% use household level facilities such as septic vices should be managed on a self-fi nancing system basis, wastewa- tanks and the remaining 43% have no access to sanitation (MLIT ter tariffs should probably also be set according to this principle. The 2005). The MLIT has prioritised the construction of sewerage systems central government is encouraging municipalities to cover their costs in sparsely populated areas. The MLIT has a target to increase the through a strategy for the sewerage sector (see section III.5). population served rate to 86% by 2007 (JSWA 2005). Wastewater tariffs are proposed by the utility and must be approved In terms of organisation structure, there are three types of wastewater by the municipal assembly (MLIT 2003). As for water, the charge is systems: public sewerage systems, regional sewerage systems and broken down to the fl at fee and the volumetric charge. specifi c environmental protection sewerage systems. All systems col- Service charges are basically set for 10m3 of wastewater and the volu- lect and treat wastewater disposed from households but they are dif- metric charge is in the form of increasing block charge or progressive ferent in that public sewerage operates within one municipality and the charge system. The progressive charging system levies tariffs on the regional sewerage system operates for more than two cities. Specifi c basis of the range (e.g. 15-20m3) the volume of wastewater can be environmental protection sewerage systems are sewerage systems classifi ed into. The unit cost is twice the level of the lowest range. that are implemented outside urban areas. Tariffs are expected to rise as the cost recovery principle becomes more widespread. Currently, the cost recovery rate is a mere 38.3% III.2 Financing as of FY 2003. The Public Enterprise Law states that wastewater services should be managed on a self-fi nancing basis (MIC 1952). However, as with the III.5 Regulation water sector, the way in which wastewater entities raise their fi nancial The wastewater sector is under the jurisdiction of the MLIT. It formu- resources for management and new investment is varied. lates the laws, regulations, guidelines and technical standards that In general, each municipality makes its own investment programme are necessary to carry out sewerage works (JSWA 2002). MLIT is in line with central government targets but there are cases when the also responsible for conserving water quality and fl ood control. In Sep- prefectural or central government decides which works will be carried tember 2005, the MLIT enunciated its “Sewerage Vision 2100” for a out. system that supports the “sustainable development of the livelihoods of people for the 21st century.” The main sources of fi nance for capital investment sanitation are transfers from the national/prefecture/municipal governments and This vision emphasis three principles and proposes concrete mea- municipal (local) bond issues (JSWA 2005c). The cost of wastewa- sures that should enable municipal governments to create such an ter systems is fi nanced by all levels of government (combined, these environment. These principles are the development of technical stan- give 97.3% of funding). In 2004, operations and capital spending was dards for wastewater treatment, increase the re-use of treated waste- approximately JPY2tr, of which 13% was fi nanced by municipal gov- water, and improve the effi ciency of wastewater facilities. ernments, 0.2% was fi nanced by prefectural governments and 33% The vision sets a target for 100% usage of rainwater and treated by the national government (JSWA 2005). Management costs were wastewater (MLIT 2005). Specifi c targets have not been developed largely fi nanced by tariffs (37.6%) and as of March 2004, the total give that the vision itself was only set out in September 2005. Other recurrent cost was approximately JPY3tr. (See table 4.5 for a break- standards are being developed. down of funding sources) III.6 Performance Priorities in the sector are fi rst and foremost the expansion of the sewerage system, while other goals are to develop technologies to Although wastewater entities do collect various performance indica- improve the wastewater treatment process, reduce and reuse sewage tors to measure their performances (since it a legal obligation under sludge, develop rainwater control systems/measures, improve the the Wastewater Law), there is no performance target or standard that combined sewer system, increase the level of reused water, improve is set as a benchmark for wastewater entities to compare their per- effi ciency and management of existing sewerage facilities, and invest formance with their counterparts. There are penalty clauses in the in rehabilitation/renovation and reconstruction of sewerage facilities Wastewater Law if the wastewater entity is performing lower that the (JSWA 2004). technical standard that is set by the MLIT but there are no penalty clauses concerning low performance standard by managers. The MLIT sets water quality standards (MLIT 2005). As mentioned in the Tariff section, the Public Enterprise Law stipu- III.3 Private Sector Participation lates that wastewater services should be managed on a self fi nancing MLIT is currently developing the legal basis for PSP in O&M contracts system basis but this is not a legal obligation. Thus, it is unfeasible in the wastewater sector. However, the government is concerned that to penalise entities that are not able to achieve cost recovery. As of technical standards of the maintenance and operation will worsen as March 2004, water entities are not covering their recurrent costs. The a result of the introduction of private sector participation (JSWA 2005). average collection effi ciency for wastewater utilities is 38.3% (JWSA 2005).

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 78 Water Market Asia - Japan

Table 3.1: Water Service Coverage Indicators 2002 (%) Japan Developing Asia High Income Asia Population with Access to Improved Water 100.00 76.85 100.00 Households Connected 96.00 22.27 99.00 Urban Population with Access 100.00 86.17 100.00 Urban Households Connected 98.00 48.27 99.50 Rural Population with Access 100.00 71.42 100.00 Rural Households Connected 91.00 14.58 97.00

Table 3.2: Water Resources Japan Precipitation Volume 2002 (bn m3/yr) 630.30 Precipitation Depth 2002 (mm/yr) 1,668.00 Groundwater: produced internally 1998-2002 (bn m3/yr) 27.00 Surface water: produced internally 1998-2002 (bn m3/yr) 420.00 Overlap: surface and groundwater 1998-2002 (bn m3/yr) 17.00 Water resources: total internal renewable 1998-2002 (bn m3/yr) 430.00 Water resources: total external 1998-2002 (bn m3/yr) 0.00 Water resources: total renewable 1998-2002 (bn m3/yr) 430.00 Agricultural water withdrawal 1998-2002 (bn m3/yr) 55.23 Domestic water withdrawal 1998-2002 (bn m3/yr) 17.40 Industrial water withdrawal 1998-2002 (bn m3/yr) 15.80 Total water withdrawal 1998-2002 (bn m3/yr) 88.43

Table 3.3: Water Resources II Japan Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 3,373.00 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 3,373.00 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 693.70 507.25 544.73 Dependency ratio 1998-2002 (%) 0.00 33.33 1.39 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 12.84 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 20.57 16.19 13.19

Chart 3.1: Water Uses 2002 (%) Chart 3.2: Fresh Water per Capita 1999-2004 Indus. (m3/head) 18% 3,400 Agricult. 3,388 3,390 3,383 62% 3,380 3,373 3,366 3,365 3,370 3,363 3,360 3,350 Dom. 1999 2000 2001 2002 2003 2004 20%

Table 3.4: Number of water supply entities in Japan as of March 2004 Type of water supply entity Number % of population served Water supply entities 17,719 96.9 Water entities 1,936 91.7 Publicly owned companies (prefecture government) 5 13.8 Publicly owned companies (city government) 652 62.3 Publicly owned companies (town government) 1, 109 11.6 Publicly owned companies (village government) 86 0.6 Publicly owned companies (water supply authorities) 74 3.7 Private companies 10 0.003 Small water entities* 8,360 4.8 Private water suppliers 7,314 0.46 Water wholesalers 109 n/a Note: In case of small water entities, private water suppliers and water wholesalers there is no data for which type of municipality (i.e. prefecture, city, town or village) provides. % of population served is calculated as population served/total population Source: JWWA (2005)

79 Water Market Asia - Japan

IV. Environment and Legal Aspects Environmental Policy IV.1 Water and Wastewater Fundamentals In 2005, the Ministry of Environment (MOE) is planning to invest JPY1.4bn in the implementation of environmental policies (MOE Japan is situated in a humid climate with annual precipitation in 2004 2005). The environmental targets relating to water pollution are set of approximately 660 billion m3. Of this 660 billion, 240 billion m3 (ap- out in the Fundamental Environmental Law which is under the jurisdic- proximately 35% of the rainfall) was lost due to evaporation and the tion of the MOE (MOE 1993). There are currently 27 specifi c targets remaining 420 billion m3 of the rainfall is the water that is theoretically covering health-related aspects and 5 targets concerning the protec- available: the renewable water. tion of rivers and lakes. The Water Quality Contamination Prevention Within this 420 billion m3 of water, 85.2 billion is the volume of water Law (MOE 1970) sets standards for the protection of groundwater that was used for domestic/agriculture/industry and the remaining 335 sources. billion m3 of water (420-85) fl ows into the sea. The MOE, in conjunction with four other ministries that are responsible A large volume of rainfall fl ows straight to the sea as a result of Ja- for water has produced guidelines “For the development of a sound pan’s mountainous geography and variable typhoon/rainy season- water circulation system” that are directed towards local governments type climate. In FY 2004, water resources use by households came (MOE 2003). These guidelines recommend that local governments from surface water (73%), underground water (25%) and others such involve private companies, NGOs and citizen groups in the develop- as spring water and sea water (2%) (JWWA 2005). ment of integrated water systems. The volume of renewable water is declining since the frequency of dry IV.2 Laws and Institutions years has shortened from once in a decade during 1956-80 to once The water and sanitation sector is under the jurisdiction of various in four years during 1981-2000 (MLIT 2005). Droughts occur, leading ministries. The MHLW is responsible for the water sector and the MLIT water utilities to suspend or limit their water supply particularly in the is responsible for the sanitation sector, including fl ood control (JSWA Kanto Kansai and Shikoku area, but can happen all over the country. 2002). Water Resources The MLIT is also responsible for water resource management. The Of the 85.2 billion m3, 56.6 billion m3 was consumed for agriculture MOE, as mentioned above, is in charge of the water quality regulation. (66%), 12.3 billion m3 for industry (14%) and 16.3 billion m3 for do- Moreover, water for agricultural use is under the jurisdiction of the Min- mestic usages (20%) (MLIT 2005). Thus, 2.4% of the total volume of istry of Agriculture and Forestry and Fishes. Water for industrial use annual precipitation (16.3/660 billion m3) and 3.8% of the renewable falls under the remit of the Ministry of Economy, Trade and Industry. water (16.3/420 billion m3) was consumed by households. The key pieces of legislation relevant to the water and sanitation sec- Facing the decline of the volume of renewable water, governments are tor are the Waterworks Law, Sewerage Law, Fundamental Law of promoting effi cient use of treated wastewater and rain water for toilets, Environment and the Water Quality Contamination Prevention Law. sprinklers and snow melting (JSWA 2002). Private Sector Participation in the delivery of infrastructure services is not specifi cally mentioned but is implied by the Local Administration In light of this effort, MLIT has initiated SPIRIT 21, a project that fo- Law which states that private companies are able to participate in the cuses on the development of new technologies to improve sewerage operation and management of publicly owned facilities (MIC 1948). treatment systems including debris removal, high speed fi ltration, co- agulation and setting treatment and disinfection (JSWA 2004). V. Equipment & Construction Markets Water Resources Policy Japanese water and wastewater companies tend to be highly integrated and fairly concentrated. Leading Japanese fi rms are technol- In 1999, MLIT launched “Water Plan 21” that focuses on development, ogy and equipment-oriented and compete as conglomerates or trad- preservation and usage of water resources in the 2010-2015 period ing companies in which every component required for a project is (MLIT 2005). It has three main themes: a) building a sustainable water included (consulting, engineering, construction, equipment, supplies, usage system, b) preservation of the environment of water resources materials, and fi nancing). The Japanese government actively sup- and c) restoration and fostering of water culture. ports the development of business opportunities for Japanese fi rms Water Plan 21 was launched to take account of economic and social by providing attractive fi nancing along with technical assistance to developments since “Water Plan 2000” was launched in 1985. Water promote their products. Plan 21 is intended to be used as a guideline for governments at all The activated sludge process has been used in Japan extensively for levels (i.e. prefecture, city, town and village) to develop their water decades for both municipal and industrial wastewater treatment. How- resource policies. The plan targets increases in the use of seawater, ever, in recent years, the anaerobic digestion process has become rainwater and water recycling and encourages governments to invest increasingly popular because of its smaller required installation space, in these systems. lower operating costs and sludge volume generated. This trend cre- Another initiative is the Full Plan which focuses particularly on water ates opportunities for importers of this technology. resource development and the use of the seven main rivers in Japan: Other good prospects include high-performance fi lters, industrial Tonegawa, Arakawa, Kisogawa, Toyokawa, Yodogawa, Yoshinogawa, wastewater recycling systems, sludge dehydration equipment, as well and Chikugogawa (MLIT 2005d). Although the area that receives wa- as sampling, analytical, and monitoring instrumentation. Machinery ter from these rivers is only 17% of the total area of Japan, 50% of the manufacturing, food processing, steel, and chemical industries pres- population resides there, making the question of upstream river use ent the greatest opportunities for suppliers of industrial effl uent treat- extremely important. ment equipment. Recently the creation of storm water resistant cities is becoming a VI. Sources high priority (JSWA 2002; 2004). Cities in Japan mainly use the combined sewer method which drains rain water and wastewater simul- EIU, ADB, Japanese government agencies taneously. This system has an advantage in promoting fl ush toilets and fl ood control but also means that wastewater will be discharged into rivers when it rains heavily (JSWA 2002). This phenomenon is widely seen across cities in Japan and such systems were built during 1950-1974 (JSWA 2004). Since then, social, economic and climatic conditions have changed (heavy rainstorms occur more frequently during the Typhoon seasons), creating a need for new responses (JSWA 2002). The improvement of the combined sewer method is becoming increasingly important.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 80 Water Market Asia - Japan

Table 3.5: 2003 Financing of Water Service Management Source of finance Amount (100m yen) % financing Total 27,344 100 User charges 24,314 88.9 Construction works (for private companies) 379 1.3 Subsidies (Central, Prefecture, Municipality) 612 2.2 Other (e.g. selling assets) 2,039 7.4 External donor assistance n/a n/a Note: data is for water entities only. Data for small water entities, private water suppliers and water wholesalers was not available. Source: JWWA (2005)

Table 3.6: 2003 Financing of New Investments Source of finance for water sector Amount (100m yen) % financing Total 6,443 100 National and/or prefecture government subsidies 1,064 16.5 Bonds issued by prefecture governments 3,887 60.3 Payment for construction works (from user) 1,063 16.4 Loan 22 0.3 Other 406 6.3 Source: JWWA (2005) Table 3.7: 2004 household bill for monthly consumption of 20m³ for five major cities City 20m3 Tokyo ¥ 2,362 Osaka ¥ 1,995 Yokohama ¥ 1,752 Nagoya ¥ 1,480 Sapporo ¥ 2,772 Source: JWWA (2005) Table 3.8: Performance of five major water utilities Tokyo Sapporo Yokohama Nagoya Osaka Average water tariff /m3 199 yen 240 yen 208 yen 187 yen 169 yen Average water consumption lcd 342 per 266 per 309 per 329 per 446 per person person person person person Coverage 100.0% 100.2% 100.0% 100.0% 100.0% Number of connections 1,615,201 589, 253 1,423,595 407,865 710,657 Interruptions to service NA NA NA NA NA Quality of water (Potable/Non- Potable Potable Potable Potable Potable potable) Pressure NA NA NA NA NA Non-revenue water 6.1% 8.4% 7.9% 7.4% 11.6% Employees/1000 connections 2.95 1.26 1.63 3.78 3.1 Operating ratio 116.6 102.7 109.7 102.3 110.3 Connections with meters (%) 100% 100% 100% 100% 100% Collection efficiency 93.9% 91.6% 92.1% 92.6% 88.4% Number of water intake facilities 376 23 19 8 35 Number of purification facilities 7 34 10 4 20 Number of transmission facilities 204 4 32 14 13 Number of distribution facilities 535 149 127 53 61 Network Length 25,415 km 5,659 km 9,048 km 5,503 km 5,138 km Note: In Japan, collection efficiency is calculated as volume of water charged/volume of water distributed Source: JWWA 2005c, Websites of respective water bureaus

81 Water Market Asia - Japan

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) Japan Developing Asia High Income Asia Population with Access to Improved Sanitation 77.70 54.64 100.00 Households Connected 66.70 7.22 99.29 Urban Population with Access 100.00 77.09 100.00 Urban Households Connected 100.00 18.11 99.00 Rural Population with Access 56.40 48.08 100.00 Rural Households Connected 33.90 2.57 90.00

Table 4.2: Water Pollution 2001 (% of total BOD Emissions) Japan Developing Asia High Income Asia Water pollution, chemical industry 8.98 9.94 8.81 Water pollution, clay and glass industry 0.19 0.46 0.15 Water pollution, food industry 43.24 43.27 42.73 Water pollution, metal industry 7.00 7.62 4.84 Water pollution, other industry 11.72 6.08 13.17 Water pollution, paper and pulp industry 21.87 9.38 26.14 Water pollution, textile industry 5.00 21.17 8.17 Water pollution, wood industry 2.00 2.67 2.17

Table 4.3: Other Environmental Indicators Japan Municipal waste generation 1995 (thousand tonnes) 50,694.00 Municipal waste generation 2002 (thousand tonnes) 52,362.00 Waste generation intensity 2002 (kg/capita) 410.00 Water extraction 1995 (million m3) 88,202.00 Water extraction 2002 (million m3) 86,104.00 Water extraction 2002 (m3/capita) 680.00 Nitrogen use 1995-97 (kg/ha agricultual land) 134.89 Nitrogen use change 87-97 (%) -6.76

Chart 4.1: Daily organic water pollutant emissions 1999- 2004 (kg) 1,359,595 1,400,000 1,332,302 1,285,386 1,300,000 1,243,376 1,201,366 1,200,000 1,161,112

1,100,000

1,000,000 1999 2000 2001 2002 2003 2004

Chart 4.2: Daily organic water pollutant emissions / 1000 people 1999-2004 (kg) 12.00 10.73 10.50 10.10 9.76 9.42 10.00 9.09

8.00

6.00

4.00

2.00

0.00 1999 2000 2001 2002 2003 2004

Japan Dev eloping Asia (mean) High Income Asia (mean)

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 82 Water Market Asia - Japan

Table 4.4: Number of wastewater supply entities in Japan as of March 2004 Type of wastewater supply entity Number % of pop served (a) % of pop served (b) Public agencies 2,240 66.7% 66.7% Publicly owned companies (cabinet-ordered designated 14 22.1% 98.1% city government) Publicly owned companies (city government) 646 37.8% 66.4% Publicly owned companies (town government) 1,352 6.2% 33.3% Publicly owned companies (village government) 228 4.2% 22.8% Private companies 0 - NGO/CBO/Cooperatives 0 - Note: % of population served (a) is calculated as population served/ total population; % of population served (b) is calculated as population served/ total population within the respective administrative government zones Source: JSWA: Japan Sewerage Works Association (2005)

Table 4.5: 2003 financing of new wastewater investments Source of finance Amount (100m JPY) % total financing National government transfer 663,852 32.9 Prefecture government transfer 3,911 0.2 Municipal government transfer 259,634 12.9 Municipal (local) bonds 1,010,971 50.1 Payment for construction works (from user) 54,388 2.7 Urban Planning Tax (form of municipal transfer) 24,990 1.2 Source: JSWA (2005) Table 4.6: 2003 financing of wastewater management Source of finance Amount (100m JPY) % total financing Prefecture government transfer 89,997 2.5 Municipal government transfer 1,715,344 49.4 User charges 1,305,337 37.6 Other 355,606 10.2 Source: JSWA (2005)

Table 4.7: Typical Household Bill for monthly consumption of 20m³ City 20m3 Tokyo ¥ 1,974 Sapporo ¥ 1,333 Yokohama ¥ 1,942 Nagoya ¥ 1,722 Osaka ¥ 1,228 Note: Since Japan generally set their wastewater tariffs on a 10m3 basis, these numbers have been doubled of the 10m3 wastewater tariff

Table 4.8: Performance of wastewater in five major cities Tokyo Sapporo Yokohama Nagoya Osaka Average wastewater 99 67 97 86 61 tariff /m3 (yen) Coverage 99.9% 98.9% 99.6% 97.7% 100% Annual vol. of water 1,741,831,130 374,871,725 608,430,000 439,776,600 704,571,536 discharged (m3) Of which rain water 380,941,880 75,157,000 93,834,000 48,898,716 80,926,331 Of which wastewater 1,360,889,250 299,714,725 514,596,000 390,877,884 623,645,205 % of Wastewater 90.6% 69.5% 75.7% 69.0% 74.2% collected Number of facilities 14 9 11 15 13 Treatment capacity 6,202,000 1,089,800 2,193,220 1,860,500 2,722,000 (m3/d) Network length (km) 15,473 7,795 11,263 5,318 4,811 Source: JSWA 2005c and MIC 2005

83 Water Market Asia - Japan

Table 5.1: Recent Management Contracts Water purification facility Water purification mainten Name maintenance project project Location Amakusa, Kumamoto Gunma prefecture Contract Type Management Management Contract Length 8 months One year Date Agreed 01/08/2003 01/04/2002 Date of financial closure 31/03/2004 01/04/2003 Date of completion/termination 31/03/2004 01/04/2003 Investors Nihon Zaikan Corporation Western Meidensha Corporation Japan Division Source: JWWA (2 Table 6.1: Useful contacts Contact Name Mr. Takafusa Mr. Masao NII Mr. Yoshihiko YATO Mr. Masaaki YAMAMURA MURAYAMA Bureau/Dept Water Supply Water Resources Sewerage and Water, Soil and Land Division, Public Department, Land and Wastewater Department, Water and Health Bureau Water Bureau Management air environment Bureau Department, City and Regional Development Bureau Ministry/Agency MHLW MLIT MLIT MOE Address 1-2-2 Kasumigaseki 2-1-2 Kasumigaseki 1-2-2 Kasumigaseki Chiyoda-ku, Tokyo Chiyoda-ku, Tokyo Chiyoda-ku, Tokyo 100-8916 100-8916 100-8916 Telephone 03-5253-1111 03-5253-8111 03-5253-8111 03-3581-3351 (ext 4034) (ext 31133) (ext 34162) (ext 6637) Fax 03-3503-7963 03-5253-1581 03-5253-1596 03-3501-2717 Email [email protected] [email protected] [email protected] [email protected] Contact Name Mr. Toshihiro Mr. Masaki SUZUKI MURAKOSHI Bureau/Dept Land Development Regional Economic Planning Division, and Industrial Policy Water Development Group, Economic and Bureau Industrial Policy Bureau Ministry/Agency MFF METI Address 1-2-1 Kasumigaseki 1-3-1 Kasumigaseki Chiyoda-ku, Tokyo Chiyoda-ku, Tokyo 100-8916 100-8916 Telephone 03-3502-6246 03-3501-1677

Fax 03-5511-8252 03-3501-6270 Email toshihiro_suzuki@n Sangyo- m.maff.go.jp [email protected]

Table 6.2: Key laws Name of Law Waterworks Sewerage Law Fundamental Water quality Local Law Law of contamination Administration Environment prevention Law Law Jurisdiction MHLW MLIT MOE MOE MIC Ministry Enforcement date 15/6/1957 24/4/1958 19/11/1993 25/12/1970 7/7/1948 Description Water Supply Wastewater Environmental Wastewater Local management management preservation treatment administration (Water Resource) Available: http://www.city.yokohama.jp/me/suidou/

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 84 Water Market Asia - Japan Known PSP Projects in Japan Aichi

Chita Water Treatment

Chita Aichi Concession Total investment (USDm) n/a

Sector 1 Water Sector 2 No data In June 2005, the government released a tender notice for this water treatment project. It is located in Chita City in the Aichi Prefecture. Interested parties were invited to submit questions and by mid-July the ﬁ rst pre-qualiﬁ cation selection will be held. Final bidding proposals were due by September 14, 2005. The concession agreement would be signed in early 2006. One of the expected bidders is Nippon Gaishi. The project involved the construction of four water treatment facilities.

Capacity Timeline

Production n/a m3/d Announced 2005 June

Chiba Prefecture Opportunity!!

Edogawa

Edogawa Chiba Prefecture 20 -year BOO Total investment (USDm) 85.20

Sector 1 Water Sector 2 No data The Edogawa Water Treatment Project attracted four bidding groups. They were the Ebara Group (Ichikawa Environmental Engineering, Keiyo Gas, Toshiba Corp and Toda Construction), Diamond Lease Co (Takenaka Engineering, Mitsubishi Heavy Industries), Hitachi Group (Toa Corp, Hitachi Engineering & Construction) and Fuji Group (Fuji Electric, Tsukishima Kikai Co and Electric Power Development Co). In January 2005, the Chiba Prefecture Waterworks Bureau selected the consortium comprising Fuji Electric Systems, Electric Power Development and Tsukishima as the winning bidder for the project. In April 2005, sponsors of the project appointed Mizuho Corporate Bank to lead arrange the planned JPY 3-4bn bank borrowing. The project cost was estimated to be between JPY 9-10bn, including the operation costs. In June 2005, sponsors of the project and lead arranger Mizuho Corporate Bank were negotiating with the government. Some of the issues being discussed included direct agreement between lenders and the government on the commercial issue as well as on the ﬁ nancing issues. Chiba Bank was expected to join the loan deal.

Capacity Timeline

Production n/a m3/d Announced 2004 November

Contract awarded 2005 December

Equity investor Fuji Electric (Japan) 33.00%

Equity investor Tsukishima KiKai Co (Japan) 33.00%

Equity investor Electric Power Developement Company (Japan) 33.00%

Saitama

Ookubo Water

Ookubo Saitama 20 -year BOT Total investment (USDm) 120.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2005

Equity investor Obayashi Corp (Japan) 25.00%

Equity investor Sanki Engineering Co (Japan) 25.00%

Equity investor Maezawa Industries Inc (Japan) 25.00%

Equity investor Meidensha Corp (Japan) 25.00%

85 Water Market Asia - Japan

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 86 Water Market Asia - South Korea

South Korea

Korea is a market with great needs for water and wastewater treatment but there can be a signiﬁ cant gap between government plans and reality, especially in the short run.

There are great disparities between large urban centres and the rest of the country in terms of service coverage and level of standards.

Public utilities ﬁ nance operations with debt because tariffs are too low. They cannot ﬁ nance new projects.

For a long time wastewater and the environment was a priority only on paper and only recently has the government started to address the issue and to involve the private sector as an operator.

Water affairs remain in the hands of local authorities, who have a history of resisting the privatisation of management and enjoy cozy relationships with local construction companies.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Success in wastewater Privatisation remains political, especially Future Opportunities Numerous but uncertain as it means disturbing cozy local relationships. Local partner essential. Local competition Significant

Equipment Markets Comments Future Opportunities Numerous Plans to develop the water and Local competition Very significant wastewater systems are massive, implementation can take very long.

Public Utilities Comments Track record Mediocre Public utilities suffer from massive Sustainability Limited indebtedness due to below cost- recovery tariffs. Reliance on ODA None Government Comments Commitment to deliver service Yes Funding is mostly local and constrained Fiscal Resources Surplus by access to debt markets and the political dimension of tariffs.

Economy & Finance Comments Recovery since Asian crisis 1997 Above average Strong industrial economy Local capital maket Sophisticated

87 Water Market Asia - South Korea

I. General Information spending. The only exception was in 1998-9 when government borrowing rose sharply to cover the restructuring of the fi nancial sector South Korea is one of the richest economies in Asia as a result of and of social welfare improvements. decades of sustained growth, with a GDP second only to Japan. This came to an end with the Asian Crisis in 1997, but the economy was I.2 Political & Investment Environment able to recover to respectable growth levels within a couple of years, The most recent presidential election was won in December 2002 although restructuring is still necessary. Population growth is slow at by Roh Moohyun, then the candidate of the ruling Millennium Demo- 1 per cent a year. Seoul is the most developed urban area. With one cratic Party (MDP), although his supporters subsequently broke away quarter of the country’s population, it is much larger than the country’s to form a new party, the Uri Party, which now has a small majority other cities. Government efforts to promote development outside the in Parliament since 2004. Roh is an outsider in Korean politics and capital have resulted in fast rates of economic and population growth was elected on an anti-chaebol (conglomerate) and anti-US campaign in the south-eastern Gyeongsang provinces, which includes the cities platform that was popular with young voters, but the realities of offi ce of Busan & Ulsan. have made it diffi cult for him to implement radical policies. His three I.1 Macroeconomic Situation years in power have been unsettled by his threats to resign, (abandoned) plans to hold a referendum on his presidency and to move the South Korea bounced back quickly from the Asian crisis. It experi- capital from Seoul and an illegal attempt by the opposition to impeach enced one year of severe recession in 1998, when GDP fell by 6.7 him. per cent, but grew again in 1999-2000, due to fi scal and monetary stimulus and a favourable external environment. Growth stayed posi- South Korea is a highly centralized political system. The fi rst elections tive in 2001, despite slow demand for exports which caused a slump to fi ll the posts of governors of provinces and mayors of large cities in Singapore and Taiwan in that year. By 2001, South Korea had paid took place in June 1995, replacing a system of appointment by the off its obligations to the IMF, several years ahead of schedule. The central government, which retains control of the purse strings. Korean won has been steadily appreciating since the crisis. Tensions with North Korea have risen since the North announced in The main issue of economic management since the fi nancial crisis at 2002 that it had a nuclear weapons development programme. For the end of 1997 has been reform of the fi nancial and business sec- now, President Roh is supporting the continuation of the ‘sunshine’ tors. The government has had surprising success in pushing through policy towards the North and the security threat is present but not reforms of the banking system and reducing the level of non-perform- imminent. ing loans: it has closed down numerous unviable banks, nationalised Foreign ownership of companies in most sectors, even through hostile others and forced many weaker banks to merge with stronger ones. takeover bids, is now permitted. Foreign participation in the domestic Measures have been taken to strengthen the capital markets including debt and equity markets is now also actively encouraged, and for- opening the stock market to more foreign participation, developing the eign-exchange transaction restrictions have been almost completely government bond market and the opening of the country’s fi rst futures removed. exchange. It has had less success in restructuring the dominant business conglomerates, the chaebol. II. Water Opposition to privatization and labour market liberalization from the II.1 Sector Policy & Structure powerful unions has prevented the government from implementing plans for rail privatization and the divestiture of Korea Electric Power Water Policy (KEPCO, the state electricity monopoly). The South Korean government‘s primary target for the sector is to guarantee high quality water supply to the whole population by 2011. The Korean government has adopted a prudent approach to public The detailed action plan is:

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 15.00 2006 842,954 10.00 2005 773,943 5.00 2004 663,686 0.00 -5.00 1998 1999 2000 2001 2002 2003 2004 2005 2006 0 200,000 400,000 600,000 800,000 1,000,000 -10.00

Korea Dev eloping Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean)

12.00 10.00 Chart 1.3: 2004 Sector Share of GDP 8.00 Agricult. 6.00 4% 4.00 1.57 2.10 1.81 0.90 2.00 0.73 0.44 0.59 0.00 Serv ices Industry 1998 1999 2000 2001 2002 2003 2004 55% 41% Korea Dev eloping Asia (mean) High Income Asia (mean)

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 88 Water Market Asia - South Korea

Table 1.1: Sovereign Risk Indicators Korea Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 3,000.00 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 20.87 59.60 50.84 Short Term Debt / Total Debt 2004 (%) n/a 10.49 n/a Fitch Sovereign Rating (2004) A

Table 1.2: Legal Risk Indicators 2004 Korea Developing Asia High Income Asia Time to enforce a contract (days) 75.00 392.62 103.67 Time to register property (days) 11.00 62.82 16.50 Time to resolve insolvency (years) 1.50 4.45 1.15 Time to start a business (days) 22.00 67.08 14.33 Legal rights of borrowers and lenders (0=low) 6.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Korea Developing Asia High Income Asia Political Rights 2.00 4.23 2.43 Civil Rights 2.00 4.69 2.14 Corruption Perception 4.30 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 Korea Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 5.99 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 1,239.26 185.54 1,281.59 Roads, paved (% of total roads) 74.50 44.75 75.32 Electric power consumption (kwh per capita) 6,171.14 717.46 7,505.93 Water supply failures (days) n/a 10.00 n/a Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%) 3.32 8 4.00 1.12 2.00 0.51 0.70 0.90 6 4.06 0.00 4 2.70 -2.00 2002 2003 2004 2005 2006 2.03 -4.00 2 1.30 -6.00 0 2003 2004 2005 2006 -2 Korea Dev eloping Asia (mean) High Income Asia (mean)

Korea Dev eloping Asia (mean) High Income Asia (mean) Chart 1.8: Real Interest Rate 2000-2003 (%) Chart 1.7: Inflation Rate 1999-2004 (%) 10.00 16.00 14.00 8.00 7.75 12.00 6.00 10.00 8.00 4.03 4.00 3.87 3.84 6.00 4.10 4.00 3.59 2.00 3.55 2.00 2.25 2.69 0.00 0.82 0.00 -2.00 1999 2000 2001 2002 2003 2004 2000 2001 2002 2003

Korea Korea Dev eloping Asia (mean) Dev eloping Asia (mean) High Income Asia (mean) High Income Asia (mean)

89 Water Market Asia - South Korea

- To develop a number of multi-purpose dams by 2011 to increase discharge at 1,500m3/day. In 2003, a daily capacity of water reuse in water supply by 1.8bn tonnes (small and medium-sized dams) the country was 1.67Mm3/d. - To develop multi-regional and local water supply systems in order to II.2 Financing improve the ratio of piped water supply from 82% in 2002 to 95% and In principle, the water supply sector is fi nanced by local governments from 33% to 78% in rural areas. without funding from the central government. There are exceptional - To implement strict groundwater quality control, build more desalina- cases, however, for which the central government provides special tion plants, and develop various alternative means to supply water. funds to local authorities, depending on local fi nancial resources and the importance of certain projects. - To improve water demand management through the rationalisation of water tariffs and increasing water reuse As of 2003, the aging and damaged pipes were causing losses of 780Mm3/year, or 13.6% of total water production in more than 700 Sector Structure water treatment plants, which is the retail equivalent to KW416bn The National Level (US$416m). The 160 local water supply units (not including the seven largest cities) suffer from severe underinvestment. Facilities are de- Three ministries mentioned below are primarily involved in the estab- teriorating and little or no network expansion has occured in recent lishment of national plans and the provision of technical and fi nancial years. 5.2 million people do not received any piped water service. support for the water sector. To improve the rate of rural piped water supply from 33% in 2003 to The Ministry of Construction and Transportation 78.9% in 2014, it is estimated by Korean authorities that the sector needs at least KW4,000bn (US$4bn) in new capex. - Multi-regional water supply through the Korea Water Resources Cor- poration (KOWACO) Future investment in the seven largest cities is expected to be minimal because these cities have achieved full service provision and demand The Ministry of Environment is not expected to rise signifi cantly. These seven large water supply - Advisory and administration of piped water supply in municipalities units may indeed be turned over to the private sector in the future. These units currently have a 53.9% market share, while the remaining The Ministry of Government Administration and Home Affairs 160 units cover 46.1% of demand. Seoul and Busan water supply units - Advisory and administration of municipal public water companies/ have the potential to become some of the largest water companies in units’ performance the world due to their the large customer base (Seoul – 10,276,725 in 2003, and Busan – 3,674,152 in 2003). This is combined with exten- The Regional/Municipal level sive know-how in the management of vast water supply networks. The major players in the South Korean water sector are local gov- Local nance ernments and their public companies/units. Local governments are competent for planning, maintenance and the development of water A key pending issue is that local water units have accumulated debts supply and determine water tariffs in consultation with local councils. which cannot be serviced due to the level of water tariffs and the absence of cost recovery. Maintenance and improvement are mostly Self-provision from private facilities exists for domestic and industrial fi nanced with public and private debt, which limits the ability of local users that are often not connected to the main piped water supply water units to fi nance new projects. system. II.3 Private Sector Participation There are 167 water and wastewater service units in South Korea. Except for the seven large cities (Seoul metropolitan city, Busan, Because of continuous mismanagement in the water supply and Incheon, Daegu, Daejeon, Gwangju, and Ulsan) in the country, an av- wastewater treatment sector, the central government in South Korea erage water unit service population reaches only 85,000. Per capita began to look at the possibility of private sector involvement in the water supply amount is 395 litres and, on average, piped water pro- mid-1990s. A number of ministries and bureaus in the central govern- duction in 2003 was 15.7 million m3. ment, led by the Ministry of Environment (MOE), are involved in the restructuring of water industry. Urban and Rural Services The MOE published the ‘Water Supply and Wastewater Treatment Pri- At the end of 2003, the average water supply provision rate in the vate Sector Involvement Implementation Plan’ in January 2001. Water country was around 89% and in the seven target cities, 99%. How- supply, wastewater treatment would be integrated by river basins and ever, an average water supply provision rate in rural areas reaches gradually privatised. In 2004, little had changed, support from local only 33%. Over 5.2 million in rural areas do not receive piped water authorities had been minimal, and the MOE had to revise its policy. In supply services in 2003. the new plan, the MOE “allows” 97 local water units to procede with The Korea Water Resources Corporation (KOWACO) provides multi- their own privatisation plan. regional water supply to local public water companies/units. The Extent of PSP multi-regional water supply works involve: 1) water intake (raw water) from sources such as lakes, dam reservoirs, and rivers, (e.g. raw wa- PSP in the water supply sector is still at the very early stage and there ter withdrawal from the Paldang & Han Rivers for the inhabitants of have been few PSP projects so far. One exception, is the Veolia pur- Seoul); and 2) piped water supply to municipalities’ water treatment chase of the industrial water supply systems of the Hyudae Daesan plants/water distribution points. Industrial Complex in 2000 and the Hynix Ichon Semiconductor Com- plex in 2001. KOWACO extracts raw water (considered very clean and high quality water from dam reservoirs/rivers) and sells it to municipalities. The In the Hynix Semiconductor Complex, Veolia provides ultra pure water KOWACO system provides water to many different regions, hence (84,000m3/d), treated water (72,000m3/d) and wastewater treatment its name: ‘the multi-regional water supply system’. This accounts for (46,000m3/d). 47% of total water supply at the national level, split between the seven Veolia also planned to enter a water distribution project in Masan City largest cities and other municipalities (23% and 73% respectively.) in 2001, but had to abandon this plan in May 2004 because of strong Desalination is still in its early days. There has been only one pilot resistance by local environmental NGOs, local councils and civil ser- project in Hong Do, Cheonla Southern Province, with a capacity of vants against privatisation. 3 100m /d. Since 2004, the central government has invested KW10bn Thus, PSP in the water supply sector has made little progress since (US$10m) to develop desalination projects on the islands. the late 1990s although the newly revised Water Supply Act in 2001 Water reuse has been promoted by the government since the early aims to provide a platform for more active PSP projects. 1990s based on Water Supply Act in December 1991, and the newly The introduction of PSP will proceed slowly. Local governments are revised act in 2001 reinforced a mandatory practice to install water still very reluctant to go ahead with PSP in the water supply sector. reuse facilities in new buildings including commercial buildings with a The MOE will develop competitive water supply in the seven largest size of at least 60,000m3 and factories with an amount of wastewater

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 90 Water Market Asia - South Korea

Table 2.1: Income Level Korea Developing Asia High Income Asia GDP per capita 2004 (US$) 13,760.00 1,104.30 23,628.57 Population on less US$1 per day 2004 (%) 0.00 18.23 0.00 Unemployment 2004 (%) 3.49 6.73 4.89

Table 2.2: Area & Population Korea Developing Asia High Income Asia Population Growth 2003 (%) 0.60 1.67 0.64 Urban Population Growth 2003 (%) 1.24 3.48 1.18 Population Density 2002 (pop/km2) 477.80 231.45 2,335.17 Area (thousands Ha) 9,926.00

Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban 2000-2003 (cst 2000 US$) (millions) Population (%) 48.50 48.22 84.00 83.54 47.92 6,800 83.50 6,566 48.00 47.64 82.98 6,600 6,436 47.34 83.00 47.50 82.43 6,400 6,123 47.01 82.50 6,200 5,877 47.00 81.88 6,000 82.00 5,800 46.50 81.50 5,600 46.00 81.00 5,400 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002 2003

Chart 2.4: Consumer Exp. on Water 1999-2004 (US$m) Chart 2.5: Consumer Exp. on Water Growth Forecast 2005-2009 (%)

2,500 2,182.16 4.00 1,867.88 2,000 1,557.46 1,508.66 3.00 1,367.92 1,311.19 1,500 2.00 1,000 1.23 500 1.00 1.24 0.84 0 0.82 0.44 0.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Multi-regional water KOWACO & Korea Dev eloping Asia (mean) supply system Municipalities High Income Asia (mean) Water supply for Municipal water household use supply system Municipalities

Provisional water supply system Municipalities

Water supply for KOWACO & industrial use Municipalities

Water supply for household use Water supply for other private use Water supply for industrial use

Figure 1. Water supply structure and service providers

91 Water Market Asia - South Korea

Main Cities of Korea (2001) Population '000 rationalise local water supply units since the 1990s: a) facility maintenance and upgrade and b) rationalisation of water tariffs. The govern- Seoul 10331.00 ment says it continues to target full-cost recovery (in multi-regional Busan 3786.00 water supply by 2005 and in local water supply by 2006). Incheon 2582.00 As of 2001, 60 local water supply units (62.5%) amongst 96 bench- Daegu 2540.00 marked units were profi table, when only 57.4% were in 2000 and Daejeon 1409.00 48.9% in 1999. However, the biggest challenge for local water supply Gwangju 1387.00 units is their level of indebtedness. The fi nancial losses of local wa- cities fi rst and may then merge ten of the medium-sized local water ter supply units amounted to KW2,705.7bn (US$2,705.7m) in 2003. supply units with KOWACO. The government aims to reach a total The debt ratio of local water supply units, 17.5%, remains far better capacity of 476,000m3/day in local water supply facilities, construct than most of the local public companies/units in other sectors such additional pipelines up to 2,739km, and develop new water resources as transport, urban development and medical services in 2003. The in isolated areas and islands such as 14 desalination facilities and net income in local water supply units was equivalent to KW272.3bn installation of new pipelines up to 934km. (US$272.3m). Successes/problems encountered II.7 Facilities Some of the major problems for private sector actors are related to Across South Korea, there are 32 water treatment facilities, 24 for a lack of institutional clarity as well as tough resistance from local multi-regional water supply and 8 for industrial supply. Most of the councils, the public, and employees who have been working as civil water treatment facilities use the rapid fi ltration process. Primary treat- servants. Although there is a set of laws and sector institutions, there ment is found in 3 plants for multi-regional water supply (Shiheung, have been no specifi c directives or regulations in local water compa- Kumi, and Chungju) and 4 industrial plants (Ulsan, Daebul, Kunsan, nies/units to implement such a framework. The current institutional and Asan). The total length of piped water supply lines was around framework is fragmented so that diverse government bureaus and 3,500 km in 2003. ministries are dealing with the same issue, including the Environmen- III. Wastewater tal Management Corporation, the Private Infrastructure Investment Centre of Korea (PICKO) and local governments. III.1 Sector Policy & Structure Governance structures have not been fi rmly established, which can Policy result in ineffi cient management of privately-run and funded water Deteriorating water conditions since the 1960s due to rapid industriali- supply projects and increased risks for private investors. Local water sation and population growth culminated with the outbreak of phenol supply units are meant to transform themselves from service provid- discharge into the Nakdong River in 1991. The central government ers to regulators: a diffi cult turn and not always a good idea if Suez’s reacted to this very serious water pollution problem with the ‘Clean experience in Manila and Jakarta is any reference. Water Supply Comprehensive Plan (1993-1997)’. Another acciden- Such challenges have slowed the development of PSP considerably tal discharge of chemical compounds in the Nakdong River in 1994 and somewhat discouraged local companies and multinationals from prompted the government to draft the ‘Water Management Compre- expanding their business in the service sector. hensive Plan (1996-2011)’. II.4 Tariffs After a decade of planning and little improvement, the major objectives for the wastewater sector are now: The central government has continuously raised water tariffs, adjusting to a growing demand due to industrialisation, urbanisation and - To construct 417 new wastewater treatment plants with a daily ca- population growth. Water tariff reform has also been motivated by the pacity of 20 million tonnes between 1996 and 2005; goal of reaching cost recovery and raising new funds for the sector. - To achieve a rate of domestic wastewater treatment of up to 80% Tariffs for multi-regional water supply were raised by 19.2% in Sep- (currently about 70%), livestock related wastewater treatment of up to tember 2002, reaching an average cost-recovery rate of 87% (includ- 75%, and industrial wastewater treatment of up to 90%; ing operating expenses, capital expenses, other operating income, and non-operating net income). The current average piped water tariff - To attract PSP in the wastewater treatment sector and give priority to in South Korea is now KW532.9/m3 (US$0.532/m3), and a cost-recov- newly built wastewater treatment plants. ery rate is 89.3% in 2003. Structure Local governments set tariffs for water supply, based on the guide- National Level lines of the Ministry of Government Administration and Home Affairs in the central government. Local governments make proposals of set- The Ministry of Environment: Administration of local (municipal) waste- ting tariffs and submit them to local price councils for consultation. water treatment plants and related projects Local congresses must then ratify the proposals for the new tariffs to The Ministry of Government Administration and Home Affairs: Ad- become effective. ministration of municipal public wastewater companies/units’ perfor- The gap in water tariffs between different local areas was as large mance as 3.7 times (KW 1,031.4/m3 (US$ 1.03/m3) in Jungsun, Kangwon Regional/Municipal Level Province, and KW 278.6/m3 (US$ 0.28/m3) in Gwacheon, Kyunggi Province). The major players in the wastewater treatment sector in South Korea are local governments and their public companies. Local governments II.5 Regulation draw up ‘the Sewerage Maintenance Basic Plan’ every 20 years and The Ministry of Environment is the key ministry overseeing piped wa- update the plan every 5 years. Wastewater tariffs are also determined ter supply services. MOE is in charge of monitoring drinking water by local governments before being approved by the MOE. quality provided by local water supply units. The Ministry of Construc- Rural and urban service provision tion and Transportation (MOCT) is responsible for regulating multi-regional water supply systems and multi-purpose dams that are run by Compared with urban areas, rural areas have not been equipped with KOWACO. There is no independent economic regulator in the water adequate wastewater treatment facilities. For instance, the seven supply sector. Instead, the economic performance of local water sup- largest cities including Seoul have on average a sewerage connection ply units is regularly monitored by the Ministry of Government Admin- rate of 92.2%, when the Chunla and Chungchung South Province had istration and Home Affairs (MOGANA), and MOGANA provides advice rates of 41% and 43% respectively in 2003. how to restructure the water industry. The central government has a plan to improve wastewater treatment II.6 Performance facilities and systems in rural areas between 1995 and 2005 in cooperation with the MOGAHA and the Ministry of Agriculture and Forestry The government has established a series of performance targets to (MAF). However, this was just another plan, and the gap between

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 92 Water Market Asia - South Korea

Table 3.1: Water Service Coverage Indicators 2002 (%) Korea Developing Asia High Income Asia Population with Access to Improved Water 100.00 76.85 100.00 Households Connected 89.00 22.27 99.00 Urban Population with Access n/a 86.17 100.00 Urban Households Connected 99.00 48.27 99.50 Rural Population with Access n/a 71.42 100.00 Rural Households Connected 33.00 14.58 97.00

Table 3.2: Water Resources Korea Precipitation Volume 2002 (bn m3/yr) 126.50 Precipitation Depth 2002 (mm/yr) 1,274.00 Groundwater: produced internally 1998-2002 (bn m3/yr) 13.30 Surface water: produced internally 1998-2002 (bn m3/yr) 62.25 Overlap: surface and groundwater 1998-2002 (bn m3/yr) 10.70 Water resources: total internal renewable 1998-2002 (bn m3/yr) 64.85 Water resources: total external 1998-2002 (bn m3/yr) 4.85 Water resources: total renewable 1998-2002 (bn m3/yr) 69.70 Agricultural water withdrawal 1998-2002 (bn m3/yr) 8.92 Domestic water withdrawal 1998-2002 (bn m3/yr) 6.62 Industrial water withdrawal 1998-2002 (bn m3/yr) 3.05 Total water withdrawal 1998-2002 (bn m3/yr) 18.59

Table 3.3: Water Resources II Korea Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 1,367.00 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 1,470.00 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 391.90 507.25 544.73 Dependency ratio 1998-2002 (%) 6.96 33.33 1.39 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 12.80 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 26.67 16.19 13.19

Chart 3.1: Water Uses 2002 (%) Chart 3.2: Fresh Water per Capita 1999-2004 (m3/head) Indus. Agricult. 1,520 1,502.30 1,491.20 16% 48% 1,500 1,481.801,477.90 1,467.40 1,480 1,459.20 1,460 1,440 1,420 1999 2000 2001 2002 2003 2004

Dom. 36%

Table 3.4: Water Supply Entities Type of water supply entity Number % of population served* Publicly owned companies – 7 large cities 7 52 Publicly owned companies – other local public companies 160 48 Private companies 0 0 NGO/CBO/Cooperatives 0 0 * The total population served by piped water supply was 43.6 million Table 3.5: Piped Water Supply in 2003 Population Capacity Multi-regional Multi-regional Provision Supply served (1000 supply water supply Rate (%) quantity (1,000) m3/day) quantity ratio (%) National 43,633 89.4 28,269 15,653 7,305 46.7 7 large cities 22,744 98.7 14,771 8,190 1,897 23.2 Other cities 20,889 79.8 13,498 7,463 5,408 72.5

93 Water Market Asia - South Korea large cities and small- and medium-sized cities, counties, and villages governments. The central government provides guidelines local gov- remains unchanged. ernments can refer to, and local governments decide how much they charge for wastewater treatment services in consultation with local III.2 Financing councils. Works related to wastewater treatment in localities cannot be fi nanced solely by local governments and the central government provides ad- III.5 Regulation ditional fi nancial support. MOE has set up a series of plans to invest MOE not only deals with water pollution related issues as regulatory in different areas and improve deteriorating water quality in rivers and agency but is also meant to monitor performance of wastewater treat- lakes. The investment plans include: increasing wastewater treatment ment plants. MOE is also the leading agency overseeing private sec- facilities, expanding and maintening sewers and developing industrial tor participation in the sector together with the Ministry of Planning wastewater treatment facilities. and Budget and the Private Infrastructure Investment Centre of Korea (PICKO). III.3 PSP There is no independent economic regulator in the wastewater treat- PSP in the wastewater treatment sector has been encouraged by the ment sector. Instead, the economic performance of local water supply government since MOE announced its policy to promote private sec- units are regularly monitored by MOGAHA (see II.5). tor participation in environmental management facilities in 1997. The wastewater treatment sector has seen active participation of local III.6 Performance companies as well as multinationals such as Veolia. Performance targets in the wastewater treatment sector are estab- At the end of 2003, 60% of the wastewater treatment plants in the lished by MOE in collaboration with MAF and MOGAHA. The govern- country had been developed by private companies, and 83 private ment was aiming to increase the ratio of wastewater treatment across investment projects were underway. Since 2000, 118 new wastewater the country to up to 80% by investing US$16.6 billion by 2005, and to treatment plans have been constructed. There are now 268 wastewa- construct an additional 492 wastewater treatment plants with a capac- ter plants in Korea, against 150 in 1999. ity of 30.3Mton/day. These objectives have not been reached. Facilities directly run by local governments cost 50% more to run and MAF and MOGAHA lead works for the improvement of wastewater need to 30% more manpower compared with privately-run plants. treatment services in rural areas by constructing 122 sewers and village wastewater treatment plants with an investment of US$45.8m in The popular option has been to award management contracts. As of 2002. 2003, approximately 60% of the total wastewater treatment facilities were run by private companies whereas only 40% of the facilities were The government has encouraged wastewater reuse and use of waste- directly managed by local governments’ units. Northern and Southern water sludge for energy generation (waste-to-energy). The target of Kyungsang Provinces have attracted the most PSP with 33 contracts, wastewater reuse is 5% by 2005. At the end of 2002, the number of and the region of Seoul and Kyunggi Province have also attracted buildings installed with water reuse facilities was 108 nationwide and signifi cant PSP with 29 contracts. MOE has a plan to develop additional facilities to over 300 units by 2006. Another plan is to introduce an integrated and automated man- Korea is also experimenting with private fi nance for projects (BOTs). agement system based on river basins and connected to wastewater In December 2003, the government was implementing 15 pilot proj- treatment plants. The scheme includes the introduction of a centrally ects in 12 cities and counties including Incheon and Yangjoo, Kyunggi controlled monitoring system equipped to oversee wastewater treat- Province. Even when projects are privately fi nanced, a large grant ment plants and a variety of other wastewater treatment facilities. element remains, in order to limit the need to raise tariffs. The introduction of PSP has contributed to the reduction of production III.7 Facilities costs. Privately-managed plants require KW58.1/ton (US$0.058/ton) See table 4.11 compared with KW76.6/ton (US$0.077/ton). Public plants cost about 24% more to run on average. IV. Environment and Legal Aspects IV.1 Water and Wastewater Fundamentals Successes/problems encountered The main source of water in South Korea is surface water. Surface The contract period of these management contracts is generally 2-5 water heavily depends upon an average precipitation of 1,283mm/ years, except in a small number of cases involving foreign companies. year although the seasonability of precipitation is rather big between This has triggered a number of side-effects such as the diffi culty to the wet (summer) and the dry (winter) seasons. The total amount of secure adequate manpower for O&M. available water resources was 33.1bn m3/year in 2001. In 2001, 89% The average capacity of privately managed plants is around 67,000 (29.4 billion m3/year) of the total amount of available water resources m3/d whereas plants run directly by local governments’ units are usu- come from surface water, and a mere 11% (3.7 billion m3/year) of them ally bigger around 175,000m3/d. Local governments have allowed pri- from groundwater. vate companies to manage only small-scale plants rather than large- South Korea is regarded as a water-stressed country, and the aver- scale plants that would create more revenues. This has prevented age amount of water resources per capita in the country reaches only the creation of economies of scale in the sector and maintained the 1,491m3. The country also has a high variability of precipitation de- predominance of public units favoured by local government. The cur- pending on regions, years, and seasons. In general, coastal areas rent institutional setting does not guarantee any fi xed rate of return and remote islands in the country face water scarcity. and on loser examination many private projects have not proven to be very good deals. In particular, the western coastline of Southern Chungchung Province, the eastern coastline of Southern Kyungsang and Northern Provinces III.4 Tariffs suffer from droughts. Many of the small islands along the southern Wastewater tariffs are charged differently in different cities and coastline in the country have insuffi cient water supply. counties. In 2003, the average wastewater tariff was KW181.1/ton (US$0.18/ton), which covers 61% of production costs. In 2004, the Water Resources average tariff was KW202.9/ton (US$0.20), with a production cost of In 1987-95 annual fresh water withdrawal ran at just above 40% of KW325.0/ton (US$0.32), covering only 62.5% of production costs. total water resources, higher than in most neighbouring countries in Such wastewater tariffs are causing large scale defi cits for local gov- the period, including Japan (16.6%), Thailand (17.8%) and Malaysia ernments. (just 2.1%), but within acceptable limits. MOE has been pushing for local governments to establish a full-cost Water Pollution recovery tariff system. Seoul has achieved full cost recovery. At the The four major rivers in the country, Han, Nakdong, Keum, and Yong- other end of the spectrum, Northern Chunla and Cheju Province have san/Sumjin River, provide a large portion of surface water resources. only managed to reach 16.9% and 26.1% cost recovery levels respec- MOE has been the leading agency to enhance water quality of the tively. As in the water sector, setting tariffs is done solely by local four rivers based on the ‘Four Rivers Water Management Action Plan’

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 94 Water Market Asia - South Korea

Table 3.6: Water Supply Project Financing National Gvt National Gvt Local finance Total (%) subsidy (%) loans (%) (%) Rural piped water supply 100 50 50 Tertiary treatment 100 50 50 Bank filtration 100 50 50 Facility improvement 100 50 50 Discharge facilities 100 100

Table 3.7: 7 large water supply units & KOWACO performance in 2002 (US$m) Management Turnover Assets Employees Debt Ratio (%) Turnover Net Profit Ratio (%) KOWACO 500.4 4,594.3 1,658 9.5 9.3 Seoul 621.9 4,415.3 2,952 16.52 21.94 Busan 227.6 1,542.5 1,403 11.73 11.08 Daegu 147.2 973.5 878 14.47 14.23 Incheon 175.5 908.0 922 21.29 11.45 Gwangju 64.4 385.4 422 18.74 22.26 Daejeon 67.7 441.7 453 30.33 4.82 Ulsan 58.0 376.9 335 35.54 15.72 Average of 101 24.1 170.4 132 23.96 10.94 local water supply companies

Table 3.8: Local water supply investment plan of 160 water supply service units (except for the 7 large cities) in the coming 20 years (US$m) Replacement of Replacement of Facility Total aged and damaged water meters and improvement water supply lines other facilities Total 10,438.8 4,111.0 3,944.2 2,383.7 Kyunggi 2,363.8 1,185.6 633.8 544.4 Kangwon 984.7 385.6 383.3 215.8 Chungchung North 641.2 226.9 266.3 148.0 Chungchung South 669.0 184.6 342.8 141.5 Chunla North 1,026.4 245.4 544.1 237.0 Chunla South 1,082.8 486.2 346.7 249.9 Kyungsang North 1,698.7 685.7 621.0 392.0 Kyungsang South 1,510.7 572.0 590.1 348.6 Cheju Island 461.5 138.9 216.1 106.5

Table 3.9: MOE Water Supply Statistics 2004 (US$m) Source of finance for water sector Amount % total financing National government transfer 546.75 10.6 Municipal government transfer 2,010.61 39.1 Public/private debt financing 225.78 4.5 User charges 2,357.37 45.8 External donor assistance 0 0 Total 5,140.51 100

Table 3.10: Active companies Table 3.11: Tariffs (2005) Company Origin City Typical Hold Bill for monthly consumption of 20m3 (US$) Veolia Water France Seoul 10.140 Ondeo France Busan 11.738 Hanhwa Construction South Korea Incheon 10.328 Daewoo Construction South Korea Daegu 8.770 Hyundae Engineering South Korea Daejeon 8.478 Gwangju 10.196 Ulsan 13.296

(1998-2005), with limited success. land use and natural management system’ in one of the 100 national priorities. The central government has three core strategies to achieve The Paldang monitoring point in Han River shows that the water qual- this goal: 1) to secure water supply through demand water manage- ity of Han River has not improved enough to reach the target quality ment; 2) to restore and rehabilitate water environment through Total point, BOD 1 ppm (1.3 ppm in 2004). In general, the water quality of Maximum Load Management in water quality and fl ood control; and 3) dam reservoirs, lakes, and rivers reaches Class II or Class III (Class to implement river basin management. I, best, Class V, worst), and in the lower reaches of rivers and lakes, Class IV or Class V. [National Water Quality Classifi cation in South Dam construction was one of the major policy goals in order to secure Korea based on the concentration of BOD, DO, TN, TP and pH, see suffi cient water supply to urban and industrial regions to fuel continu- table 5.2]. ous economic development from the 1960s to the 1990s. But the early 1990s witnessed emerging environmental movements in the country, Water Resources Policy and since then, the government has had diffi culty implementing dam The government’s priority for the use of water resources is to establish projects. sustainable water management system, which is part of ‘sustainable In 2001, the government announced its plan to build 12 new dams

95 Water Market Asia - South Korea and revamp 6 dams, however, 9 out of 12 new dam construction plans an important role in water quality control, stating 5 zoning systems. are stopped due to local concerns about environmental impact of the The Metropolitan Arrangement Act is related to natural environment dams. Therefore the government’s dam policy has changed from dam preservation area, and the Forest Reservation Zone is designated and development to dam management and has made several new action legalised based on the Forest Act. plans including renovation of old dams, re-evaluation and integration In the fi eld of water pollution amelioration, the Sewage Management of dams located in different regions that would led to offsetting de- Act and Water Quality Preservation Act are important. The Act relating mands of construction of new dams, and development of small-scale, to Treatment of Sewage, Nightsoil and Livestock Wastewater gives environmentally friendly, and locally appropriate dams. the government the mandate to control rural sewage and livestock Flood Management wastewater. River Basin Management, as one of the hot issues discussed in water management recent years, is refl ected in the 4 River South Korea has suffered from different scales of fl ood almost ev- Basin Act. The act authorises riparian buffer zones that aim to prevent ery year. Typhoons from the South China Sea often cross the Korean water pollution to water supply areas, regulation of Total Maximum Peninsular from July to September. In addition, summer monsoons Daily Loads, water use charge system, support for regulated areas, often hit different areas and torrential rains sometimes pour 200- and river basin management committees. 300mm/day. The total national budget for fl ood control is KW1,149.7bn (US$1.15bn) in 2005. Although South Korea has established a good set of laws and regulations related to water resources management, there has been no Environmental Policy overarching water resources law yet. This phenomenon is related The key environmental targets in relation to water pollution are: 1) to to a fragmented management system and inter-ministerial confl icts in protect and improve public health; 2) to maintain water quality and water resources management. keep eco-system in good conditions; and 3) to make water environ- MOCT mainly deals with water resources management and multi- ments more pleasant and liveable. Under these policy targets, MOE regional water supply systems (with KOWACO). MOE is in charge in the government has produced a series of policy efforts to achieve of urban water supply and wastewater treatment systems as well as higher quality of water supply. Some of the examples are the Total Wa- environmental regulation and monitoring. In addition, MOGAHA and ter Pollution Load (TPWL) management system in order to improve MOA partly contribute to water management with their own vested the previous regulations based only on pollution concentration, and interests. Such complicated management system has resulted in dif- the designation of riparian buffer zones along upstream riverbanks fi culty reaching a consensus about making a national water resources (500m-1km the water edge). management law. More comprehensive measures in water quality management are Regarding PSP, the government has made an array of laws since the establishment of river basin agencies in the four major rivers (Han, late 1990s. The fi rst one was the Private Investment Promotion Act Nakdong, Keum, and Youngsan/Sumjin River) to achieve integrated on Social Infrastructure in 1994, and this act was revised into the Pri- water resources management (IWRM). Non-point source pollution is vate Investment Act on Social Infrastructure in 1998. Alongside these, recently spotlighted, and the government has set up the new Compre- MOE enacted Work Directives on Privatisation of Environmental Fa- hensive Non-Point Source Pollution Management Measures for the cilities in 1997. The Sewage Management Act in 1997 and Water Sup- four major rivers enacted in March 2004. ply Act in 2001 were revised and legalised PSP in water supply and The policy goal to ameliorate water pollution in relation to water re- wastewater treatment projects. sources is to make the quality of all the drinking water resources better than Class II. At the national level, all the rivers and creeks are divided V. Construction & Equipment Markets into 195 parts, and water quality targets are decided. 121 (62%) parts Suez has a long-standing presence in the South Korean water market. will improve and be targeted at Class I as clean zone, 49 (25%) at Ondeo/Degremont has contributed to urban water supply/wastewater Class II as the areas in which water can be withdrawn for drinking, treatment system designs since the 1970s, particularly in Seoul and and 25 (13%) cleaned at a certain level in which fi sh and other aquatic Busan. Ondeo Services and Nalco have been implanted in South Ko- creates can live. rea to provide a range of services from plant design and construction through to management of water installations. A recent project is the The Korean water market is attractive in the areas of upgrade and wastewater treatment BTO project in Yangju City in 2001. rehabilitation of water supply systems and operation, and new investment and operation of wastewater treatment systems. In the national Veolia Water Korea was established in 2000 and successfully won the comprehensive water management plan, water treatment facilities will Wastewater Treatment BTO Project in Songdo, Incheon City in 2001 require at least US$23.8 billion, and water supply systems and facili- in collaboration with Samsung Engineering. ties will need US$51.8bn. In addition, projects in the four major riv- Another wastewater project by Veolia is in Gumdan, Inceon, which ers will provide large scale business opportunities to local and foreign was awarded in April 2004 jointly won by Hanhwa Construction Com- investors. pany and Doosan Heavy Industry Company. RWE Thames Water was The Nakdong River water quality enhancement project requires eager to enter the market in technical partnership with Dae Yang Bio- US$52.3 million for construction of new wastewater treatment plants, tech Ltd. in 2001 but has not been active. US$114.3m for rehabilitation of wastewater treatment in cities and villages in the basin, and US$ 93.9 million for restoration of the waste- VI. Sources water treatment network in Daegu city. EIU, World Bank, Interviews. The Youngsan River water quality enhancement project includes construction of new wastewater treatment plants costing US$1.5bn in Gwangju city. The government will transfer its national budget to 25 local governments for construction of 10 industrial wastewater treatment plants. In addition, construction of wastewater treatment facilities in Han River will require US$739m. The government plans to invest KW28,600bn (US$28.6bn) from 1996 to 2005 to improve the quality of drinking water sources at Class II and upgrade a wastewater treatment rate from 55% to over 80%. IV.2 Laws and Institutions In relation to environmental management, there are three key laws. The Basic Environmental Policy Act includes articles about environmental standards and special areas for water quality preservation. The Water Supply Act is the most important laws in water supply services. Regarding land use, The Land Use and Management Act plays

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 96 Water Market Asia - South Korea

Table 3.12: Utilities performance Seoul Average water tariff /m3 KW 507.3 (US$ 0.507) Coverage 10,276,725 Capacity (m3/day) 5,700,000 Production (m3/day) 3,677,195 Per capita supply (litre/day) 357.8 Interruptions to service 14.6% Employees/1000 connections 3,017 Operating ratio 64.5

Busan Average water tariff /m3 KW 586.9 (US$ 0.586) Coverage 3,674,152 Capacity (m3/day) 2,504,000 Production (m3/day) 1,202,957 Per capita supply (litre/day) 327 Interruptions to service 9.9 % Employees/1000 connections 1,365 Operating ratio 44.5

Daegu Average water tariff /m3 KW 438.5 (US$ 0.438) Coverage 2,532,271 Capacity (m3/day) 1,810,000 Production (m3/day) 1,029,888 Per capita supply (litre/day) 406.7 Interruptions to service 11.9% Employees/1000 connections 914 Operating ratio 56.9

Incheon Average water tariff /m3 KW 507.4 (US$ 0.507) Coverage 2,507,612 Capacity (m3/day) 2,092,800 Production (m3/day) 1,046,118 Per capita supply (litre/day) 417 Interruptions to service 13.4% Employees/1000 connections 905 Operating ratio 50.0%

Gwangju Average water tariff /m3 KW 509.8 (US$ 0.509) Coverage 1,367,542 Capacity (m3/day) 830,000 Production (m3/day) 409,560 Per capita supply (litre/day) 299 Interruptions to service 10.5% Employees/1000 connections 441 Operating ratio 49.3

Daejeon Average water tariff /m3 KW 423.9 (US$ 0.423) Coverage 1,407,745 Capacity (m3/day) 1,050,000 Production (m3/day) 526,298 Per capita supply (litre/day) 373.9 Interruptions to service 11.7 % Employees/1000 connections 462 Operating ratio 50.1

Ulsan Average water tariff /m3 KW 664.9 (US$ 0.664) Coverage 977,679 Capacity (m3/day) 584,400 Production (m3/day) 320,037 Per capita supply (litre/day) 327.3 Interruptions to service 11.9 % Employees/1000 connections 366 Operating ratio 54.8

97 Water Market Asia - South Korea

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) Korea Developing Asia High Income Asia Population with Access to Improved Sanitation n/a 54.64 100.00 Households Connected 70.00 7.22 99.29 Urban Population with Access n/a 77.09 100.00 Urban Households Connected 92.00 18.11 99.00 Rural Population with Access n/a 48.08 100.00 Rural Households Connected 43.00 2.57 90.00

Table 4.2: Water Pollution 2001 (% of total BOD Emissions) Korea Developing Asia High Income Asia Water pollution, chemical industry 12.94 9.94 8.81 Water pollution, clay and glass industry 0.20 0.46 0.15 Water pollution, food industry 25.96 43.27 42.73 Water pollution, metal industry 11.35 7.62 4.84 Water pollution, other industry 16.34 6.08 13.17 Water pollution, paper and pulp industry 18.21 9.38 26.14 Water pollution, textile industry 14.00 21.17 8.17 Water pollution, wood industry 1.00 2.67 2.17

Table 4.3: Other Environmental Indicators Korea Municipal waste generation 1995 (thousand tonnes) 17,438.00 Municipal waste generation 2002 (thousand tonnes) 18,214.00 Waste generation intensity 2002 (kg/capita) 380.00 Water extraction 1995 (million m3) 23,700.00 Water extraction 2002 (million m3) 26,000.00 Water extraction 2002 (m3/capita) 560.00 Nitrogen use 1995-97 (kg/ha agricultual land) 253.30 Nitrogen use change 87-97 (%) 46.60

Chart 4.1: Daily organic water pollutant emissions 1999- 2004 (kg)

310,000 303,091 297,310 300,000 293,380 289,890 287,566 290,000 283,887

280,000

270,000 1999 2000 2001 2002 2003 2004

Chart 4.2: Daily organic water pollutant emissions / 1000 people 1999-2004 (kg) 12.00 9.87 9.84 9.74 9.53 9.37 9.23 10.00

8.00

6.00

4.00

2.00

0.00 1999 2000 2001 2002 2003 2004

Singapore Dev eloping Asia (mean) High Income Asia (mean)

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 98 Water Market Asia - South Korea

Table 4.4: Wastewater Treatment Entities Type of wastewater supply entity Number Capacity (Mm3/d) % of pop. served Public agencies 0 0 0 Publicly owned companies (national government) 0 0 0 Publicly owned companies (municipal government) 94 8.6 40.7 Private companies 137 12.3 59.3

Table 4.5: Wastewater Treatment Sector Financing 2003 Source of finance for waste water sector Amount ( US$ 100m ) % total financing National government transfer 12. 4 30.6 Municipal government transfer 20.1 49.7 Us er charges 8.0 19.7 External donor assistance 0 0

Augmentation of wastewater treatment facilities ( US$m ) Finance Total 1996- 2001 2002 2003 2004- 2005 Total 16,573.5 7883.1 , 1,726.8 1,666.7 5,296.9 Central 9,373.0 4245.7 , 921.6 960.3 3,245.4 Local 7,200.5 3637.4 , 805.2 706.4 2,051.5

Expansion and maintenance of sewers Total 1996- 2001 2002 2003 2004-2005 Total 43,786 24,206 2,309 4,992 12,279 Km New 34,970 19,055 1,948 4,084 9,883 Maintenance 8,816 5,151 361 908 2,396 Finance (KW 100 million) 96,043 46,496 8,265 11,070 30,212

Enhancement of industrial wastewater treatment facilities ( US$ m) Total 1996- 2001 2002 2003 2004 - 2005 Total 748. 93 40 4. 54 52. 42 50. 20 241. 0 3 (449. 23 )* (158. 48) (23. 60) (46. 74) (220. 41 ) Industrial 682. 77 347. 57 51. 02 46. 34 237. 84 complex (414. 58) (128. 19) (22. 71) (44. 87) (218. 81) Industrial 65. 42 56. 97 1.40 3. 86 3. 1 9 complex in rural (34,643) (30. 29) ( 0.89) (1. 87) (1. 59) areas * ( ) means subsidy from the central government. Business operators in industrial parks h ave to install wastewater treatment facilities, and in order to encourage installation of the facilities, the government has established a set of laws and regulations t o subsidize part of installation cost of wastewater treatment facilities to business operators in industrial parks.

Table 4.6: PSP - Facilities Management Option in December 2003 No. of PSP Wwtr Capacity (1000 Contract period Regions PSP companies treatment plants m3/day) (years) Total 107 22 6,554 Seoul & Kyunggi 29 11 5,125 1-5 Chunla North & 12 6 320 1-3 South Provinces Chungchung North 23 13 224 1-3 and South Provinces Kangwon Province 5 6 120 3-5 Kyungsang North 33 10 766 1-5 and South Provinces

Table 4.7: Project Information for Pilot Projects Project Cost (US$ million) Capacity National Private No. of Plants (m3/day) Total government investment transfer (local) Total 83 2,254,580 2,304.21 1,162.21 1,142.00 Privately proposed 62 1,837,630 1,825.52 931.69 893.83 projects Government-funded 21 416,950 478.70 230.52 248.17 projects

99 Water Market Asia - South Korea

Table 4.8: Active companies (Wwtr) Table 4.9: Tariffs (2005) Company Origin City Typical Hhold Bill for monthly consumption of 20m3 (US$) Veolia Water France Seoul 2.23 Ondeo Services/Degrement France Busan 4.05 Hanhwa Construction South Korea Daegu 3.41 Doosan Heavy Industry South Korea Incheon 2.80 Samsung Engineering South Korea Gwangju 3.20 Daewoo Construction South Korea Daejeon 2.41 Lotte Engineering & Machinery South Korea Ulsan 2.08 Khumho Industrial South Korea Kun Yang South Korea Tae Young South Korea

Table 4.10: Performance Indicators (2004) Table 4.11: Main wastewater treatment facilities Volume of wastewater discharged (m3/day) 11,946,075 Facilities 268 plants % of wastewater treated 81.4 Primary treatment 0% Secondary treatment 77% Tertiary treatment 23% Table 5.1: Total annual withdrawals (bn m3/year) Network length 82,214 km (2004) Year 1998 Total Amount 127.6 Total Withdrawal 33.1 Household 7.3 (22%) Industry 2.9 (9%) Agriculture 15.8 (48%) Environment 7.1 (21%)

Table 5.2: Water Pollution Class BOD (mg/l) DO (mg/l) T-N(mg/l) T-P (mg/l) pH I < 1 >7.5 <0.200 <0.010 6.5-8.5 II <3 >5 <0.400 <0.030 6.5-8.5 III <6 >5 <0.600 <0.050 6.5-8.5 IV <8 >2 <1.0 <0.100 6.0-8.5 V <10 >2 <1.5 <0.150 6.0-8.5 Table 6.1: Key institutional contacts Ministry of Ministry of Ministry of Ministry of Government Construction and Environment Agriculture and Administration and Transportation Forestry Home Affairs Contact Jongtae Suh Youngchang Ryoo Jooho Kim Sekyoung Ahn person Position Director (Team Director (Team Director (Team Director (Team Leader) Leader) Leader) Leader) Address Water Policy Team, WaterSupply & Rural Water System Local Finance Policy MOCT, Government Sewage Team Management Team, Local Complex, Joongang MOE, Government Division, Rural Policy Administration Division, 1, Gwacheon City, Complex, Bureau, MAF MOGAHA, Government Kyunggi Province, Joongang 1, Government Complex, Sejong Road 55, South Korea Gwacheon City, Complex, Joongang Chongro-Ku, Seoul, South Kyunggi Province, 1, Gwacheon City, Korea South Korea Kyunggi Province, South Korea Telephone +82 2 2110 8231 + 82 2 2110 6509 +82 2 500 1986 +82 2 2100 4102 (direct) Fax +82 2 503 7413 +82 2 504 9277 +82 2 503 6733 +82 2 2100 4311 Email [email protected] [email protected] [email protected] [email protected]

Table 7.1: Active construction players Company Origin Veolia Water France Ondeo Services/Degrement/Nalco France Thames Water International UK Daewoo Construction South Korea Hanhwa Construction South Korea Hyundae Construction South Korea Tae Young South Korea Samsung Engineering South Korea Kumho Industrial South Korea Se Rim Paper South Korea Dong Shin Construction South Korea Lotte Construction South Korea Han Yang South Korea Lotte Engineering & Machinery South Korea Hyundae Engineering South Korea Woo Jin South Korea Jin Gun Development South Korea

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 100 Water Market Asia - South Korea

Known PSP Projects in South Korea Incheon Water & Wastewater

Inchon 20 -year BOT Total investment (USDm) 88.00

Sector 1 Water Sector 2 Wastewater

Capacity Timeline

Treatment 80,000 ton/d Contract awarded 2001 December

Equity investor Samsung 50.00%

Equity investor Veolia Environnement 50.00%

Municipal Wastewater Projects

BOO Total investment (USDm) 100.00

Sector 1 Wastewater Sector 2 No data In November 2005, it was announced that there were some water treatment projects in the making, and bidders include GS E&C and Daewoo C&E. Estimated costs for the projects varied from W30bn to W100bn, depending on their size.

Capacity Timeline

Treatment n/a ton/d Announced 2005 November

Equity investor Unknown Opportunity!! Pusan Wastewater

Pusan 20 -year BOT Total investment (USDm) 160.00

Sector 1 Wastewater Sector 2 No data In 2001, in Pusan, the second largest city, it won a BOT contract to build and manage the city’s wastewater treatment installations for 18 years. Ondeo holds 65%, and Korean partners hold the rest – Samsung Engineering 20%, and Khumo Industrial (15%).

Capacity Timeline

Treatment 135,000 ton/d Contract awarded 2001 May

Distribution 4,000,000 pop

Equity investor Khumo Industrial (Korea) 15.00%

Equity investor Samsung 20.00%

Equity investor SUEZ (Ondeo) 65.00%

Shihung Wastewater

BOO Total investment (USDm) 73.00

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Treatment ton/d Announced 2003 December Opportunity!!

Equity investor Unknown

101 Water Market Asia - South Korea

Yangju Wastewater Project

25 -year BOO Total investment (USDm) 70.00

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Treatment 75,000 ton/d In tender 2000 March

Contract awarded 2003 January

EPC contractor Hanwha Corp

Equity investor Hanwha Corp 50.00%

Equity investor SUEZ (Ondeo) 50.00%

Yongin Wastewater Treatment Plant

Yongin 20 -year BOO Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data The project involves the construction and integrated operation and management of Suji Sewage Treatment Plant and 11 others. The plant capacity is 165,730m3/day; the network is 141.1km (3 pump stations) and the facility area is 223,192m2. Construction period is 30 months.

Capacity Timeline

Treatment 165,730 ton/d Announced 2004 June

Distribution 141 km Opportunity!! Hyundai Water & Sewage

Kyonggi Chilgok 25 -year BOO Total investment (USDm) 155.60

Sector 1 Wastewater Sector 2 No data Veolia has a joint venture with Hunday Construction in the state of Chilgok (150,000 inhabitants), which was awarded a BOT contract in March 2001 for the operation of two existing wastewater treatment plants over 23 years and the design, ﬁ nancing and construction of a new plant.

Capacity Timeline

Treatment 22,000 ton/d Contract awarded 1999 January

Distribution 150,000 pop

Equity investor Hyundai

Equity investor Veolia Environnement

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 102 Water Market Asia - New Zealand

New Zealand

New Zealand’s high environmental standards and solid growth provide opportunities for wastewater treatment companies with an industrial waste treatment capability. Business opportunities are also likely to arise in key environmental sites where municipalities will seek to procure advanced treatment products and services to meet stringent standards for discharges. There will be fewer opportunities in the water sector where high quality raw water resources are plentiful and the quality of local government provision is operationally and ﬁ nancially adequate. As local utilities are not dependent on central government transfers for capital works, efforts to reduce public spending will not have a negative impact on the sector. Privatisation is not a “natural” choice in the New Zealand political context and local authorities expect to see high “value for money” in exchange for awarding PPP contracts. NZ$5bn (US$3.4bn) of investment would be needed in 2000-2020 to upgrade infrastructure to meet current and future needs.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Success Privatisation is not a "natural" option in the Future Opportunities Few New Zealand political context. However, the few existing PPP deals are working Local competition Negligible well.

Equipment Markets Comments Future Opportunities Numerous Future development needs for 2000-2020 Local competition Not negligible are estimated at NZ$5bn Public Utilities Comments Track record Good Service standards are very high and Sustainability High utilities ran following strict cost recovery ethics. Reliance on ODA None Government Comments Commitment to deliver service Yes Corporatised utilities reach A+ ratings Fiscal Resources Surplus (S&P) Economy & Finance Comments Recovery since Asian crisis (1997) Average Local capital maket Sophisticated

103 Water Market Asia - New Zealand

I. General Information to ensure that the benefi ts of competition are passed on to consumers. There have been some reversals in the overall trend towards I.1 Macroeconomic Situation greater private sector participation. The government bought back the The economic recovery that followed the recession of 1998 was sup- ailing airline, Air New Zealand and the national rail network from pri- ported by a recovery in exports and a sharp loosening in monetary vate investor Tranz Rail, although services will be still be provided by policy, which underpinned a strong rebound in domestic demand and a private rail company. a pick up in real GDP growth to 4.9%. Domestic demand has supported strong rates of growth throughout this period. Unemployment II. Water has fallen from a peak of 11% in 1992 down to around 4% today. II.1 Sector Policy & Structure The central bank has successfully kept infl ation within the 1-3% target Reform of the water sector in New Zealand has not been a priority for range, necessitating interest rate hikes in 2004. either central or municipal levels of government. The national gov- The Fiscal Responsibility Act of 1994 requires governments to comply ernment considered a reform agenda in the 1990s, initiated when it with legislated principles to ensure that public debt and public spend- became apparent that local governments had not been investing suf- ing are kept at ‘prudent’ levels. This legislation has proved effective in fi ciently in either treatment facilities or distribution networks to meet keeping down budget defi cits. increased demand and higher quality and discharge standards. How- ever, the restructuring plans were resisted strongly by local govern- I.2 Political & Investment Environment ment and the central government shifted responsibility back to the The country has been led by Helen Clark of the Labour Party since municipal level when the reform process became diffi cult politically. 1999. The government’s mandate was reaffi rmed in elections in Sep- Local government has, similarly, not made the water sector a priority. tember 2005 but Labour failed to gain an overall majority. It renewed A national review of water strategy, due to take place in 1998, was not its governing coalition with the Progressive Coalition Party. pursued, although some local councils conducted municipal reviews. In 2000, the newly elected Labour government embarked on a pro- Local government structure in New Zealand is based on the Local gramme of ‘closing the gaps’ – increasing social spending to reduce Government Act 2002 (LGA). Local authorities comprise 12 regional inequality – and reversed some liberalisation measures, causing councils and 74 territorial authorities. Regional authority roles and backlash from business and prompting accusations that the new poli- responsibilities are set out explicitly in the LGA. Councils have re- cies were racially divisive. Health, education and the reregulation of sponsibility for environmental management, regional transport, fl ood parts of the labour market are key issues for the Labour Party. protection, regional parks and land management, and harbour navigation and safety. The regional councils may also provide services to Deregulation and liberalisation policies were implemented in the 1980s the municipalities within them as in the case of the Greater Wellington and government enterprises including infrastructure and utilities were Council which has responsibility for the wholesale supply of water to corporatised and later privatised. The State-Owned Enterprises Act of municipalities. Local authorities are subject to stringent planning, re- 1986 requires SOEs to be profi t-driven and commercially viable. How- porting, and management requirements, which ensure strong budget- ever, some sectors are still dominated by the public sector including ary discipline. The legislation requires operating revenue to cover all electricity (three-quarters of electricity is generated by state-owned projected operating expenses, including depreciation, unless a local companies) and the water and sanitation sector, which is in the hands authority considers it prudent to budget for a defi cit in a given year. of local governments. There is no explicit guarantee from the central government of local Initially, New Zealand relied only on its competition law to regulate authorities’ debt and there is limited fi nancial support from the central utilities, but dissatisfaction with this system has prompted the estab- government. Central government transfers usually represent only a lishment of a telecoms commissioner and an Electricity Commissioner small proportion of a council’s total revenue.

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 8.00 2006 105,316 6.00 2005 107,276 4.00 2004 95,900 2.00 0.00 90,000 95,000 100,000 105,000 110,000 -2.00 1998 1999 2000 2001 2002 2003 2004 2005 2006

New Zealand Dev eloping Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean)

12.00 10.00 Chart 1.3: 2004 Sector Share of GDP 8.00 6.54 Agricult. 6.00 5% 3.12 4.00 2.20 2.50 2.00 1.51 1.25 2.00 Industry 0.00 28% 1998 1999 2000 2001 2002 2003 2004 Serv ices New Zealand Dev eloping Asia (mean) 67% High Income Asia (mean)

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 104 Water Market Asia - New Zealand

Table 1.1: Sovereign Risk Indicators New Zealand Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 11,630.00 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 22.80 59.60 50.84 Short Term Debt / Total Debt 2004 (%) n/a 10.49 n/a Fitch Sovereign Rating (2004) AA+

Table 1.2: Legal Risk Indicators 2004 New Zealand Developing Asia High Income Asia Time to enforce a contract (days) 50.00 392.62 103.67 Time to register property (days) 2.00 62.82 16.50 Time to resolve insolvency (years) 2.00 4.45 1.15 Time to start a business (days) 12.00 67.08 14.33 Legal rights of borrowers and lenders (0=no credit access) 9.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) New Zealand Developing Asia High Income Asia Political Rights 1.00 4.23 2.43 Civil Rights 1.00 4.69 2.14 Corruption Perception 9.50 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 New Zealand Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 10.33 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 1,096.73 185.54 1,281.59 Roads, paved (% of total roads) 62.80 44.75 75.32 Electric power consumption (kwh per capita) 8,831.71 717.46 7,505.93 Water supply failures (days) n/a 10.00 n/a

Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%) 3.21 3.50 3.20 3.00 8 4.00 2.57 6 2.00 4 0.00 2 -2.00 2002 2003 2004 2005 2006 0 -4.00 -2 2003 2004 2005 2006 -6.00 -4 -4.29 -6 -5.00 -8 -6.40 -6.00 New Zealand Dev eloping Asia (mean) High Income Asia (mean) New Zealand Dev eloping Asia (mean) High Income Asia (mean)

Chart 1.7: Inflation Rate 1999-2004 (%)

16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.62 2.63 2.68 1.75 2.00 2.29 0.00 -0.12 -2.00 1999 2000 2001 2002 2003 2004

New Zealand Dev eloping Asia (mean) High Income Asia (mean)

105 Water Market Asia - New Zealand

In addition to an annual report and an annual plan, local authorities Main Cities of New Zealand (2001) Population '000 are required to prepare long-term fi scal strategies, asset management Auckland 1075.00 plans, and revenue and fi nancing policies at least every three years, thus ensuring a strong match between revenue fl ows and expendi- Wellington 340.00 ture responsibilities. Comprehensive and transparent investment and Christchurch 334.00 borrowing management policies must also be prepared. All fi nancial Hamilton 166.00 statements are presented on an accruals basis, with appropriate ac- Dunedin 107.00 counting treatment of depreciation, which is fully expensed. Tauranga 96.00 New Zealand’s central government retains the right to intervene in the affairs of local authorities, although this role is likely to be limited to company. taking supportive action before a local authority’s fi nancial policies or condition jeopardizes its solvency. The law provides local authorities - A limited liability company created from the water business unit and with a general power to borrow domestically. wholly owned by local government (known as a Council Controlled Organisation (CCO), or if with profi table intent a Council Controlled The provision of water supply is the responsibility of the 74 territorial Trading Organisation (CCTO)). These have company status under authorities that make up the fi rst tier of government in the country. Of corporate law and with special further provisions applicable under Lo- these 15 are city councils and the other 59 are district councils. The cal Government legislation. Watercare Services Ltd (see table 3.6), territorial authorities are responsible for the provision of water, storm- for example, New Zealand’s largest water company that provides bulk water and sewerage infrastructure and services. 12 regional councils, treated water to several municipalities around Auckland, is structured that make up the next tier of government, are responsible for manage- as a CCO, so the company does not distribute dividends. The busi- ment of the effects of use of freshwater, coastal waters, river manage- ness is owned by the local governments in its Auckland service area ment, fl ood control and mitigation of erosion. who hold shares in the business and appoint its directors. Some small systems are community-managed. There are about 2000 The industry generally operates in a vertically integrated manner. Ex- of these community water supply systems in the country. Each of these ceptions are Auckland which has separation between bulk and retail is tested each year according to the Ministry of Health guidelines for operations in both water and wastewater, and Wellington where there potability but there is no mechanism for enforcement or penalties as- is a separation in the water supply sphere only between the Wellington sociated with failure to meet the standards as there is currently no law Regional Council and several local Councils which it supplies. There that makes it compulsory. However, the planned Health (Drinking Wa- is now a jointly owned management company involved in this. ter) Amendment Act will enforce the requirement for water suppliers to take all reasonable steps to supply safe water (Ministry of Health). II.2 Financing By law, the councils are obliged to separate operating and policy- In 2001, water and wastewater infrastructure assets were valued at making functions and to apply competitive pricing procedures. The approximately NZ$7.5bn with an annual operating expenditure of councils raise local taxes (rates) and are also able to charge fees for NZ$600m. It has been estimated that NZ$5bn of investment would the provision of services. However, legislation relating to local govern- be needed in 2000-2020 to upgrade infrastructure to meet current and ment taxation is under review. The existing Rating Powers Act places future needs. restrictions on councils’ ability to charge cost-recovery fees for the The sector is fi nanced through a combination of water charges and provision of services so a portion of service costs is funded out of rates. In keeping with the law on state-owned enterprises, municipali- general taxation. ties should cover their operating and capital costs through rates and Local councils strongly oppose central government-led drives for pri- user fees. Thus most fi nancing for the sector is internally generated. vatisation that would limit the discretion of councils in the decision to Where internal resources are insuffi cient, as in smaller municipalities invite private sector participation. However, local governments do sup- and rural areas where average costs are higher, central government port the review of rules and regulations surrounding the management funds are made available. In May 2005, the government launched a and delivery of water and wastewater. Some councils have adopted NZ$200m fund for investments in water supply systems to be made innovative approaches to service provision. For example, some lo- over a ten-year period. The funds will be used primarily to improve calities contract out the provision of water services to inter-district or rural water supplies. Local councils and water supply entities will have regional-level service providers, while Wellington and Auckland have to apply for the funding. In 2004, NZ$14.5m was allocated to help developed city-level water plans that cover several municipalities. The local governments to upgrade water networks to deal with increasing existing legal framework does not spell out the range of options open numbers of tourists. to local councils for service provision. The assistance comes in two forms: the Technical Assistance Pro- Provision of new capital works is largely by independent contractors. gramme (TAP), which came into effect on 1 July 2005 and, if the TAP Councils generally ceased to do any capital works with their own staff shows that there is a case for funding, through the Capital Assistance by the early 1990s. Similarly provision of professional advice and de- programme (CAP) which will be funded from 1 July 2006 in response sign services is now very largely with private consultants. to information gathered during the TAP. Surveys commissioned by the Ministry of Health in 2002 found that most small drinking-water sup- Local governments have adopted several different service delivery pliers considered that the lack of technical information and assistance structures: was the main problem to overcome to ensure safe water supplies. - A department of the local council responsible for the supply. It under- The TAP is designed to remedy this. The CAP will provide fi nancial takes asset planning and interaction with customers assistance where capital upgrades to the system are found to be necessary. Funding for the CAP should become available from the 2006/7 - A business unit under the local council undertaking the same func- fi nancial year. The main challenge will be to develop eligibility criteria tions. There is no legal separation between the unit and the council that effectively assist the smaller communities which do not benefi t but there is meant to be a greater degree of operational independence from economies of scale. Criteria and applications for assistance will from the council and more commercial accounting and governance. In be co-ordinated through the Sanitary Works Technical Advisory Com- this type of structure, it is common for the service delivery and main- mittee (SAWTAC). tenance to be contracted from another party, in some cases an independent private contractor and in others from a separate arm of the Under the law, local governments are able to raise private fi nance council constructed for this purpose. These separated service busi- and benefi t from good credit ratings. As a limited company, Watercare nesses often have to compete for the work. Competitive forces have can access fi nancial markets directly and has done so on several oc- been allowed to operate to the extent that those units unable to attract casions. enough work have been streamlined or closed down. Successful units are not always retained by councils but may be sold in whole or part II.3 Private Sector Participation to private ownership. The involvement of the private sector in water and sanitation has been controversial in New Zealand. The government has conducted exten- - One council has franchised its water operation to a private water

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 106 Water Market Asia - New Zealand

Table 2.1: Income Level New Zealand Developing Asia High Income Asia GDP per capita 2004 (US$) 23,610.00 1,104.30 23,628.57 Population on less US$1 per day 2004 (%) 0.00 18.23 0.00 Unemployment 2004 (%) 3.90 6.73 4.89

Table 2.2: Area & Population New Zealand Developing Asia High Income Asia Population Growth 2003 (%) 1.78 1.67 0.64 Urban Population Growth 2003 (%) 1.89 3.48 1.18 Population Density 2002 (pop/km2) 14.22 231.45 2,335.17 Area (thousands Ha) 27,053.00

Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban 2000-2003 (cst 2000 US$) (millions) 4.07 Population (%) 4.10 86.13 86.20 10,949 11,261 4.01 12,000 10,709 4.05 86.10 86.03 4.00 10,000 3.94 86.00 85.93 3.95 8,000 3.88 85.90 85.83 3.90 3.86 6,000 3.85 85.80 4,000 3.80 85.70 2,000 n/a 3.75 85.60 0 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002 2003

Chart 2.4: Consumer Exp. on Water 1999-2004 (US$m) Chart 2.5: Consumer Exp. on Water Growth Forecast 2005-2009 (%)

200 4.00 3.73 3.75 145.44 151.57 134.51 137.38 150 127.61 3.00 116.23 3.08 2.63 100 2.00 1.70 50 1.00

0 0.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 sive consultation with stakeholders in order to reduce the polarisation New Zealand Dev eloping Asia (mean) of the debate. The private sector therefore plays a role in providing fi nance to local governments and corporatised entities but only a lim- High Income Asia (mean) ited role in service provision. Private investors are involved in a few small number of water and wastewater BOT projects where quality is particularly important (Earthtech project). The corporatised entity the early 1990’s. Charging is by a two part charge of a connection Watercare Services has successfully drawn on private fi nance but the charge and a volumetric charge. In Auckland City the volume used is company does not distribute dividends (any excess of revenue over also used to calculate part of a sewerage service charge. Where there cost is returned to shareholders, who are also the company’s clients, are no meters, payment for water is typically by one or a combination through a price decrease). of a uniform annual charge or a property value related tax. Unsurpris- ingly water consumption is often much higher in areas where there are In the water sector there are three DBO projects, two O&M contracts no meters. Flow-based tariff systems have been fi ercely resisted by and one lease (see list of projects at the end of this profi le.) some communities, as it is seen as a fi rst step towards privatisation. II.4 Tariffs (see table 3.4) II.5 Regulation Current pricing and charging approaches for water and wastewater There is no focal Ministry for the sector at the national level, with sev- vary across districts and cities. Charges are based on property rates, eral Ministries responsible for different aspects of water supply. The uniform annual charges and fl ow-based charges are used either in- Ministry of Health (MOH) is responsible for setting detailed quality dividually or in combination. Property based charges are used to fi - standards and administers funds for investment. The Ministry of Eco- nance stormwater management. Most tariffs are fl at-rate charges. nomic Development and the Ministry of Local Government have a role Water metering is not common at domestic level. The Auckland Region in regulating the investment activities of local governments, while the is the principal exception, where universal metering was completed in Ministry of Environment sets and monitors wastewater standards.

107 Water Market Asia - New Zealand

The national drinking water guidelines for water quality are not yet and solid trading results. Forecast projections from fi scal 2005 to fi scal mandatory, while water systems are rated by the Health Department 2009 indicate healthy EBITDA coverage ratios of between 4.5% and but upgrading to a minimum standard is similarly not mandatory. New 10.5%, and extremely low gearing ratios of between 10% and 16%. Drinking-Water Standards were announced in August 2005 by the The company has a diverse customer base with limited exposure to Ministry of Health and came into effect on 31 December 2005. These large industrial customers. All borrowings associated with Metrowater replace the drinking water standards dating from 2000, although the Ltd. are taken and on-lent by the city council. characteristics that defi ne whether water is safe to drink have changed very little from earlier editions. However the criteria for demonstrat- Tauranga (see table 3.5) ing compliance have been refi ned. Proposed new legislation, the Tauranga plans a large capital-expenditure program to meet the grow- Health (Drinking Water) Amendment Bill, is currently being drafted. ing demand for water, and stormwater infrastructure and services from The proposed law will require suppliers to take all practicable steps to high population growth. The expenditure will largely be funded by debt comply with the standards. The standards will operate in conjunction and in 2006 net debt will reach about 123% of operating revenue. with Public Health Risk Management Plans (PHRMPs) for each water Between 2005 and 2007, capital expenditure is projected to represent supply unit. over 40% of total budgetary expenditure, with wastewater and transport receiving most of the allocations. Most of this capital expenditure Local governments are obliged to carry out assessments of their water relates to renewals or upgrades to existing assets. Capital expendi- and sanitary services. System regulations are through a mixture of ture on water supply, wastewater and stormwater assets is funded a national building act which sets standards for private property, na- through both rates and user charges. tional water supply regulations, local by-laws and in some cases area specifi c pieces of national legislation. Hutt There are no national service standards. They are set by local Coun- Water and wastewater rates generate 25% of the council’s revenue cils. A few have specifi c service contracts for their customers. Others (50% comes from general rates). Both forms of rate revenue can be use an annual process where their draft annual plans are open to easily modifi ed to accommodate increased need for expenditure, scrutiny and comment by the public. Most operators have some sys- thereby providing the council with a high degree of fi nancial fl exibility. tem for assessing public satisfaction with their service by survey of However, possible political ramifi cations will always prevent the coun- consumers. However water matters are only a small part of this and cil from hastily increasing rates each year. Targeted rates for water and do not get detailed attention. There is also a national scheme for com- wastewater are not expected to increase above infl ation. The council paring performance indicators but the information is kept private. is responsible for operating expenditure for water supply, collection, treatment and disposal of wastewater and stormwater. Most of these II.6 Performance services are compulsory and labour-intensive obligations, regulated In general, the standards of raw water are very good in New Zealand, by binding national standards and legislation, leaving limited scope for reducing the need for treatment. The quality of drinking water in New effi ciency improvements. Zealand has steadily improved since the MOH introduced a drinking- 80%-90% of capital expenditure projects cover renewal or mainte- water quality management programme in 1993. nance work that is considered non-discretionary. Capex is expected Greater Wellington Regional Council to take up 25% of expenditures compared with less than 20% in each year since 2000, except in 2002, when a large wastewater treatment GWRC is a regional authority located at the southern end of the New plant took close to half total expenditure. The majority of capital ex- Zealand’s North Island. GWRC’s jurisdiction covers a land and mari- penditure will focus on water and wastewater services and roads and time area of more than 1.5 million hectares and includes a population traffi c management. The council is increasing its expenditure on storm- of close to 445,400. The region includes eight territorial authorities: water after recent incidents of fl ooding. Overall, the total increase in the city councils of Wellington, Lower Hutt, Upper Hutt, and Porirua; capital spending will be NZ$8m over the 2005-1015 period. and the rural district authorities of Masterton, Carterton, South Waira- rapa, and the Kapiti Coast. The GWRC is not directly responsible for Dunedin City providing water supply services, but it supplies bulk water to the local The council will be increasing capital expenditure in order to meet councils within its region. Most capital investment responsibilities for ever-changing and strict regulatory or environmental standards on the water, and wastewater lie with city councils but the GWRC has re- discharge of water and wastewater. Two major water projects con- sponsibility for expenditure on environment management, water sup- tinue to dominate the future spending of the council. For the southern ply and fl ood protection. water development, the bulk of the planned NZ$24 million expenditure Water supply levies generate 15% of revenue for the GWRC, com- in 2004 was delayed and is now expected to fall in 2005. The planned pared to regional rate revenue which generates 38% of revenue. Tahuna wastewater project has been substantially delayed by the decisions of the Environmental Court. Most of the council’s proposed medium-term capital expenditure will focus on regional transport, with the next largest item being regional Dunedin City’s capital spending programme accounts for about 20%- water supply and fl ood-protection. In the past, GWRC has maintained 30% of total spending and is focused on water, wastewater and road a fairly low level of capital expenditure at an average of 9.1% of total projects. This includes projects that the council is required to imple- operating expenditure in the past fi ve years. In 2002, capital expendi- ment to comply with environmental laws, such as the NZ$27.1 million ture was NZ$1.8 million below budget at NZ$7.6 million. The council wastewater upgrade. plans to maintain about the same level of capital expenditure as a percentage of total operating expenditure in the medium term, primar- Waitekere City ily on a number of fl ood protection and water supply related projects. Water and wastewater infrastructure does not constitute a large part In 2002, the council’s strong accrual operating surplus was primarily of the council’s infrastructure development budget at this time. From attributed to an additional surplus of NZ$1.6 million in regional water a cash fl ow perspective, Waitakere continues to post good cash op- supply because of reduced expenditure on interest, chemicals, and erating surpluses, with more than 11% of operating revenues in 2004, contractors and consultants. which was similar to the result obtained in previous years. This level is, however, less than the average surplus of the seven other rated lo- Auckland cal governments in New Zealand, at about 20% of operating revenue. Metrowater Ltd is a 100%-owned subsidiary of Auckland City Council. Stronger cash fl ow generation over the coming years, primarily from The company is considered to have a strong business profi le and a growth in receipts from rates and water charges, will gradually close very conservative fi nancial profi le. Average revenues of NZ$5m/year this gap, with cash operating fl ow reaching 20% of operating revenue from Metrowater account for a quarter of the local government’s over- by fi scal 2008. all revenues. In 2004, Metrowater forecast a 28% increase in revenues over the 10-year planning period, primarily due to population Watercare Services increases. Metrowater is planning a capital expenditure programme Watercare Services Limited is New Zealand’s largest company in the of an average NZ$33.8m per year over the same period. Metrowater water and wastewater industry. The company supplies bulk water to has a track record of healthy revenue growth, low expenditure growth, the Auckland region. The water is supplied to six water retailers which

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 108 Water Market Asia - New Zealand

Table 3.1: Water Service Coverage Indicators 2002 (%) New Zealand Developing Asia High Income Asia Population with Access to Improved Water 100.00 76.85 100.00 Households Connected 100.00 22.27 99.00 Urban Population with Access 100.00 86.17 100.00 Urban Households Connected 100.00 48.27 99.50 Rural Population with Access n/a 71.42 100.00 Rural Households Connected n/a 14.58 97.00

Table 3.2: Water Resources New Zealand Precipitation Volume 2002 (bn m3/yr) 468.60 Precipitation Depth 2002 (mm/yr) 1,732.00 Groundwater: produced internally 1998-2002 (bn m3/yr) n/a Surface water: produced internally 1998-2002 (bn m3/yr) n/a Overlap: surface and groundwater 1998-2002 (bn m3/yr) n/a Water resources: total internal renewable 1998-2002 (bn m3/yr) 327.00 Water resources: total external 1998-2002 (bn m3/yr) 0.00 Water resources: total renewable 1998-2002 (bn m3/yr) 327.00 Agricultural water withdrawal 1998-2002 (bn m3/yr) 0.89 Domestic water withdrawal 1998-2002 (bn m3/yr) 1.02 Industrial water withdrawal 1998-2002 (bn m3/yr) 0.20 Total water withdrawal 1998-2002 (bn m3/yr) 2.11

Table 3.3: Water Resources II New Zealand Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 85,023.00 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 85,023.00 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 548.60 507.25 544.73 Dependency ratio 1998-2002 (%) 0.00 33.33 1.74 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 0.27 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 0.65 16.19 13.19

Chart 3.1: Water Uses 2002 (%) Chart 3.2: Fresh Water per Capita 1999-2004 (m3/head) Agricult. Indus. 89,000 88,078 42% 87,628 9% 88,000 86,942 87,274 86,554 87,000 85,848 86,000 85,000 84,000 1999 2000 2001 2002 2003 2004

Dom. 49%

Table 3.4: Water Tariffs Waitakere (Ecowater) Metrowater Papakura

(Auckland district) (Aukland City) (Auckland district) Average water tariff /m3 1.48 2.39/m3 (incl wwater) 3.43 (incl wwater) Average hhold bill/month $60 + variable charge Number of connections 13,000

109 Water Market Asia - New Zealand in turn supply the water to customers in the Auckland region. The wa- ban areas. The government has engaged in a process of consultation ter is drawn from 12 sources comprising 10 dams, the Waikato River on national policy for the distribution of water resources. and an aquifer at Onehunga. Watercare also operates a regional About half of New Zealand’s drinking-water is pumped from the wastewater network, receiving wastewater from four of the region’s ground, with the remainder coming from surface sources. councils. Watercare is a council owned organisation under the Local Government Act 2002 and it is a company registered under the Com- Environmental Policy panies Act 1993. The city and district councils of Auckland, Manukau, Two government agencies have direct responsibility for conservation North Shore, Watakere, Papakura and Rodney own Watercare. The and the environment. The Department of Conservation is responsible owners appoint a shareholder representative group and appointments for conserving the natural and historic heritage of New Zealand and Watercare’s board of directors and determines the company’s overall controls one-third of the land area. The Ministry for the Environment objectives. advises the government and the public on the promotion of sustain- Watercare’s operational and fi nancial performance has been good. able management of the environment. In the medium-term, from 2010, the company plans an increase in In 1991 New Zealand introduced ground-breaking legislation. The capital expenditure, which will weaken the company’s fi nancial per- Resource Management Act (RMA) represents the fi rst attempt by a formance, but revenues will remain reliable. The company’s ability to government to treat the management of natural resources under a control operating and capital costs, and achieving expected increase single law. The act emphasises three main concepts: in revenue over the high capital-expenditure period, will be paramount in maintaining its moderate fi nancial profi le. - safeguarding the environment and natural resources for future gen- erations; III. Wastewater - protecting ecosystems (air, soil, water); and III.1 Sector Policy & Structure - avoiding and remedying environmental damage. Water supply and sewage disposal in New Zealand is predominantly a function of local government, within a framework of standards and The act sets out the responsibilities of individuals and businesses with regulations set out by the national government. Discharge standards respect to the environment. Local councils develop policies in accor- defi ned at the national level are becoming more stringent, necessitat- dance with the guidelines, and local communities can assist with for- ing more investment by local government. The national government mulation and implementation of these policies. The act was amended set up a NZ$180m fund in 2003 to fi nance investments by local coun- in 1999 to reduce the costs and delays of the consent process but cils to upgrade wastewater treatment. businesses have continued to complain about costs of compliance and extra bureaucracy due to the RMA. The Act has also led to the III.2 Private Sector Participation blocking of large infrastructure projects, like the proposed Aqua hy- There are several examples of wastewater service provision by the dro-electric generation scheme on the lower Waitaki River (which was private sector in New Zealand. Projects tend to be in areas with sensi- dropped in March 2004). In 2004, the government proposed amend- tive environments and in the larger urban centres. Projects include: ments to the Act in response to criticism from business including: Ballarat, Papakura, Ruapehu, Thames Coromandel, Wellington. In - a greater role for the central government in supporting local decision- Auckland, Watercare Services, a council-owned company provides making and in the consent process, wastewater collection, treatment and disposal services to four of the six municipalities in the region. We are aware of 2 DBOs, 1 Lease - right of the central government to designate certain projects as ‘in and 3 O&M contracts for the provision of wastewater services (see the national interest’ Part 4). - greater use of national policy statements and national environmental III.3 Tariffs standards to improve consistency across local governments, Charges for wastewater are based on property rates or uniform an- - extra funding from central government to councils considering major nual charges. infrastructure initiatives. III.4 Regulation - streamline decision-making and appeals. Environmental regulation is coherent and extensive. Environmental IV.2 Laws and Institutions law is established at the national level, with powers delegated to regional councils to grant and enforce consents to dam, take and dis- See table 5.1 charge water. The Ministry of the Environment plays a role in monitor- V. Sources ing discharge. EIU, Interviews, http://www.waternz.co.nz, http://www.moh.govt.nz/ III.6 Facilities water, http://www.nzwwa.org.nz In 2003, New Zealand’s most advanced sewage treatment plant was completed at Mangere, Auckland. It is run by Watercare Services. The plant treats almost all of the city’s wastewater. IV. Environment and Legal Aspects IV.1 Water and Wastewater Fundamentals Water Resources New Zealand has plentiful water sources but increased demands for water have led to increased pressure on water resources in some ur-

Table 3.5: Tauranga Capital Expenditure 2004-2007 Major Activity (%) 2005 2006 2007 Transportation 27.1 42.9 30.6 Stormwater 6.9 7.8 6.3 Wastewater 10.5 8.9 3.4 Water 13.1 3.6 5.8 Library 4.9 5.2 2.0 Parks, open space and coastal 11.6 19.7 24.1 Source: Standards & Poor

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 110 Water Market Asia - New Zealand

Table 3.6: Perform ance Indicators C ity Council Performance Measures Wellington City Council Christchurch City (distribution) Council Average water tariff /m3 N/A N/A Average hhold bill/month 18.75 (NZ$225/year) 7 Average water consumption lcd 500 450 Average production mld 137 Cover age 100 Length of water pipes km 1001 1,500 Number of connections 65,000 117,000 Population served (‘000) 320 Metering 1,200 connections 0 (domestic) Operating expenditure ($’000) 14,000

Wellington Region Performance Measures (2004) Wellington R egional Council (treated water) Average water consumption lcd 413 Average production mld 150 Population served (‘000) 360 Non- revenue water 5 Operating revenue 23,844 Operating expenditure ($’000) 22,811 Current liabilities 4,062 Current assets 4,064

Auckland Region Performance Measures (2004) Average water tariff /m3 1.36 Average hhold bill/year (water) 267 Average hhold bill/year (wastewater) 390 Average water consumption lcd 190 Average production mld 128m m3 Wastewater treated 130m m3 C overage 100 Population served (‘000) 1,275 Metering 100 Quality of water (Potable/Non- potable) High Non- revenue water 12.7

Watercare Services Structure and Performance Name Watercare Services Limited Location Auckland Contract Bulk water suppl y Type Wastewater collection and treatment (for 4 councils) Off - takers 6 water retailers(Metrowater, North Shore City Council, Manukau Water, United Water, Rodney District Council, Waitakere City Council) Facilities 340km 2 water network Water supply 347,000 m3/day (6 treatment plants) Wastewater treatment: 288,000m3/day Ownership C ouncil owned organisation under the Local Government Act 2002; Shareholders: city and district councils of Auckland, Manukau, North Shore, Watakere, Papakura and Rodney Technolog y Waikato Treatment Plant uses ultra filtration membrane technology (only UF plant in New Zealand)

Watercare Financial Performance 2005 (NZ$m) Revenue Pretax EBITDA Total Total FFO Oper. inc./ FFO/TD TD/TC NCF/ profit assets debt sales (%) (%) (%) Capex (%) 155.6 15.7 90.8 1,605.4 358.3 65.4 57.7 18.3 23.5 96.6 FFO: funds from operations, FFO/TD: FFO/ Total Debt, TC: Total Capital, NCF: net cash flow Chart 4.2: Daily organic water pollutant emissions / 1000 people 1999-2004 (kg) 10.00

8.00 6.50 6.59 6.34 6.23 6.14 6.03 6.00

4.00

2.00

0.00 1999 2000 2001 2002 2003 2004

Korea Dev eloping Asia (mean) High Income Asia (mean)

111 Water Market Asia - New Zealand

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) New Zealand Developing Asia High Income Asia Population with Access to Improved Sanitation 100.00 54.64 100.00 Households Connected 100.00 7.22 99.29 Urban Population with Access 100.00 77.09 100.00 Urban Households Connected 95.00 18.11 99.00 Rural Population with Access n/a 48.08 100.00 Rural Households Connected n/a 2.57 90.00

Table 4.2: Water Pollution 2001 (% of total BOD Emissions) New Zealand Developing Asia High Income Asia Water pollution, chemical industry 5.16 9.94 8.81 Water pollution, clay and glass industry 0.11 0.46 0.15 Water pollution, food industry 57.25 43.27 42.73 Water pollution, metal industry 3.22 7.62 4.84 Water pollution, other industry 3.51 6.08 13.17 Water pollution, paper and pulp industry 21.75 9.38 26.14 Water pollution, textile industry 5.00 21.17 8.17 Water pollution, wood industry 4.00 2.67 2.17

Table 4.3: Other Environmental Indicators New Zealand Municipal waste generation 1995 (thousand tonnes) 1,431.00 Municipal waste generation 2002 (thousand tonnes) 1,541.00 Waste generation intensity 2002 (kg/capita) 400.00 Water extraction 1995 (million m3) 2,000.00 Water extraction 2002 (million m3) 2,000.00 Water extraction 2002 (m3/capita) 560.00 Nitrogen use 1995-97 (kg/ha agricultual land) 6.13 Nitrogen use change 87-97 (%) 31.47

Chart 4.1: Daily organic water pollutant emissions 1999- 2004 (kg)

60,000 54,738 53,131 53,869 55,000 52,979

50,000 46,576 46,099 45,000

40,000 1999 2000 2001 2002 2003 2004

Table 5.1: Laws, Regulations and Legislative Barriers to Reform Law Date Provisions/ Problems Water Supplies Protection 1961 do not apply to all water supplies (e.g. private) and are not Regulations enforceable Local Government Act 1974 no provision requiring local authorities to prepare a water services plan integrating all aspects of water services and infrastructure (in contrast to the requirement for a waste management plan) lack of congruency between LGA and RMA provisions regarding trade waste. A local council faces the risk of breaching its resource consent conditions for discharge of wastewater from wastewater treatment plants when it is unable to control the discharge of trade waste into council sewers Environment Act 1986 Rating Power Act 1988 1988 no provision for local authorities to charge for wastewater by volume no provision for local authorities to charge for stormwater by area no provision for local authorities to charge for capital cost of improving or extending infrastructure for new developments Local Government Act 1989 Resource Management Act 1991 See environment section Local Government Act 2002 Health Act lack of clarity with the framework for water delivery and unclear criteria Building Act no provisions requiring local authorities to address water efficiency and undertake demand management measures

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 112 Water Market Asia - New Zealand

Average Performance indicators for New Table 6.1: Performance Indicators for

Zealand Water Utilities (1998-2004) MetroWater

sold)

(US$/mwater

CostW&WW

Operational Operational

Unit

served

of People of

Thou

2 o206.89.0251 64.98% 285.19 96.20 65.98 to 125 250

Year

2004

2003

2004

200

.400%16 .53.2 34 39.72% 0.65 1.62 0.00% 1.14

sands sands

better(%)

treatment or or treatment

secondary

Wastewater-

(l/perso

Con

TotalWate

Supply(%)

Discontinuous

With With

Customers Customers

(#/km)

con

water Den

sumption

9.06.0 49%0.0 34.96% 65.00% 295.60

85.1

/ .206 97%3.617.1 34.26 39.72% 0.65 1.62 n/a

/ .206 03%3.815.8 31.68 40.36% 0.65 1.62 n/a

n/da

nections

sity o sity

r r

f f

sold)

(US$/m water water (US$/m

W&WW

Revenue Revenue

Average Average

(% of total) of (%

Consu

Residential

sold)

(US$/m water

Revenue W&WW W&WW Revenue

Average Average

(#/km)

connection Density of sewer sewer of Density

4.98

mptio

49%0 34.99% %

n n

sold)

(US$/mwater

wateronly

revenue - - revenue

Average Average

(%o

Consumption Consumption

Commercial Commercial

Industrial/

s s

f total) f

watersold)

only (US$/m only

revenue - water water - revenue

Average Average

Consu

(l/p

otalWater

erso

mptio

W&WW)

total for

%(% Water of

Revenue Split Revenue -

tota

Others (% Others of

by Institutes & Institutes & by

Consumption Consumption

n/day)

n n

0%00%153 .506 .42.00.00% 24.00 1.14 0.69 0.25 185.32 0.00% .03%

%0.00 4%

totalW&WW) for

%Water (% of

Revenue Split Revenue -

consumptio

of total of

Consu Residential

(US$/conn/yr)

Tariff

Component of of Component

Residential Fixed Fixed Residential

Supply (% of of (% Supply

BulkTrea

tal)

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113 Water Market Asia - New Zealand

Known PSP Projects in New Zealand Eco Care Wastewater Project

Mangawhai DBO Total investment (USDm) 20.00

Sector 1 Wastewater Sector 2 No data Earth Tech has won a US$20 million contract for wastewater services to Mangawhai. The DBO for the Eco Care Wastewater Project covers the construction and operation of the entire wastewater system for this resort in a sensitive marine area, where the municipality has prioritised the environmental impact.

Capacity Timeline

Treatment n/a ton/d Contract awarded 2005 December

Equity investor EarthTech

Hutt Valley Wastewater

Lower Hutt DBO Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data Hutt Valley Water Services (HVWS), a subsidiary of OMI Beca and New Zealand Water Services, was commissioned to design, build and operate the Hutt Valley Waste Water Treatment Plant.

Capacity Timeline

Production n/a m3/d Contract awarded 2000

Equity investor New Zealand Water Services (Degremont)

Mangere Wastewater

O&M Total investment (USDm) 310.50

Sector 1 Wastewater Sector 2 No data New Zealand Water Services, a subsidiary of AWS, in consortium with Fletcher Construction, CH2M Beca and Bovis Lend Lease were commissioned in 1998 to design and build the Mangere Waste Water Treatment Plant, on behalf of Watercare Services Limited. AWS’ responsibilities in this project have been to start-up and commission the new process units, and to provide on-going operations supervision until substantial completion is reached.

Capacity Timeline

Distribution 1,200,000 pop Contract awarded 1998

Equity investor New Zealand Water Services (Degremont)

Ruapehu

Ruapehu 10 -year O&M Total investment (USDm)

Sector 1 Water Sector 2 Wastewater Since November 2002, United Water has been responsible for providing water, wastewater and stormwater services in the Ruapehu District, servicing the townships of Taumarunui, Ohakune, Owhango, National Park, Raetihi, Waiouru, Ohura, Piriaka and Pipiriki. Asset and operational responsibility includes: 4,500 water connections, 3,700 wastewater connections, 6 water treatment plants, 6 wastewater treatment plants, 8 water networks, 7 wastewater networks, 117km of water pipes, 97km of wastewater pipes, 38km of stormwater pipes

Capacity Timeline

Distribution 15,000 pop Contract awarded 2002

Equity investor Halliburton

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 114 Water Market Asia - New Zealand

Investment vehicle United Water (Veolia Water & Halliburton)

Equity investor Veolia Water

Thames-Coromandel

Coromandel O&M Total investment (USDm) n/a

Sector 1 Water Sector 2 Wastewater Water assets: 14,650 water connections, 11 water treatment facilities, ranging from 50m3/d to 3,120m3/d, with a total capacity of 12,600m3/d, 450 km of water mains, ranging in diameter from 15mm to 375mm, 24 water pumping stations, 39 water storage reservoirs, ranging in capacity from 10m3 to 13,000m3. Wastewater assets: 18,100 wastewater connections, 11 wastewater treatment facilities, ranging from 10m3/d to 4,280m3/d, with a total capacity of 9,200m3/d, 320 km of wastewater mains, ranging in diameter from 50mm to 525mm, 93 wastewater pump stations.

Capacity Timeline

Distribution 25,000 pop Contract awarded 2004

Equity investor Halliburton

Investment vehicle United Water (Veolia Water & Halliburton)

Equity investor Veolia Water

Wellington Clearwater

Wellington DBO Total investment (USDm) 102.81

Sector 1 Water Sector 2 No data In June 2004 United Water ﬁ nalised the purchase of Anglian Water International (NZ) Limited and its “Clearwater Wellington” operations. Completed in September 1998 and costing $NZ149 million to build, the Clearwater Wellington project involved the construction of two sophisticated wastewater treatment plants, a sludge dewatering plant, a nine kilometre twin sludge pipeline and a 1.8km outfall pipe. Built under a Design-Build-Operate (DBO) contract, the assets are owned by the Wellington City Council. On July 1 2004, United Water commenced the management, maintenance and operation of the treatment facilities at Moa Point and Karori West until October 2019. Management and operation of the city’s wastewater pipe network continues to remain the responsibility of the Wellington City Council.

Capacity Timeline

Production n/a m3/d Contract awarded 1998

Operator United Water (Veolia Water & Halliburton)

EPC contractor United Water (Veolia Water & Halliburton)

Aukland

Papakura

Papakura Aukland 30 -year Lease Total investment (USDm) 9.04

Sector 1 Water Sector 2 Wastewater United has the responsibility of managing, maintaining and operating: 13,000 water services, 10,500 sewer connections, approximately 270km of water mains, approximately 205km of wastewater sewers, 1,700 ﬁ re plugs and hydrants, 23 sewer pumping stations, 1 water pumping station and 360Kl storage tank, The Drury Wastewater Treatment Plant.

Capacity Timeline

Distribution 41,000 pop Contract awarded 1997

Equity investor Halliburton

Investment vehicle United Water (Veolia Water & Halliburton)

Equity investor Veolia Water

115 Water Market Asia - New Zealand

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 116 Water Market Asia - Singapore

Singapore

Singapore is a very mature water and wastewater market. The role of the public sector is pivotal and performance is excellent by regional and international standards. There has been some experimentation with PSP (2 projects) but the rationale for these had more to do with industrial policy than getting value for money for public dollars. Capacity is now in line with demand forecasts up to 2011 and beyond. There will not be any new large water projects in Singapore for some time. Singapore is also the base of some of the most successful water utilities in the region, the most famous of which is Hyﬂ ux. These utilities have now turned their attention to the PRC and other developing markets in Asia and will need to expand regionally in order to survive. Singapore’s wastewater projects are also well under way, but some opportunities remain for contractors as new construction phases are planned for the coming years.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Success (2 projects) Singapore is a country place so they have Future Opportunities None PPPs. But the concept has not convinced the Public Utility Board which considers it is Local competition Very significant doing a good job and did not get value for mo

Equipment Markets Comments Future Opportunities Few High spec maintenance and upgradng Local competition Very significant contracts available, but new local water players appear every year.

Public Utilities Comments Track record Good Very high performance by regional Sustainability High standards, on par with OECD. Reliance on ODA None Government Comments Commitment to deliver service Yes Water is a pivotal policy item in Singapore, Fiscal Resources Surplus which sees water supply as a strategic issue for the island.

Economy & Finance Comments Recovery since Asian crisis 1997 Average Thanks to its industrial base, Singapore is Local capital maket Sophisticated proving more resilient than HK.

117 Water Market Asia - Singapore

I. General Information miership. I.1 Macroeconomic Situation Lee has maintained the relatively liberal approach to governance that was practiced by Goh and is favored by the reformist wing of the PAP Despite a below-forecast GDP growth due to slacking worldwide de- and has not – as some had feared – moved towards the more authori- mand in electronics and pharmaceuticals, Singapore grew by 8% in tarian approach that was the hallmark of his father, Lee Kuan Yew. 2004, second only to China (including Macau). In 2004, Singaporeans saw their economic good fortune return and the government pledged The next scheduled legislative election is in November 2006. With to create more jobs to address the historic high of 4.5% unemploy- 75% support the PAP can be sure of its outcome. However, anti-gov- ment. However, continued dependence on export and high oil prices ernment sentiment has somewhat developed and the opposition is are likely to limit Singapore’s growth level for 2005, at around 4-5%. becoming more active. The extent to which the government can keep However, the downturn in global electronics demand is bottoming and their promise on the economy will determine the potential dissent that that trend is on the up. the opposition would count on. While many countries would regard such growth as wholly adequate, it As a result of Lee’s August 2004 lifting of restrictions on free speech, a actually represents a 50% contraction on performance in 2004, raising move that was intended to reinforce his image as a moderate, the gov- concerns that far from jobs being created, some, if not many, are likely ernment will doubtless become aware of the general mood through to be shed over the coming year. Meanwhile, with reduced revenue public rallies and the like. squeezing state coffers, socioeconomic projects aimed at improving living standards will doubtless suffer. II. Water The water and sanitation sector of Singapore is managed by the Pub- Service growth has been steady. Loan growth to the services sector, lic Utility Board or PUB, a corporatised entity, independent but closely including commerce, transport, communications, and fi nancial institu- linked to the government. PUB collects all tariffs and fees related to tions, climbed in 2Q05 and construction activity is also turning around, water services and fi nances the development and maintenance of the with contracts awarded rising and net construction employment turn- water sector (treatment and desalination) with its own funds, while the ing positive in March 2005 for the fi rst time in years. Major projects, in- Government fi nances most sanitation capex. The Ministry of Environ- cluding the Business Financial Centre and the two integrated resorts, ment and Water is spending in excess of S$1bn a year on develop- and more aggressive release of reserve land sites will revive construc- ment. tion growth going forward. The property market is also showing signs of a modest recovery, with property prices and transactions rising PUB uses private sector contractors extensively for most projects and 2.3% in the second quarter, the third consecutive quarter of increase has gradually introduced PSP in operations, management and fi nancing with the award of two PPP-type/DBOO contracts to Singspring Infl ation will climb into positive territory, as transport, education, and (Hyfl ux) for the Tuas desalination plant and Kepel Engineering for the wage costs rise. Infl ation is forecast to average 0.8% and 1.5% for Ulu Pandan water re-use project. 2005 and 2006 respectively. Singapore is short of water. Water supply has been an issue since in- I.2 Political & Investment Environment dependence, and reliance on Malaysian sources have long been seen Having taken over the premiership from Goh Chok Tong in mid-August by Singapore law makers as the country Achilles’ heel. Thus, in 2011, 2004, Lee Hsien Loong saw a further consolidation of his position at when the 1961 Water Agreement with Malaysia expires, Singapore the start of November when Goh relinquished another of his posts: expects to have fully developed alternative water sources. By 2061, that of leader of the governing People’s Action Party (PAP). The new when the second water agreement with Malaysia (signed in 1962) ex- leader of the PAP is Lee himself, and this latest addition to his powers pires, Singapore says it will be totally self-suffi cient. sends an unequivocal message regarding party support of his pre-

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 15.00 2006 118,899 10.00 2005 112,762 5.00 2004 103,451 0.00 95,000 100,000 105,000 110,000 115,000 120,000 125,000 -5.00 1998 1999 2000 2001 2002 2003 2004 2005 2006

Singapore Dev eloping Asia (mean)

Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean)

25.00 19.51 18.59 20.00 17.49 Chart 1.3: 2004 Sector Share of GDP 13.00 Agricult. 15.00 12.50 9.39 0% 10.00 6.50 5.00 Industry 0.00 33% 1998 1999 2000 2001 2002 2003 2004 Serv ices Singapore Dev eloping Asia (mean) 67% High Income Asia (mean)

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 118 Water Market Asia - Singapore

Table 1.1: Sovereign Risk Indicators Singapore Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 5,570.00 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 103.30 59.60 50.84 Short Term Debt / Total Debt 2004 (%) n/a 10.49 n/a Fitch Sovereign Rating (2004) AAA

Table 1.2: Legal Risk Indicators 2004 Singapore Developing Asia High Income Asia Time to enforce a contract (days) 69.00 392.62 103.67 Time to register property (days) 9.00 62.82 16.50 Time to resolve insolvency (years) 0.80 4.45 1.15 Time to start a business (days) 8.00 67.08 14.33 Legal rights of borrowers and lenders (0=low) 10.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Singapore Developing Asia High Income Asia Political Rights 5.00 4.23 2.43 Civil Rights 4.00 4.69 2.14 Corruption Perception 9.40 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 Singapore Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 8.52 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 1,302.75 185.54 1,281.59 Roads, paved (% of total roads) 100.00 44.75 75.32 Electric power consumption (kwh per capita) 7,038.66 717.46 7,505.93 Water supply failures (days) n/a 10.00 n/a

Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%) 1.20 35 30.50 2.00 28.40 -1.10 -1.60 -1.10 0.40 30 0.00 25 21.80 20.10 2002 2003 2004 2005 2006 20 -2.00

15 -4.00 10 -6.00 5 0 -5 2003 2004 2005 2006 Singapore Dev eloping Asia (mean) High Income Asia (mean) Singapore Dev eloping Asia (mean) High Income Asia (mean) Chart 1.8: Real Interest Rate 2000-2003 (%) Chart 1.7: Inflation Rate 1999-2004 (%) 10.00 16.00 14.00 8.00 6.98 12.00 10.00 6.00 5.74 8.00 4.00 4.71 6.00 4.00 2.00 1.36 2.00 1.00 1.66 1.28 0.00 0.51 0.00 0.02 -0.39 -2.00 1999 2000 2001 2002 2003 2004 2000 2001 2002 2003

Singapore Singapore Dev eloping Asia (mean) Dev eloping Asia (mean) High Income Asia (mean) High Income Asia (mean)

119 Water Market Asia - Singapore

For this purpose, several options or ‘taps’ have been developed, S$200m and showing increased effi ciency levels. amongst them desalination, the development of new catchments ar- The PUB Group recorded a net surplus of S$251m in 2004. This repre- eas and treated wastewater or NEWater. But desalination is a more sented an increase of 14.8% over the previous year. The increase was complicated process than NEWater, requiring two-stage reverse os- mainly due to lower operating expenses in 2004 despite the marginal mosis while NEWater requires one-stage reverse osmosis. Thus, NE- increase in volume of water and used water processed. The Group’s Water technology is a cheaper alternative to desalination and it is the total operating income was S$549m, a 1.3% increase from S$542m in authorities’ preference. PUB expects demand for NEWater to reach 2003 due to the increased sales volume of water. During the year, the 227,000 m3/d by 2011. government continued to fund the development and operating expen- II.1 Sector Policy & Structure diture for used water and drainage operations. Operating expenses decreased 4.2% to S$500m. PUB manages Singapore’s reservoirs, waterworks, rivers, drainage system, water reclamation plants and sewerage system with the aim PUB receives funding directly from the government, mainly for major to optimise Singapore’s limited water resources. Diversifying supply wastewater works and funds the rest of the sector itself. In 2004, the sources and managing demand are long-standing policy objectives. Group spent a total of S$1,040 million on projects. A total of S$883 To optimise Singapore’s water supply, about half of Singapore’s total million were funded by the Government for used water and drainage land area is set aside as water catchment to harness water supply. projects. The remaining S$157m were for Water, NEWater and Infor- The Board also imports water from the State of Johor, in Malaysia, to mation System projects funded from internal funds. supplement the local water resources. These two sources form Singa- PUB’s asset base has also developed rapidly since 2000. As of the pore’s so-called fi rst two “National Taps.” To make the island’s water beginning of 2005, the Group’s total assets increased S$388 million supply system more dependable, PUB has introduced new technolo- year-on-year to S$4,149m. Fixed assets accounted for 57% of total gies: water re-use (NEWater) and desalinated water are the third and assets. The Group’s net book value of plant, equipment, property and fourth “National Taps.” water supply network was S$2,356 million. Infrastructural and operat- NEWater ing assets for used water and drainage operations remain held directly by the Government. Return on Assets was 8.9% in 2004 versus 7.4% NEWater or re-used wastewater, is the great hope of Singapore’s wa- in 2003. This exceptional year is due to profi ts from sale of a piece of ter supply policy. Most NEWater in Singapore is used for industrial land. Excluding this sale, ROA would be 7.7 per cent. purposes and the output has proven a commercial success. Some NEWater customers say they have managed 10 to 20% cost savings. Key PUB Contacts As the water is ultra pure, industrial consumers do not have to treat Mr Wong Kai Yeng Director, Policy and Planning Department it again, and as a result use less water than before. What NEWater is not sold to industries can be pumped into Singapore’s reservoirs, Mrs Loh-Koh Kok Loo Director, Corporate Development where it is mixed with water from other catchments sources and is Mr Chiang Kok Meng Director, Deep Tunnel Sewerage System De- treated again before going to the tap. partment Currently, 3 million gallons of NEWater are pumped into Singapore’s Mr Moh Wung Hee Director, Best Sourcing Department reservoirs everyday - about 1% of daily water household consumption. This is planned to increase by 1 million gallons per day every year until Mr Lim Chiow Giap Director, Water Supply (Plants) Department 10 million gallons per day are pumped into reservoirs in 2011. PUB estimates that when the fourth plant in Ulu Pandan comes on line in Mr Chong Hou Chun Director, Water Supply (Network) Department 2006, the total production of NEWater will exceed 10% of Singapore’s Mr Wah Yuen Long Director, Water Reclamation (Plants) Department total daily water needs and account for about 2.5% of daily household consumption in Singapore. Thus, most of the reclaimed water will con- Mr Tan Yok Gin Director, Water Reclamation (Network) Department tinue to be used for industrial purposes. Director, Sewerage In its haste to secure its own water sources, Singapore will have Mr Yap Kheng Guan Director, 3P Network Department Director, Drain- reached the capacity to satisfy its projected 2011 demand of age 250,000m3/d (55MGD) by 2006 (see Table 3.5). Thus, the various Mr Harry Seah Director, Technology and Water Quality Offi ce expansion phases scheduled for the existing plants are likely to be shelved for some time. Asked about the +5 mgd phase II scheduled Mr Johnny Quah Seng Huat Chief Financial Offi cer at Ulu Pandan, Ong Hian Hai, who is in charge of the tender at PUB, Mr Lawrence Tan Director, Human Resources Department says he’d rather to avoid mentioning it. Mr Lim Chong Hin Director, InfoComm Department Besides supplying to industries, NEWater is also available for indirect potable use or IPU. This involves pumping NEWater into our reservoirs Mr Lawrence Fong Weng Hong Head, Internal Audit to be mixed and blended with raw water. The mixed water undergoes II.3 Private Sector Participation a process of naturalization before being treated again in conventional waterworks to produce drinking water. IPU is the established practice Two PPP-type projects have been awarded in the water and sanita- in the US for many years. PUB adds 13,500 m3/d of NEWater (about tion sector: 1% of the amount of daily water consumption) into its raw water res- a) The Tuas Desalination PPP was awarded to SingSpring on a Build- ervoirs. The amount will be increased progressively to about 2.5% of Own-Operate (BOO) basis to supply 136,000m3/d for a 20 year pe- the total daily water consumption by 2011. riod from 2005 to 2025. The project was originally awarded to a JV II.2 Financing & Performance of Hyfl ux and Suez in 2002. Suez left in 2003 for reasons that are unclear, mentioning high risks and a reorganisation of its international The Public Utility Board (PUB) was originally in charge of the entire portfolio. utility sector for the island. In 1995, gas and electricity operations of PUB were corporatised. Since then, the reconstituted Board compris- In August 2004, before the plant was completed, Hyfl ux appointed es Water and Regulation Departments. On 1 April 2001, the Board’s Deutsche Bank to look into the securitisation of the share capital of regulatory function in respect of electricity and piped gas industries the project company (SingSpring). This did not go down very well with was transferred to the Energy Market Authority of Singapore. At the PUB. Hyfl ux was asked to wait and in exchange, was allowed to sell same time, the wastewater and drainage functions of the Ministry of a 50% stake in the project to the state-owned investment agency, the Environment (now called the Ministry of the Environment and Wa- Temasek Holdings, for S$30 million. This helped the company free up ter Resources) were transferred to PUB. The development and oper- cash for foreign investments in China, India and the Middle East and ating expenditure of the used water and drainage operations continue lowered its debt-to-equity ratio from 0.72 to 0.11. This move also gave to be funded by the Government. the public sector a stake in what they consider to be a strategic asset for the supply security of the island. A good example of commitment Overall, the Public Utility Board of Singapore has been doing well over to its water sector by Singapore but not one of “value-for-money” for the past ten years, always turning out an operating surplus of at least public dollars.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 120 Water Market Asia - Singapore

Table 2.1: Income Level Singapore Developing Asia High Income Asia GDP per capita 2004 (US$) 24,500.00 1,104.30 23,628.57 Population on less US$1 per day 2004 (%) 0.00 18.23 0.00 Unemployment 2004 (%) 5.30 6.73 4.89

Table 2.2: Area & Population Singapore Developing Asia High Income Asia Population Growth 2003 (%) 0.33 1.67 0.64 Urban Population Growth 2003 (%) 2.07 3.48 1.18 Population Density 2002 (pop/km2) 6,151.00 231.45 2,335.17 Area (thousands Ha) 68.00

Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban 2000-2003 (cst 2000 US$) (millions) Population (%) 120.00 4.30 4.24 100.00 100.00 100.00 100.00 9,742 9,800 4.17 4.19 100.00 4.20 4.13 80.00 9,600 9,496 9,401 4.10 60.00 9,356 4.02 9,400 40.00 4.00 20.00 9,200 3.90 0.00 9,000 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002 2003

Chart 2.4: Consumer Exp. on Water 1999-2004 (US$m) Chart 2.5: Consumer Exp. on Water Growth Forecast 2005-2009 (%) 3,736.12 4,000 3,323.69 5.00 2,992.11 4.00 3.86 3.69 3,000 2,545.27 2,556.61 3.26 2,177.72 3.22 3.00 2,000 2.45 2.00 1,000 1.00 0 0.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Singapore Dev eloping Asia (mean) High Income Asia (mean) b) The Ulu Pandan NEWater PPP was awarded to Keppel Engineer- The period leading up to the Ulu Pandan PPP award was typical of ing Pte Ltd on a Design, Build, Own and Operate (DBOO) basis in this new maturity of the Singapore market. A lot of bidders entered December 2004 to supply 116,000 m3/d of NEWater and 46,000 m3/d the competition aggressively. A consortium consisting of CH2M Hill, of Industrial Water for a 20 year period from 2006 to 2026. Ulu Pan- Macquarie Infrastructure and United Engineers was hoping to make a dan is likely to be the last NEWater facility to get built in Singapore, it dent in the PPP market. CH2M Hill is a regular customer of PUB and will also be the biggest one. The 116,000m3/d facility will provide high had been its technical advisor for the award of the previous NEWater grade water for ultrapure applications while an additional 45,000m3/ tender at Selentar. It is also helping implementing DTSS. d ultrafi ltration plant (separate from the proposed expansion of the The list of domestic bidders featured the ‘usual suspects’ of the Sin- fi rst plant by 24,000m3/d) will provide lower grade water for washing gapore utility market but also some new entrants. One of these is Se- and cooling purposes. Project costs are estimated at S$90-100 mil- noko Power. Senoko accounts for about 30%of Singapore’s electricity lion (US$50-60 million). Bankers close to the transaction estimate the output. Water treatment is synergistic to the power company’s core fi nancing to require an 80/20 to 85/15 debt to equity mix, depending business as power stations require treated, purifi ed water for use in on the agreed tariff. According to PUB, the contract will feature a take- their turbines. Indeed, Senoko has additional water expertise through or-pay off-take agreement with a fi xed “viability (capacity) payment” its own S$8 million seawater desalination plant. The plant, which is topped with a variable “output payment”. The tariff formula will account currently being built by Boustead’s subsidiary Salcon, uses reverse- for energy prices. It is indexed to infl ation and will be reviewed after osmosis technology and should be ready by September. fi ve years to allow “unforeseen circumstances” or the development of new technologies to be taken into account. Another domestic power company originally tempted by the bid is Tuas Power, which has a 24%share of the Singapore electricity market. The

121 Water Market Asia - Singapore company decided it was not ready to bid for a NEWater project of that existing sewerage reticulation system to 2 centralised water reclama- size but is instead vying to supply treated water to the Tuas Biomedi- tion plants to be located at Changi and Tuas reclamation areas. Exist- cal Park, close to its power station. Tuas hopes to provide wastewater ing pumping installations and water reclamation plants will be gradu- treatment, demineralised purifi ed water for industrial use as well as ally replaced and some 290 ha of land at these existing facilities will chilled water for air conditioning to companies such as drug giants be freed for residential and other developments. Pfi zer and Merck at the park. The DTSS will cost S$3.65bn and is entirely fi nanced by the Singa- The entry of such players indicates a new maturity of the Singapore pore government. It is scheduled for completion in 2008 and has a life- water market, which may be why major Singaporean water utilities span of 100 years. Its network comprises 48km across the island at are increasingly looking abroad for their future prospects. The Singa- 20-50m underground, 5km into the sea up to 50m below the sea level. pore PPP water market in general and its NEWater sector in particular, It involves more than 40 main contractors and about 4,000 workers. reached critical mass in 2004 when PUB closed the tender for the The Deep Tunnel Sewerage System is being implemented in 2 phas- island’s fourth NEWater facility. The Ulu Pandan project is the fourth es. Under Phase I, the North Tunnel, Infl uent Pumping Station and pillar of the Singaporean NEWater system and possibly the last. It is outfall system at Changi will be constructed and put into operation by the end of an era for Singapore utilities, which are looking to China end 2005. Effl uent from 3 of the existing water reclamation plants will to secure further growth, while new, smaller players appear at home. be re-routed into the North Tunnel and be diverted from the Straits of Among these is, Dayen Environmental, which was also bidding for Johor to be discharged into the Straits of Singapore. Once the Changi Ulu Pandan, as well as SembCorp Utilities. The latter, which supplies East Water Reclamation Plant is completed and commissioned by gas and utilities to industries on Jurong Island and electricity to the end 2007, used water from the existing water reclamation plants will national grid, has eight years of wastewater treatment experience. also be progressively diverted into the North Tunnel and be conveyed The company recycles and treats industrial wastewater, which is then to the Plant for treatment. used to meet 70% of industrial water requirements on Jurong Island, Singapore’s petrochemicals hub. The Phase II of DTSS has been scheduled for commissioning by 2015. The South Tunnel, link sewer network, and other water reclama- Further PSP in Singapore seems unlikely as all capacity targets have tion plants and outfall system at Tuas will be constructed. The Changi already been met and PUB’s own record remains a well-publicised Water Reclamation Plant will also be expanded by then. Used water pledge for public provision of service. The fact that the budget bal- from the existing water reclamation plants would be further diverted ance is positive again also militates for a limited involvement of private to the Changi East and Jurong Island water reclamation plants. By investors. PUB is generating a very decent annual operating surplus 2045, all the existing water reclamation plants and sewage pumping and will continue to fi nance desalination and water treatment and dis- stations are expected to be completely phased out. DTS is due to be tribution operations with its own funds. Like the Hong Kong Water completed in December 2008. Supplies Department, PUB is an effi ciently run public corporation and it does not see PSP as a particularly desirable thing. On the sanitation All six design-and-build contracts for the construction of the tunnel side, the Singapore Government has been bearing the brunt of the sewers have been awarded. Construction shafts have been complet- massive capex of the past four years and most programmes are now ed at all sites. Tunnel boring work has commenced for the Changi, reaching the commissioning stage. Bedok, Paya Lebar and Ang Mo Kio tunnels. Under the fi rst phase of DTSS, the North and Spur Tunnels will be constructed under 6 de- II.4 Tariffs sign/build contract packages. The fi rst tender, Kranji Tunnel (T-05), Tariffs are proposed by PUB and agreed by the legislature. There is no was invited in March 1999 and an award made in December 1999. regulator as such, and PUB plays an active role in putting forward new The sixth contract, Queensway Tunnel (T-06), was awarded in March rules and monitoring existing ones. (see table 3.7) 2000. Within that period of one year, 67 tenders were received and evaluated for the 6 contracts. Contractors awarded the design/build On top of consumption based tariffs, Singaporean authorities charge contracts for the six tunnels were from Singapore, China, Japan, Ko- a number of taxes to consumers: rea and Germany. Additionally, tunnel designers from the UK, the US - A Water Conservation Tax is levied to “reinforce the water conserva- and Austria were appointed by the contractors. The contract for the tion message”. foundation works, site development and management for Changi Wa- ter Reclamation Plant were awarded and work commenced in April - The “Sanitary appliance fee” and “waterborne fee” are statutory 2001. charges prescribed under the Sanitary Appliances and Water Charges Regulations to offset the cost of treating used water and for the main- IV. Environment and Legal Aspects tenance and extension of the public sewerage system. Water Resources Policy III. Wastewater The Action Programme Committee for Clean Water or APC (Clean III.1 Sector Policy & Structure Water), was formed in January 2003 to determine the focus of Sin- gapore’s environmental policy in relation to water. The targets were The fi rst wastewater infrastructure was built in Singapore in the 1910’s set out in the “Clean Water” document which is part of the SGP 2012 by the British. It served only a small portion of the population which programme. These targets are: was then about 300,000. Today, a comprehensive wastewater infrastructure is in place to serve the whole population of Singapore. To- a) To increase catchment areas from 50% to 67% of Singapore’s land day, Singapore has a world class sewerage system in which 100% of surface. the population is served by modern sanitation. b) To increase the supply of water from non-conventional sources, such as desalination and water reclamation, to at least 25% of Singa- In 2001, the six Sewage Treatment Works were renamed Bedok, Ju- pore’s water demand rong, Kim Chuan, Kranji, Seletar and Ulu Pandan Water Reclama- c) To ensure that water quality continues to meet international stan- tion Plants (WRPs - using the activated sludge process) to emphasize dards. their new role of not only treating used water, but also reclaiming water for non-potable use. In this context, the APC has determined 4 key policy objectives: Jurong Industrial Water Works (JIWW) was set up in 1966 to help a) Increasing the water supply. conserve water supply by reclaiming fi nal effl uent from Ulu Pandan b) Managing the water demand. Water Reclamation Plant (UPWRP) into industrial water as an alterna- c) Ensuring water quality. tive source of water for the industries in Jurong/Tuas Industrial Estate, d) Innovation and education. Tuas View and Jurong Island. The APC has identifi ed a number of programmes for the achievement III.2 The Deep Tunnel Sewerage System of the SGP2012 targets (see table). To meet Singapore’s sewerage needs PUB has commissioned the V. Sources long term Deep Tunnel Sewerage System (DTSS). Two cross-island EIU, PUB, Interviews tunnels and network of link sewers will intercept used water from the

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 122 Water Market Asia - Singapore

Table 3.1: Water Service Coverage Indicators 2002 (%) Singapore Developing Asia High Income Asia Population with Access to Improved Water 100.00 76.85 100.00 Households Connected 100.00 22.27 99.00 Urban Population with Access 100.00 86.17 100.00 Urban Households Connected 100.00 48.27 99.50 Rural Population with Access 100.00 71.42 100.00 Rural Households Connected 100.00 14.58 97.00

Table 3.2: Water Resources Singapore Precipitation Volume 2002 (bn m3/yr) 1.70 Precipitation Depth 2002 (mm/yr) 2,497.00 Groundwater: produced internally 1998-2002 (bn m3/yr) n/a Surface water: produced internally 1998-2002 (bn m3/yr) n/a Overlap: surface and groundwater 1998-2002 (bn m3/yr) n/a Water resources: total internal renewable 1998-2002 (bn m3/yr) 0.60 Water resources: total external 1998-2002 (bn m3/yr) n/a Water resources: total renewable 1998-2002 (bn m3/yr) 0.60 Agricultural water withdrawal 1998-2002 (bn m3/yr) n/a Domestic water withdrawal 1998-2002 (bn m3/yr) n/a Industrial water withdrawal 1998-2002 (bn m3/yr) n/a Total water withdrawal 1998-2002 (bn m3/yr) n/a

Table 3.3: Water Resources II Singapore Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 143.40 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 143.40 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) n/a 507.25 544.73 Dependency ratio 1998-2002 (%) n/a 33.33 1.74 Water withdrawal/Renewable 1998-2002 (bn m3/yr) n/a 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) n/a 16.19 13.19

Table 3.4: Water Re-Use Water Reclamation Plants Chart 3.2: Fresh Water per Capita 1999-2004 WRP Proportion (m3/head) 150.30 Bedok 19% 151 Jurong 10% 149.80 Kim Chuan 22% 150 149.30 149.30 149.30 149.30 Kranji 14% 150 Seletar 11% 149 Ulu Pandan 24% 149 Reclamation Uses 1999 2000 2001 2002 2003 2004 Re-use Type Proportion Cooling 57% High Grade 33% Textile 60% Washing 4%

Table 3.5 : NEWater Infrastructure in 2005 Initial Planned Cost Plant Capacity Expansions Start Contract Build Operator (HK$m) m3/d m3/d Bedok 32,000 88,000 2003 DBF Hyflux PUB 16.1 Kranji 40,000 72000 2003 DBF KIE PUB n/a Selentar 24,000 40,000 2004 DBF Hyflux PUB 28 Ulu Pandan 116,000 140,000 2006 DBO KIE KIE 90 Total 208,000 340,000 2011 Demand 208,000

123 Water Market Asia - Singapore

Singapore Water Policy Priorities Action Programmes Implementing Authority Time Frame Increase Water Supply Convert Marina Basin into a freshwater reservoir PUB By 2009 Create new reservoirs downstream of the existing Lower PUB By 2009 Seletar Reservoir Increase direct non-potable use of NEWater to at least 15% of PUB By 2011 Singapore’s water demand Increase indirect potable use of NEWater to 10mgd PUB By 2011 Implement seawater desalination project with the construction PUB/SINGSPRING By 2005 of a 30 mgd desalination plant to achieve the supply target of Manage Water Demand Implement Water Efficient Homes programme to encourage PUB/Grassroots On-going residents to conserve water Organisations/Town Councils

Encourage industries to optimise water usage and to switch to SMa/PUB/JTC/ SAFEco/EDB Ongoing NEWater for non-potable use by conducting seminars, holding talks, etc. Seminars and public education events on NEWater, water SHA/PUB/STB/SAFEco Ongoing conservation measures, the latest water technology, etc. organised by the services sectors for tour guides, hotel staff, and other personnel in the tourism industry. Ensure Water Quality More stringent control on water pollution by tightening PUB/NEA By 2005 discharge standards: Trade effluent from industries, Embalming, Hospital wastes, Fluorides < 15 mg/l Development of the Deep Tunnel Sewerage System and PUB By 2008 phasing out of some existing facilities to sustain and enhance Upgrading of sewer reticulation system to prevent pollution to PUB Ongoing watercourses e.g. sewer rehabilitation, upgrading of pumping Engage the ownership of the construction industry in ensuring PUB/JTC/HDB/LTA/ Ongoing clean waterways through effective planning and DSTA/SLA/SCAL/IES implementation of erosion and sediment control measures at Monitor, restore and protect the aesthetics of our waterways: Waterways Watch Society Ongoing identify potential water-related problem areas at Kallang Basin area and provide feedback to the relevant agencies, organise activities for public education on protecting our waterways Monitoring of the area along the Singapore River to educate NEA/Singapore River Ongoing and alert members of the public against littering Environmental Watch

Table 3.6: PUB Performance Statistics 2005 Variation 2000-5 Number of Water Accounts 1,173,434 10.35% Number of NEWater Accounts 51 n/a Number of Wastewater Accounts 1,173,462 5.89% Domestic Water Consumption Litres per day per capita 162 -1.82% Number of Accounts served per PUB employee at year end 376 -24.19% Total Assets 2005 valuation (S$m) SGD 4,149.33 31.52% Average Operating Surplus 1996-2005 (S$m) SGD 208.73

Table 3.7: 2004 Tariff Structure Singapore Water Water-borne Block tariff (S- Sanitary Tariff type conservation fee (S- (m3/month) cents/m3) appliance fee tax (%) cents/m3) Domestic 1 to 40 117 30 30 S$3/- per Above 40 140 45 30 chargeable Non- fitting per All units 117 30 60 domestic month Shipping All units 192 30 - - Industrial All units 43 - - - * Tariffs and fees inclusive of goods and services tax.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 124 Water Market Asia - Singapore

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) Singapore Developing Asia High Income Asia Population with Access to Improved Sanitation 100.00 54.64 100.00 Households Connected 100.00 7.22 99.29 Urban Population with Access 100.00 77.09 100.00 Urban Households Connected 100.00 18.11 99.00 Rural Population with Access n/a 48.08 100.00 Rural Households Connected n/a 2.57 90.00

Table 4.2: Water Pollution 2001 (% of total BOD Emissions) Singapore Developing Asia High Income Asia Water pollution, chemical industry 16.72 9.94 8.81 Water pollution, clay and glass industry 0.13 0.46 0.15 Water pollution, food industry 22.67 43.27 42.73 Water pollution, metal industry 1.41 7.62 4.84 Water pollution, other industry 28.52 6.08 13.17 Water pollution, paper and pulp industry 25.54 9.38 26.14 Water pollution, textile industry 4.00 21.17 8.17 Water pollution, wood industry 1.00 2.67 2.17

Chart 4.1: Daily organic water pollutant emissions 1999- 2004 (kg) 32,344 32,400 32,189 32,119 32,131 32,118 32,200 32,000 31,787 31,800 31,600 31,400 1999 2000 2001 2002 2003 2004

Table 4.4: Pollution Fees 2004 Fee for Biochemical Fee for Total Oxygen Demand (S- Concentration of BOD or TSS in milligrams Suspended Solids (S- Cents per cubic per litre of trade effluent Cents per cubic metre metre or part or part thereof) thereof) Exceeding 400 but not exceeding 600 21 15 Exceeding 600 but not exceeding 800 42 30 Exceeding 800 but not exceeding 1000 63 45 Exceeding 1000 but not exceeding 1200 84 60 Exceeding 1200 but not exceeding 1400 105 75 Exceeding 1400 but not exceeding 1600 126 90 Exceeding 1600 but not exceeding 1800 147 105 Exceeding 1800 but not exceeding 2000 168 120 Exceeding 2000 but not exceeding 2200 189 135 Exceeding 2200 but not exceeding 2400 210 150 Exceeding 2400 but not exceeding 2600 231 165 Exceeding 2600 but not exceeding 2800 252 180 Exceeding 2800 but not exceeding 3000 273 195 Exceeding 3000 but not exceeding 3200 294 210 Exceeding 3200 but not exceeding 3400 315 225 Exceeding 3400 but not exceeding 3600 336 240 Exceeding 3600 but not exceeding 3800 357 255 Exceeding 3800 but not exceeding 4000 378 270 * Tariffs and fees inclusive of goods and services tax.

125 Water Market Asia - Singapore

Chart 4.2: Daily organic water pollutant emissions / 1000 people 1999-2004 (kg) 16.00 13.65 13.49 13.55 13.64 14.00 12.14 11.95 12.00 10.00 8.00 6.00 4.00 2.00 0.00 1999 2000 2001 2002 2003 2004

New Zealand Dev eloping Asia (mean) High Income Asia (mean)

Table 5.1: Key players active in the Singaporean market Boskalis International B.V. CNA Engineers Pte Ltd Dayen Engineering Pte Ltd Econ Corporation Ltd Keppel Engineering Pte Ltd Koh Brothers Building & Civil Engineering Contractor (Pte) Ltd Lum Chang Building Contractors Pte Ltd Metax Engineering Corporation Pte Ltd Mitsubishi Corporation Sembcorp Engineers & Constructors Pte Ltd Singapore Piling & Civil Engineering Pte Ltd United Engineers (S) Pte Ltd

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 126 Water Market Asia - Singapore

Known PSP Projects in Singapore SingSpring

Singapore 20 -year BOO Total investment (USDm) 200.00

Sector 1 Water Sector 2 Water re-use The Tuas Desalination PPP was awarded to SingSpring on a Build-Own-Operate (BOO) basis to supply 136,000m3/d for a 20 year period from 2005 to 2025. The project was originally awarded to a JV of Hyfl ux and Suez in 2002. Suez left in 2003 for reasons that are unclear, mentioning high risks and a reorganisation of its international portfolio. In August 2004, before the plant was completed, Hyfl ux appointed Deutsche Bank to look into the securitisation of the share capital of the project company (SingSpring). PUB expressed concerns regarding this arrangement. Hyfl ux was asked to wait and in exchange, was allowed to sell a 50% stake in the project to the state-owned investment agency, Temasek Holdings, for S$30 million. This helped the company free up cash for foreign investments in China, India and the Middle East and lowered its debt-to-equity ratio from 0.72 to 0.11. This move also gave the public sector a stake in what they consider to be a strategic asset for the supply security of the island. A good example of commitment to its water sector by Singapore but not one of “value-for-money” for public dollars.

Capacity Timeline

Production 136,380 m3/d Contract awarded 2002 December

EPC contractor Hyﬂ ux

Equity investor Hyﬂ ux

Ulu Pandan Newater

Singapore 20 -year BOO Total investment (USDm) 59.00

Sector 1 Water Sector 2 Water re-use The Singapore government, through the Public Utilities Board, has decided to offer the fourth Newater plant to the private sector. It has a capacity to produce 25m gallons of reclaimed water per day, the largest capacity to date with a provision to increase it to 140,000m3/d (30mgd). The project has been offered to the private sector in a design, build, own, and operate (DBOO) basis. The Newater process utilizes a membrane technology that produces clean water from waste and sewerage water. It was planned to start operations in 2006. On June 9, 2004, Sembcorp Utilities and CPG of Australia has joined the bidding for the Newater project. In September 2004, Singapore was to launch a PPP scheme to develop projects with greater private sector participation. In September 2004, it was reported that the submission of the pre-qualifi cation bids for the project has been extended from July 23 to September 17. Bidders included CH2M Hill, CPG of Australia, Veolia Water, Hyfl ux, United Engineers, Sembcorp Utilities, Dayen Environment and Power Senoko. In end of September 2004, The Public Utilities Board has received nine bids for its Ulu Pandan Newater DBOO project. They included local fi rms as well as two foreign fi rms. In October 2004, Singapore’s Ministry of Finance has launched the PPP programme through a public forum and issuance of PPP handbook. Projects that cost at least S$50m were to be considered under the scheme; projects less than S$50m were to be considered depending on the nature of the project. In January 2005, Keppel Corp was selected as the winning bidder for the development of the Ulu Pandan Newater project. It was also reported that Keppel Integrated Engineering (KIE) has signed a 20 year agreement to supply Newater (treated/waste water) to Public Utilities Board (PUB). The Ulu Pandan plant was to be completed next year. It was to produce 116,000 cubic metres of Newater and 46,000 metres of industrial water per day. The project cost was estimated at S$100m and about S$70m was to be raised from the bank market. In March 2005, the concession agreement for the Newater Ulu Pandan project has been signed between Keppel Corp and Public Utilities Board. Phase II: +24,000 m3/d (this phase has been shelved for fear of excess capacity)

Capacity Timeline

Production 116,000 m3/d Contract awarded 2005 January

EPC contractor Keppel Integrated Engineering

Equity investor Keppel Integrated Engineering 100.00%

127 Water Market Asia - Singapore

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 128 Water Market Asia - Taiwan

Taiwan

Taiwan is going through a phase of limited access to public funds. However, its water supply system seems able to meet most of the existing demand, except in remote areas. Wastewater, however, has been lagging behind and will need a lot of new investment. Because of insuf- ﬁ cient public funding, PSP is proposed for numerous wastewater projects. A few international investors have already been awarded contracts for Taiwanese wastewater BOTs (Suez, Darco) but there is very little experience in this market. Pollution levels are very high but despite the limited funding available, the government seems committed to resolve this problem over the long run. It has passed the relevant legislation to prove it.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Success (very recent deals) Investment needs in the wastewater sector Future Opportunities Numerous are massive and the government cannot afford to develop the projects. Private Local competition Negligible investors are welcome.

Equipment Markets Comments Future Opportunities Numerous Maintenance and the development of new Local competition Significant systems (desalination, re-use) are key spending items for the government, but budgets can be limited and prices matter.

Public Utilities Comments Track record Bad for wastewater Public utilities and bodies in charge of the Sustainability High system regularly complain about the lack of funds to achieve government targets. Reliance on ODA Very limited Government Comments Commitment to deliver service Yes The marked changed in the government's Fiscal Resources Very limited attitude towards wastewater treatment cannot easily be reconciled with public finances.

Economy & Finance Comments Recovery since Asian crisis 1997 Average A robust economy with a highly polluting Local capital market Semi-sophisticated industrial base.

129 Water Market Asia - Taiwan

I. General Information Growth for 2005 was forecast at 4.05%. Growth has been slowed by weak global demand for exports, combined with soaring prices for raw Taiwan has been hit by the Asian Crisis and SARS outbreak but has materials on the world market. now recovered and is achieving sound rates of growth. In terms of per capita income, it is one of the richest parts of Asia. The economy has I.2 Political & Investment Environment long been dominated by the state sector but several factors now point Recent communications between the two sides of the straits has been towards greater opportunities for private involvement in infrastructure somewhat encouraging. China’s enactment of the anti-secession law and utilities. With a total population of 23 million, Taiwan is one of the has induced an important turnaround. Lien took a leap in April 2005, most densely populated countries in the world. taking an open arms approach to the Mainland’s desire to cooperate I.1 Macroeconomic Situation and make peace with the island. Although most agreements are still in the vague/initial stage, and highly symbolic in nature, more signifi cant In 2004, growth picked up to 5.7%, its fastest rate since 2000, signal- gestures include Mainland’s agreement to allow tariff-free imports of ling its full recovery from the negative impact of SARS. A slowdown in 15 kinds of Taiwanese fruit to the Mainland, arrangement for direct the second half of 2004 was due to decelerating export growth later cargo charters between Taipei’s Sung Shan Airport and Shanghai’s in the year, which was caused by higher global oil prices, an easing in Hong Qiao Airport, and major plans to let Mainland people visit Tai- global demand for high-tech products, and the PRC’s macroeconomic wan. Up till now, the Mainland has been pouring friendly gestures and tightening policy. proposals for cross-straits cooperation toward Taiwan. Although most In contrast to previous years when the external sector lifted economic are symbolic in nature, in the medium term, these can pave the way growth, domestic demand, particularly private consumption and infor more substantial economic blending and investment opportunities vestment, was the driver in 2004. Private consumption rose by 3.1%. for both parties. The recovery of the information and communications technology (ICT) The fi scal defi cit and rising government debt are key policy issues. industry, which is a signifi cant part of the economy, boosted business The tax system has become distorted by concessions and incentives investment. Consequently, private fi xed investment grew sharply by that have seriously eroded the tax base. The authorities have stated 28.2% and gross fi xed capital formation contributed 2.6 percentage that it could take 5-10 years to balance the budget, and they plan to points to GDP growth. do this by reducing government employment, enlarging the tax base, The general government fi scal defi cit, including the defi cit of the cen- raising tax rates, and selling some SOEs. tral and local governments, has stood around 3% of GDP since 2000, Privatisation of SOEs has fallen behind schedule because of resis- although the gap narrowed to an estimated 2.9% in 2004. A major tance within Parliament, from labour unions, and sometimes from the cause of the defi cit is weak revenue mobilisation. Various tax reduc- companies themselves. The state owns large stakes in many compa- tions and fi scal incentive schemes that have been introduced over the nies, including those in the airline, banking, petroleum, and telecom- years, as well as low economic growth rates in 2001-2003, eroded munications industries. In an effort to facilitate privatisation, companies fi scal revenues to about 13.5% of GDP in 2004 from 20.6% in 1990. will be brought together under the umbrella of one or several holding Government borrowing has increased instead, pushing up public debt companies. However, for unprofi table enterprises such as the power to the equivalent of an estimated 38% of GDP in 2004. Infl ation re- monopoly Taipower, the authorities also need to allow market pricing turned, after more than 2 years of defl ation, to average 1.6% in 2004. of power before the company is likely to be attractive to investors. In March 2005, the central bank again raised the offi cial discount rate, to 1.875%, the third increase in 6 months. It pointed to rising infl ation- In 2005, the authorities intend to issue up to NT$500 billion of bonds, ary expectations, high capacity utilization in manufacturing, a stronger among other things to cover a budget defi cit of nearly NT$300 bil- labour market (unemployment is around 4%), and low real interest lion. Some of the bonds will be exchangeable into shares of SOEs. rates. Although international rating agencies have expressed concern over

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 8.00 2006 382,507 6.00 2005 352,028 4.00 2.00 2004 315,875 0.00 -2.00 0 100,000 200,000 300,000 400,000 500,000 1998 1999 2000 2001 2002 2003 2004 2005 2006 -4.00

Taiwan Dev eloping Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean) 12.00 10.00 Chart 1.3: 2004 Sector Share of GDP 8.00 Agricult. 6.00 2% 4.00 1.02 1.59 1.46 Industry 2.00 0.08 0.51 0.16 0.50 30% 0.00 1998 1999 2000 2001 2002 2003 2004 Serv ices Taiwan Dev eloping Asia (mean) 68% High Income Asia (mean)

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 130 Water Market Asia - Taiwan

Table 1.1: Sovereign Risk Indicators Taiwan Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 3,280.00 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 33.20 59.60 50.84 Short Term Debt / Total Debt 2004 (%) n/a 10.49 n/a Fitch Sovereign Rating (2004) A+

Table 1.2: Legal Risk Indicators 2004 Taiwan Developing Asia High Income Asia Time to enforce a contract (days) n/a 392.62 103.67 Time to register property (days) n/a 62.82 16.50 Time to resolve insolvency (years) n/a 4.45 1.15 Time to start a business (days) n/a 67.08 14.33 Legal rights of borrowers and lenders (0=low) n/a 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Taiwan Developing Asia High Income Asia Political Rights 2.00 4.23 2.43 Civil Rights 2.00 4.69 2.14 Corruption Perception 5.70 2.93 7.53

Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) Chart 1.5: Current Account Balance as a share of GDP 2003-2006 (%) 0.00 12 10.23 2002 2003 2004 2005 2006 -1.00 10 -2.00 8 6.11 -3.00 6 4.90 -2.77 -2.70 -2.70 -2.60 4.40 -4.00 4

-5.00 -4.28 2 0

Taiwan Dev eloping Asia (mean) High Income Asia (mean) -2 2003 2004 2005 2006 Taiwan Dev eloping Asia (mean) High Income Asia (mean)

Chart 1.7: Inflation Rate 1999-2004 (%) Taiwan’s ﬁ scal position and rising public debt, it is unlikely to run into serious debt problems in the medium-term. 16.00 On the security front, while a Chinese attack on Taiwan does not look 14.00 to be imminent, the endgame has begun. Taiwan has but one choice: 12.00 either to be reeled in to the mainland through the kind of peaceful measures outlined by the opposition and supported by Beijing, or to 10.00 follow the current government’s lead of obstinacy and ultimately feel 8.00 the full force of China’s might. Either way, there seems now to be little 6.00 to prevent Taiwan’s eventual integration into mainland China regard- less of any diplomatic, or even military, pressure that the economically 4.00 challenged and militarily overstretched USA tries to bring to bear. 2.00 1.30 0.00 1.10 II. Water 0.00 0.20 -0.20 -0.30 II.1 Sector Policy & Structure -2.00 1999 2000 2001 2002 2003 2004 Since 1971, water services in Taiwan have been provided by the Taiwan Water Corporation (TWC). The Water Resources Agency is Taiwan responsible under the Ministry of Economic Affairs develops water policy and allocated investment funds. Dev eloping Asia (mean) II.2 Private Sector Participation High Income Asia (mean) Foreign investors have frequently encountered problems with local partners in infrastructure construction projects. It is common for the local companies to sub-contract the work after winning the tender, with detrimental effects on quality. Management control in joint ventures has also proved to be a common problem. Land acquisition has created difﬁ culties in some transport and power projects, and but the Taiwanese government has committed to assist investors with this for wastewater projects. The investment environment has improved re-

131 Water Market Asia - Taiwan

cently as a result of the Government Procurement Law and the Law The private sector is expected to generate NT$18.8bn of investment on Private Investment in Infrastructure. in the same period. II.3 Tariffs Desalination See table 3.10 Taiwan’s fi rst desalination plant is located beside Cheng-Kong reservoir and cost NT$134m to construct, with daily water production of Tariffs are set by the central government with political involvement. In 2000m3. The plant became operational in August, 1995. The plant 2005, tariffs were frozen ‘in the public interest’ despite increases in uses Reverse Osmosis which is mixed with the processed water from gasoline prices. water treatment plants for distribution to households. TWC has also II.4 Performance set up a 7000m3 seawater desalination plant in the Wu-kan neighbor- hood of Ma-gong city and plans to fi nish it within 300 working days. See tables 3.4, 3.5, 3.7, 3.8, 3.9 Smaller sea water desalination plants are established in Hu-jing and In the period 1998 to 2007, demand is expected to rise from 4,860km3/ Tong-pan in Ma-gong city where daily water production amounts to d to 6,186km3/d. Coverage, meanwhile, is expected to remain con- 200 and 100m3 respectively. The capacity of the Wan-an desalination stant at 72%. According to TWC’s projections, supply is expected to plant will be upgraded to 400m3/day. exceed demand by a comfortable margin, rising to 10,674km3/day by Storage capacity 2007. There is only one groundwater reservoir in Taiwan, located in Bai- II.5 Facilities sha village. It uses under surface standpipes to store water and pump See tables 3.3, 3.6 3,000m3 of water to support the tap-water system. 1,200m3 can be used for irrigation. TWC has been developing its desalination capacity and has plans to construct desalination plants to address supply to the Hsinchu III. Wastewater Science-based Industrial Park and offshore islands. Four plants are III.1 Sector Policy & Structure planned in the areas of Kinmen, Mazu, Penghu, and the Hsinchu Sci- ence-based Industrial Park. The Penghu Island project is expected to The central agency in charge of the construction of the sewage sys- take the form of a BOT worth up to US$70m [Details below]. TWC is tems is the Construction and Planning Agency at the Ministry of the also planning to construct four artifi cial lakes to act as reservoirs and Interior (CPAMI). CPAMI is responsible for the overall planning of Tai- increase storage capacity. These two projects are being funded by a wan’s sewage infrastructure. At the local level, city or county govern- special budget for 2004 to 2008 of NT$31bn from the government. ment public works bureaus are responsible for the delivery of services.

Table 3.1: Water Service Coverage Indicators 2002 (%) Taiwan Developing Asia High Income Asia Population with Access to Improved Water 100.00 76.85 100.00 Households Connected n/a 22.27 99.00 Urban Population with Access n/a 86.17 100.00 Urban Households Connected n/a 48.27 99.50 Rural Population with Access n/a 71.42 100.00 Rural Households Connected n/a 14.58 97.00

Table 3.3: Length of Main Distribution Pipes Table 3.2: TWC Demand and Production Forecast 1998-2007 Year Length ( km) Annual Growth Rate (%) Usage Supply Year Usage Estimate Usage Rate 2000 52,515 3.51 Estimate Estimate 2001 54,006 2.84 km3/Day Growth Rate (%) (%) Km3/Day 2002 54,983 1.81 1998 4,860 4.74 75.41 6,444 2003 56,577 2.90 1999 5,080 4.53 75.92 6,691 2004 57,033 0.81 2000 5,288 4.10 76.43 6,918 Source: TWC Corporate Data 2001 5,492 3.86 76.94 7,138 2002 5,629 2.49 77.45 7,268 Table 3.4: Water Consumption 2003 5,755 2.23 77.96 7,382 Category Consumption (lcd) 2004 5,876 2.10 78.47 7,488 1986 178 2005 5,993 1.99 78.98 7,587 1991 222 2006 6,104 1.86 79.49 7,678 1996 239 2007 6,186 1.34 80.00 7,732 2000 237 2001 242 Source: TWC Corporate Data 2002 236 2003 239 Some large cities, like Taipei and Kaohsiung, have sewage engineer- 2004 238 ing departments under the Public Works Bureau. The government has Source: TWC Corporate Data announced plans to establish a sewage system construction ofﬁ ce to manage the implementation of the public works programme. Table 3.5: Coverage Rates (1974-2004) The Environmental Protection Bureau is responsible for monitoring Year Population Population served Coverage Rate efﬂ uent standards. The Industrial Development Bureau is responsible 1974 13.21 5.42 41.03 for issuing licenses for water reuse. 1976 13.69 6.33 46.27 1981 14.97 9.57 63.92 The wastewater sector has been receiving increasing attention at the 1986 15.85 11.81 74.53 policy level and public investment budget allocations have increased 1991 16.70 13.49 80.81 substantially. Vice-President Wu Rong-I recently lent his backing to 1996 17.70 15.34 86.65 the policy to expand the public sewage system as part of the govern- 2001 18.50 16.40 88.68 ment’s “Healthy Taiwan” programme and it is a key priority of the Chal- 2002 18.60 16.55 88.99 lenge 2008 National Development Plan which aims to make Taiwan 2003 18.68 16.66 89.15 into a “green silicon island.” Under the six-year plan, an estimated 2004 18.76 16.81 89.61 NT$2.6trn (US$76bn) will be spent on projects to stimulate economic Source: TWC Corporate Data growth and environmental protection.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 132 Water Market Asia - Taiwan

Table 2.1: Income Level Taiwan Developing Asia High Income Asia GDP per capita 2004 (US$) 13,940.00 1,104.30 23,628.57 Population on less US$1 per day 2004 (%) 0.00 18.23 0.00 Unemployment 2004 (%) 4.43 6.73 4.89

Table 2.2: Area & Population Taiwan Developing Asia High Income Asia Population Growth 2003 (%) 0.37 1.67 0.64 Urban Population Growth 2003 (%) 0.72 3.48 1.18 Population Density 2002 (pop/km2) - 231.45 2,335.17 Area (thousands Ha) -

Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban (millions) Population (%) 22.60 22.54 22.53 100.00 22.45 77.54 77.70 77.89 22.50 80.00 22.40 22.34 60.00 22.30 22.22 40.00 22.20 20.00 22.10 n/a 22.00 0.00 2000 2001 2002 2003 2004 2000 2001 2002 2003

Chart 2.4: Consumer Exp. on Water 1999-2004 (US$m) Chart 2.5: Consumer Exp. on Water Growth Forecast 2005-2009 (%)

1,450 1,414.77 5.00 1,400 1,365.81 1,367.14 4.28 1,347.82 4.00 1,350 3.00 3.10 1,280.57 1,285.37 1,300 2.00 1.66 1,250 1.44 1.00 1,200 0.33 0.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Taiwan Dev eloping Asia (mean) High Income Asia (mean)

The Taipei County Tamsui Area System In recent years, the Tamsui area has developed at a very fast pace and the population has increased signiﬁ cantly. This has created a need for better sewage treatment systems to meet the ever-increasing wastewater volume. In addition, the Taipei County government is keen on developing Tamsui into a major tourist attraction, and therefore is committed to building an advanced public sewage system to treat wastewater before it is discharged into the Tamsui River. The Tamsui project was awarded to local developer continental Engineering Corp in May 2005. The bidding process for the Tamsui project was very similar to the Kaohsiung Nantzu area project. Project Outline: Service population: 195,000 in year 2038 (current population: 100,000) Service Area: 950 hectares (Tamsui area, Chuwei area and household connection in Tanhai New Town area) Project Contents: Sewage collection systems with capacity of 63,500 m3/d; Wastewater treatment plant (capacity of 60,000 m3/d, constructed in two stages); Pipeline network of 42km for Tamsui and Chuwei area. Estimated Project Size: US$112 million (US$ 74m for system engineering cost and US$38m for wastewater plant engineering cost)

133 Water Market Asia - Taiwan

Main Cities of Taiwan (2004) Population '000 Private-sector investment for 2004 to 2008: NT$26.7bn Taipei 2622.00 In the past 15 years Taipei has spent a total of NT$564bn and Kaoh- Kaohsiung 1513.00 siung NT$151bn on the planning and construction of these systems. Taichung 1021.00 In other parts of Taiwan, spending amounted to only NT$462bn for that period. Tainan 755.00 For wastewater, Challenge 2008 sets targets to double the percentage In order to fulfi l the Cabinet’s goal, local governments have to allocate of users connected to the public wastewater treatment network, from NT$65.5bn in total by 2007. Existing fi nancial burdens, however, make 11 % in 2003 to 20.3 % in 2008, and increase the overall proportion it nearly impossible for local authorities to raise the funds needed. It of wastewater treated from 21 % to 30 % by 2008.To meet the con- has been suggested that the Cabinet should arrange a new special nection rate target set by the Challenge 2008 National Development fund to adjust rates to be charged for sewage treatment. Plan, central and local authorities will continue to increase spending III.3 Private Sector Participation year-on-year for the construction of sewage systems. The government intends to encourage private sector involvement and The government intends to use a BOT structure for a number of new is structuring incentives to encourage private-sector construction of projects. The projects include construction of wastewater treatment wastewater facilities (see table 4.2). Of the 50 new planned wastewa- plants, sewage collection and service pipeline networks, and the ter projects, the government has selected eight to be built on a BOT implementation of management systems for leakage control. In to- basis. The fi rst two pilot projects, the Kaohsiung City Nantzu Area tal, there are fi fty large and small-scale sewage treatment projects Project and the Taipei County Tamsui Project, are scheduled to be throughout Taiwan that are being planned for construction in the near launched by the end of 2003 or early 2004. The government estimates future. The construction of new facilities will create a signifi cant de- that the new wastewater projects will attract total investment of over mand for sewage and water treatment equipment. NT$ 200bn (US$ 59m) from the private sector. To make these projects Currently in Taiwan, only Taipei City and Kaohsiung City have a com- more attractive to private investors, the government will offer a pack- prehensive plan for their public sewage systems. Taipei and Kaoh- age of incentives including provision of low-interest bank loans, guar- siung have the highest household connection rates, at 63.7% and anteed minimum wastewater volume, and active involvement in land 27.8%, respectively. acquisition and assisting investors in dealing with local opposition. Future Projects: Taipei City Projects Of these eight BOT projects, the government has picked the Kaoh- siung City Nantzu Area System and the Taipei County Tamsui Area Taipei City’s public sewage system has been under construction for System as the two pilot projects. The government will use the two pilot some 30 years. Currently, 399,453 households are connected to the projects as models for the construction of future sewage systems. The public sewage system, giving a connection rate of 63%. 40km of mains Tamsui (Taipei County) system is expected to have construction costs pipeline, 54km of secondary pipelines and 43 pumping facilities have of NT$3.6bn (US$105m), while the Kaohsiung system is expected to been installed. Besides raising the household connection rates, future need NT$10.2bn. plans for Taipei City include installing advanced automatic monitoring systems for the entire sewage system, especially fl ow meters, hazard- - Kaohsiung City Nantzu Area System A project outline was made ous gas detectors and water quality monitoring equipment. public on November 3, 2003. The Kaohsiung City government is now forming a selection committee and task force. The task force will pre- Additionally, Taipei City is seeking new technologies to lower sewage- pare a detailed project plan, basic requirements, concession term and recycling costs. In 2003 a digestion tank at the Bali wastewater treat- scope of work for private companies that are interested in undertak- ment plant has been installed and tested. Once the system goes into ing the construction of the sewage system. The announcement for full operation, it is expected to reduce the amount of sludge produced. solicitation of public investment proposals is expected to be out by the The government hopes to fi nd new drying and palletizing technologies end of December 2003 or early 2004 and will be posted on the Pub- to reduce the water content of the sludge, producing recycled material lic Construction Commission’s website at www.pcc.gov.tw. Applicants for use as fuel, fertilizer or as a soil improvement agent. It is likely that will then have 45 days to submit investment proposals. The most the government will fi nance the construction of a facility that can dry qualifi ed applicant will then be selected and negotiate the contract and palletize sludge at an estimated cost of NT$200 million. with the Kaohsiung City government. Service Population: 360,000 in Water Reuse year 2038 (current population: 160,000). Service Area: 3,500 hectares (Nantzu district of Kaohsiung City, Tsoying military base and parts of The industrial waste reuse market is growing rapidly in Taiwan. Waste- Kaohsiung County). Facilities: Secondary wastewater treatment plant water reuse makes up around a quarter of this market, or US$7.6m (capacity of 125,000 m3/d, constructed in different stages) with a pipe- out of a total production value in the sector of US$33m. A license line network of 152 km (38 km already completed) and interceptor fa- from the Industrial Development Bureau is required for the reuse of cilities. Household connection: 120,000 households; estimated Cost: industrial wastewater. US$ 300 million III.2 Financing - Secondary wastewater treatment plant: Phase I construction: Waste- 3 Public investment in the wastewater sector is increasing rapidly. In water treatment plant with an average capacity of 75,000 m /day with 2004, the government announced an additional allocation of NT$5bn land provided by Kaohsiung City Government. Later phases of the for the sector, bringing the annual budget for wastewater disposal to project will be tendered separately given uncertainty over future de- more than NT$10bn. From 2004 to 2008, the government plans to mand. Infl uent quality: BOD5: 200 mg/l and SS: 200 mg/l. invest a total of NT$100bn in wastewater treatment. The government III.4 Performance intends to encourage private sector involvement and is structuring incentives to encourage private-sector construction of wastewater facili- Despite its relatively high rate of income per capita, Taiwan has a ties. very low rate of households connected to the public sewage system. Currently, there are eleven cities/counties without public sewage sys- In 2003, Construction and Planning Administration (CPA) offi cials de- tems. clared that the budget allocated to the CPA for wastewater is insuffi - cient. The government has invested a total of NT$110.3bn (US$3.18bn) The low sewage treatment rate is a main factor in the polluting of ma- since the late 1950s in building sewer systems. For 2002 and 2003, jor rivers in Taiwan. About 25 % of the total length of Taiwan’s rivers the Cabinet allocated about NT$11.3bn in total for the CPA to develop is listed as either heavily or moderately polluted. Water reservoirs are wasteater systems. The CPA estimates that it needs at least NT$10bn also highly polluted. per year to build and maintain the sewer systems. Funding is in theory The fi rst sewage treatment system was built in the 1950s in Nantou meant to increase in the coming years. County but very little attention and resources were directed towards Special budget for 2004 to 2008: NT$39.4bn sewage treatment projects before the 2000’s. In recent years, there has been a marked change in the government’s attitude to this issue Administrative budget for 2004 to 2008: NT$38.6bn and it has now recognised the importance of building a comprehen-

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 134 Water Market Asia - Taiwan

Table 3.6: TWC Facilities (2004) Areas Covered No. of Plants No. of System No. of Households Served (‘000) 1 Taipei C. (Northern Part), Keelung City 8 7 343 2 Taoyuan C. 9 2 626 3 Hsinchu C., Hsinchu City, Miaoli C. 10 15 339 4 Taichung C., Taichung City, Nantou C. 19 26 939 5 Yunlin C., Chiayi C., Chiayi City 17 19 461 6 Tainan C., Tainan City 12 2 619 7 Kaohsiung C., Pingtung C.,Penghu C., 18 43 1,019 Kaohsiung City. 8 Yilan C. 4 10 132 9 Hualien C. 5 17 94 10 Taitung C. 4 27 57 11 Changhua C. 9 7 320 12 Taipei C. (Southern Part) 8 1 683 Total Taiwan 123 176 5,633 Source: TWC Corporate Data, Department of Planning.

Table 3.7: TWC Connections and Coverage Rates (2004) for Main Population Centres Area Population (m) Population Served (m) Coverage Rate (%) Taiwan Province 18.48 16.54 89 Taipei 3.71 3.59 97 Taoyuan. 1.85 1.73 93 Taichung County 1.53 1.30 85 Taichung City 1.02 1.01 99 Changhua 1.32 1.20 91 Tainan County 1.11 1.08 98 Kaohsiung 1.24 1.11 90 Kaohsiung 1.51 1.50 99 Source: TWC Corporate Data Table 3.10: Tariffs 1986-2004 (NT$) Household Per Capita Water Year Water Table 3.8: Number of Water Supply Connections (‘000) Charge /Month Year Total Domestic Industrial Other Charge /Month 1986 2,611 2,574 9 27 1986 149.8 32.3 1991 3,319 3,258 12 48 1991 187.4 44.8 1996 4,631 4,544 17 70 1996 217.4 63.4 2000 5,271 5,174 21 75 2000 237.3 75.0 2001 5,349 5,256 21 72 2001 240.9 76.9 2002 5,424 5,333 19 72 2002 233.8 75.1 2003 5,522 5,430 20 72 2003 234.5 76.0 2004 5,632 5,539 20 73 2004 230.8 76.0 Source: TWC Corporate Data

Table 3.9: TWC Financial Performance (NT$mn) key rivers since 2001. In 2001, the Environmental Protection Agency 2003 2004 (EPA) launched a programme of water quality improvement, placing Assets 248,270 247,755 13 rivers on a priority watch list. In 2005, EPA committed NT$1bn Fixed Assets 231,032 230,894 (US$31m) over three years to clean up the Danshui River that runs through Taiwan’s most populous areas, including the construction of Liabilities 105,422 102,849 seven wastewater treatment plants along the river. Current Liabilities 15,753 15,926 Long Term 88,803 85,947 Environmental Policy Liabilities The Environmental Protection Administration estimates that 25% of

Taiwan’s rivers are either heavily or moderately polluted. Total Revenue 23,577 24,701 Total Expenses 23,468 24,699 The Water Pollution Control Act (amended May 2002), and its En- Net income 109 2 forcement Regulations and Management Regulations of Industrial ROR on equity 0.08 0.00 Wastewater Pollution Control provides for fees to be collected for wastewater from industrial and household sources. In addition, the EPA is cooperating with other government agencies to improve the sive sewage treatment system. water quality of fi ve major water catchment areas, which feed the 11 reservoirs that provide water to more than 12 million people in Taiwan. See table 4.3 Since the two main pollutants in Taiwan are domestic sewage and IV. Environment and Legal Aspects wastewater from pig farms, a plan is being carried out to construct 12 sewage systems in the water catchment areas and to demolish the pig IV.1 Water and Wastewater Fundamentals farms in those surrounding areas. As of December 2001, 99.2% of the Water Resources pig farms there had been dismantled and their farmers compensated, resulting in signifi cant improvements in water quality. Taiwan has no shortage of raw water resources. Average annual rainfall in Taiwan is approximately 2,510mm, equivalent to 90.4bn m3, IV.2 Laws and Institutions while water demand amounts to 18.4bn m3. However, water shortages do occur due to uneven rainfall patterns coupled with insuffi cient PSP legal framework storage capacity. Surface water resources provide 85% of water used - Law for Promotion of Private Participation in Infrastructure Proj- for treatment and distribution. ects (2000). The Law applies to all sectors, expands the delegation of administrative authority to the government offi cials implementing Water Resources Policy the projects. The Law provides for civil contracts under which rights Monitoring of surface water quality is divided between central and lo- and obligations between the government and private sector shall be cal governments. Water quality sampling stations have been set up on stipulated in concession agreements. The law allows PPP in all areas

135 Water Market Asia - Taiwan of infrastructure development (including all aspects of water supply, - Monitoring equipment for water leakage and water quality sanitation and waste) and private entities may also submit unsolicited - Large pumps and parts used in pumping stations proposals for infrastructure works. Feasibility studies and preliminary planning should be conducted for all infrastructure projects which will - Biological membrane technology be tendered to the private sector and, in consideration of the spe- - Solid/liquid separation equipment cial characteristics of the infrastructure project, commercial incentives should be incorporated in the formulation of the preliminary plan. Ap- - COD degradation and nitrogen/phosphorus removal technology proved models of PSP are spelt out in the law and include BOT, ROT, BOO and BTO, where ownership is transferred directly to the gov- - Active sludge recycling technology ernment on completion of the facility for a payment and the private - Sludge drying and palletizing technologies company is then contracted to operate the facility. Other models may be approved by the competent authority. - Ceramic pipes - Government Procurement Law (1998) Environmental technologies have been in the government’s ‘Top Ten Emerging Industries’ since 1994. In order to develop the industry, - 1998 measures to improve the screening process of Build, Operate various incentives have been offered to local manufacturers, including and Transfer (BOT) projects introduced by the Council of Economic technology development assistance, fi nancial aid and promotion of Planning and Development (CEPD) under the Executive Yuan. key products for export. Financial assistance includes long-term, low interest loans, company tax credits for expenditures for manufacturing Wastewater of local pollution control equipment, credits for imported foreign pollu- Major laws and regulations governing the construction of public sew- tion control equipment, and exemption of import duties. age systems include: There are currently about 400 water pollution equipment manufactur- - Water Pollution Control Act - The purpose of this Act is to prevent ers in Taiwan. The majority are small and medium sized companies. and control water pollution, ensure the cleanliness of water resources Locally produced equipment is generally cheaper and less technologi- to protect ecological systems, and improve the living environment and cally advanced by international standards and includes pumps, blow- human health. ers, fi lters, valves and pH meters. About 60% of the domestically produced equipment is exported, mainly to Southeast Asia and China. - Effl uent Standards - These Standards are promulgated pursuant to Section 2 of Article 7 of the Water Pollution Control Act. As of Febru- In 2002, Taiwan imported about 75% or US$380m, of its sewage and ary 9, 2000, the quality characteristics and limitations of effl uent from water treatment equipment. The Taiwan import market is estimated to industries, sewage systems and sewage treatment facilities attached grow at an average annual rate of 10% until 2010. to buildings are covered by this Act. Japanese suppliers are currently the largest for sewage and water - Sewage Law: The purpose of this Law is to promote the establish- treatment, with a 35 % market share. For many years there have also ment and management of sewage systems. Standards of Sewage been exchanges between the Taiwan authorities and the Japanese Facilities promulgated in February 2003, these are very specifi c stan- Sewage Association. Mitsubishi and Veolia are two of the better-known dards that companies need to follow when undertaking the construc- foreign companies actively pursuing sewage projects in Taiwan. tion of all aspects of sewage facilities for the government. US company MWH won a consulting contract for design and construc- - Law for Promotion of Private Participation in Infrastructure (Feb tion supervision of a sewage system in 2002. The US$40m 5-year 2000). The Law was enacted to upgrade the level of public services. contract is for the construction of the Taipei County Hsinchuang Sewer Article 42 of the Private Participation Law, the public agency in charge Construction Project that will serve 120,000 residents. of the construction of a sewage system will be responsible for the overall planning/design of the system, tendering and selection. Major local players include BES Engineering Corporation, CTCI Cor- poration Ltd, Chung Hsin Environmental Engineering Consultant Co, - Law for Promotion of Private Participation of Infrastructure (Feb Cambridge Engineering Consulting Inc, Sinovan Environmental Engi- 2000). Sewage and water supply facilities have been listed as one of neering Co, Central Engineering Consultant & Research Inc, and San the priority BOT project categories. Yin Enterprises. V. Construction & Equipment Markets The Taiwanese Water Resource Agency (WRA) has been active in promoting business opportunities in Taiwan’s water sector in the last See table 5.1 few years, targeting foreign investors with advanced technologies, Wastewater projects for example in deep sea water technologies developed in Japan and the US. WRA Director-General Chen Shen-hsien wants Taiwan to be- The total market for sewage and water treatment equipment in come “a hub for water-related industries in Asia.” 2002 was NT$16.3bn (US$480m), with total imports of NT$12.9bn (US$380m), a signifi cant growth of 7% from 2001. Japanese suppliers VI. Sources led the market, with about 35% of the import market. US companies EIU, ADB, TWC, Interviews captured about 23% of the market. Other important players include European suppliers from countries such as Germany, Italy and the VII. Contacts UK. About 70% of crucial sewage and water treatment technologies in Taiwan are imported. See Table 6.1 Domestic production of sewage and water treatment equipment is still limited to low-tech equipment, such as small pumps and pipes. However, most design and construction contracts for sewage systems go to local fi rms. Best opportunities for foreign suppliers lie in supplying advanced technologies used in wastewater treatment plants and pumping stations. Monitoring equipment for water leakage and water quality is also needed. The Construction and Planning Agency of the Ministry of Interior has identifi ed the following foreign sewage treatment technologies to be in demand in Taiwan: - Advanced wastewater treatment systems - Advanced oxidation treatment equipment and technology - Advanced aeration equipment

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 136 Water Market Asia - Taiwan

Table 5.1: Recent major projects carried out by the public sector Project Name NT$m Description Hualien District Tap Water Supply 138 Responding to the government’s policy to move industries Project eastwards, to improve the water supply and water quality of Hualien District. Increase supply from the Hsou Feng Water Treatment plant (by 41,000 tons/day) to a total of 45,000 tons per day. Installation of 23km of pipe network for the Hualien and Hsou Feng districts Ping Zhen Second Unprocessed 297 Project to increase extraction fro the Shimen Reservoir, raising the Water Pumping Station Project maximum quantity of water extracted to 680,000 tons/day.

Remote Areas Water Supply 344 Project carried out by the Water Resources Agency (MinEcon); Improvement Plan since 2004, the yearly budget is NT$90 million, but due to higher demands of tap water from the general public, the 2004 budget has been increased to NT$140 million. In 2005,an official notice from the Water Resources Agency

Plan to Lower Loss Through Water 3 The project has two parts: improving management of water needs Leakage at the district level and replacement of leaking pipes (1,136km in length). To improve efficiency the management project sets targets for small units and control systems put in place

Ban Shin Area Water Supply 5 Project being implemented by the WRA, Taiwan Water Improvement Project Plan Stage Cooperation and the Taipei Water Department. Budget for the Two whole project is NT$10m of which NT$5m will go to investment by TWC and a further NT$5m will go to subsidise the TWD.

Peng Hu Area Water Resources 249.5 Expansion of an existing desalination plant and construction of a Development Follow-up Project further plan to increase water supply by 6,250 tons/day. Expansion of Ma Kung desalination plant by 5,500 tons/d and construction of Shiyeu 750 ton/d desalination plant.

Hisnchu Bao Shan Water Treatment 383 Construction of a 340,000 ton water treatment facility, wastewater Plant’s Stage Three treatment plant, water delivery network and a management control centre will be added to the existing Bao Shan Water Treatment Plant.

Table 5.2: Market Size (US$m) Wastewater Equipment and Construction 2002 2003 2004 Aver . Annual Growth Rate Import M arket 380 410 450 10% Local Production 300 350 367 15% Exports 200 230 241 10% Total Market 480 530 576 10%

Table 6.1: Contacts and Competent Authorities Public Construction Commission, Executive Yuan Contact: Ms. Jennifer Chen Tel: 02-8789-7662 Ministry of Transportation and Communications Contact: Mr. Wang Tsun-chu Tel: 02-2349-2051 Ministry of Economic Affairs Contact: Mr. Hsu Yueh-ying Tel: 02-2397-7361 Ministry of Education Contact: Ms. Chiang Chen-yu Tel: 02-2356-6049 Construction & Planning Administration, Ministry of Contact: Mr. Yu Pei-chi Tel: 02-8771-2659 Department of Health, Executive Yuan Contact: Mr. Lo Ting-yu Tel: 04-9223-2161 Environmental Protection Administration, Executive Contact: Mr. Wang Chi-te Tel: 02-2311-7722, ext. 2511 Council of Agriculture, Executive Yuan Contact: Ms. Chiang Shu-fang Tel: 02-2381-2991, ext. 6958 Council of Labor Affairs, Executive Yuan Contact: Ms. Liu Chin-wa Tel: 02-8770-1788 Council for Cultural Affairs, Executive Yuan Contact: Mr. Shen Chang-tsai Tel: 02-2343-4087 National Council on Physical Fitness and Sports, Contact: Ms. Chao Chang-shu Tel: 02-8771-1800 Overseas Chinese Affairs Commission, Executive Contact: Mr. Huang Ke-chung Tel: 02-2893-9922, ext. 1102 Veterans Affairs Commission, Executive Yuan Contact: Mr. Liang Chang-hsiang Tel: 02-2757-1628

137 Water Market Asia - Taiwan Known PSP Projects in Taiwan Hsin Chu Provincial City

Chu Bei Municipal Water Resources Recovery Centre

Chu Bei Hsin Chu Provincial City 3 -year DBO Total investment (USDm) 17.40

Sector 1 Wastewater Sector 2 Water re-use

Capacity Timeline

Treatment 20,000 m3/d Contract awarded 2005 December

EPC contractor Darco Water Technologies (Darco Environmental )

Hsin Chu City Waste Water Plant

Hsin Chu Hsin Chu Provincial City BOO Total investment (USDm) 50.00

Sector 1 Wastewater Sector 2 No data In December 2005, Singaporean water treatment ﬁ rm Darco Water won a contract from the Taiwanese government for the largest municipal waste water project to date on the island. The deal amounts to about S$84m (US$50m). Darco will partner a major Taiwanese construction group, Leader Construction, for the project. The consortium will build a waste water plant that can treat 30,000 m3 of water a day located 80km southwest of the capital Taipei in Hsin Chu City.

Capacity Timeline

Treatment 30,000 m3/d Contract awarded 2005 December

EPC contractor Leader Construction (Korea) & Darco Water Technologies

Equity investor Leader Construction (Korea) 50.00%

Equity investor Darco Water Technologies (Darco Environmental) 50.00%

Kaohsiung County

Kaohsiung Water

Kaohsiung Kaohsiung County 15 -year BROT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

This is the second largest city in Taiwan.

Capacity Timeline

Production 450,000 m3/d Contract awarded 2002 October

Equity investor Ecotek (Taiwan) 55.00%

Equity investor SUEZ (Ondeo) 45.00%

Taipei

Tamsui Wastewater

Tamsui Taipei 35 -year BOT Total investment (USDm) 110.00

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 60,000 m3/d Contract awarded 2005 May

Equity investor Continental Engineering Corp (Taiwan) 100.00%

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 138 Water Market Asia - Part 2.2: Emerging Asia

Part 2.2: Emerging Asia

139 Water Market Asia - Part 2.2: Emerging Asia

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 140 Water Market Asia - Bangladesh

Bangladesh

Bangladesh is an extremely poor country. The water service levels in cities in Bangladesh are very limited with levels of coverage of only 30-60%, 3-12 hours of service per day, and presence of arsenic in some of the water systems. There has been little involvement of the commercial private sector in the provision of water services so far. Outside of IFI-led projects there are no opportunities for the international private sector in Bangladesh.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Non-existent While PSP is allowed by government Future Opportunities None policies, little or no interest exists on the part of private investors Local competition Negligible

Equipment Markets Comments Future Opportunities Few Medium to large ADB or World Bank- Local competition Negligible funded projects provide a number of opportunities.

Public Utilities Comments Track record Bad Corruption and inefficiencies are Sustainability Poor proving very hard to root out. Reliance on ODA Very High Government Comments Commitment to deliver service No Reforms have been slow and difficult Fiscal Resources Very limited to implement. Economy & Finance Comments Recovery since Asian crisis 1997 Below average A weak economy often disrupted by Local capital market Inexistent floods.

141 Water Market Asia - Bangladesh

I. General Information Macroeconomic Situation Bangladesh is one of the poorest countries in the world. At US$379, Although the country is poor, Bangladesh’s economic performance GDP per capita is higher only than Laos, Cambodia and Myanmar. has been relatively steady, despite frequent, widespread and destruc- tive fl ooding. The economy is expected to grow at a rate of 5-6% in Average household expenditure, a more accurate measure of the the 2004-2007 period, but other economic fundamentals show signs spending power of the population was only US$303 in 2004. 36% of of imbalance. the population lives on less than US$1 a day, while the poverty rate measured by calorie intake is even higher, at 41% in 2004. The government is trying to keep down the budget defi cit by controlling spending, but the 2005 budget provides for spending to rise by The population of Bangladesh is growing at 2.10% a year (2003), put- 15.6% a year, focused on the infrastructure and social sectors. ting pressure on the country’s resources and infrastructure in what is already one of the most densely populated countries in the world. Infl ation is 6%, and is expected to rise further. The exchange rate is stable while interest rates are on a downward trend. Average bank The country is primarily rural, with little more than a quarter of the lending rates stood at 11% in 2004. population living in urban areas. The four largest cities, Dhaka, Chit- tagong, Knulna and Rajshahi, together account for about 50% of the The government has been pursuing reforms in the banking sector, urban population. including strengthening the Central Bank and tightening governance requirements for fi nancial institutions and the rationalisation of public There is 75% water supply coverage across the country, with slightly commercial banks. higher rates of coverage in urban areas – 82% against 72% in rural areas. However, only 26% of urban residents and less than 1% of rural Despite recent efforts, the capital market remains underdeveloped. dwellers have a direct household connection. The country has a trade defi cit of US$2.3 billion but a current accounts surplus supported by transfers of workers’ remittances. In 2004, for- Only half of urban residents, even in the largest cities, have a piped eign exchange reserves were $2.7bn, but this is expected to be re- water connection. In the past few decades, Bangladesh has taken versed to a defi cit of 1% of GDP in 2005. important steps towards providing water to its rural population and Bangladesh has high rates of rural access for its income level. Bangladesh’s Interim Poverty Reduction Strategy Paper was completed in March 2003 and a draft full PRSP was released in January 2005 This is the outcome of a programme of handpump installation in vil- identifying the following priorities: macroeconomic stability, maximis- lages. On average, there is one tube-well for every 2.5 households. ing poverty reduction through growth, strengthening the social safety The development of Bangladesh’s economy is hampered by severe net, advancing human development, assuring participation of poor infrastructure bottlenecks. Urban infrastructure is very poor and ser- and disadvantaged groups in the development process, promoting vices are inadequate or non-existent. good governance, improving service delivery in the areas of basic needs, and protecting the environment. In secondary towns, people without access to sanitary facilities range between 30-70% of the community. Solid waste collection effi ciency II. Water varies between 6-65%, with the majority being well below 50%. II.1 Sector Policy & Structure Most urban areas have poor drainage systems, and suffer from localised fl ooding problems. Structure Bangladesh is divided into 6 divisions, 64 districts and 490 thanas. Even in rural areas, the quality of water sources is threatened by There are four metropolitan areas including the capital city, Dhaka. uncontrolled organic waste from roadside markets and rudimentary slaughtering areas. Water Supply & Sewerage Authorities (WASAs) are responsible for

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 8.00 2006 64,296 6.00 2005 61,020 4.00 2004 56,732 2.00

52,000 54,000 56,000 58,000 60,000 62,000 64,000 66,000 0.00

-2.00 1998 1999 2000 2001 2002 2003 2004 2005 2006

Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) Bangladesh Dev eloping Asia (mean) High Income Asia (mean) 12.00 10.00 8.00 Chart 1.3: 2004 Sector Share of GDP 6.00 4.00 Agricult. 2.00 0.43 0.39 0.59 0.17 0.11 0.20 21% 0.00 1998 1999 2000 2001 2002 2003 2004 Serv ices 52% Bangladesh Dev eloping Asia (mean) Indutry High Income Asia (mean) 27%

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 142 Water Market Asia - Bangladesh

Table 1.1: Sovereign Risk Indicators Bangladesh Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 136.00 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 45.40 59.60 50.84 Short Term Debt / Total Debt 2004 (%) 3.29 10.49 n/a Fitch Sovereign Rating (2004) n/a

Table 1.2: Legal Risk Indicators 2004 Bangladesh Developing Asia High Income Asia Time to enforce a contract (days) 365.00 392.62 103.67 Time to register property (days) n/a 62.82 16.50 Time to resolve insolvency (years) 4.00 4.45 1.15 Time to start a business (days) 35.00 67.08 14.33 Legal rights of borrowers and lenders (0=low) n/a 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Bangladesh Developing Asia High Income Asia Political Rights 4.00 4.23 2.43 Civil Rights 4.00 4.69 2.14 Corruption Perception 1.50 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 Bangladesh Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 20.56 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 15.59 185.54 1,281.59 Roads, paved (% of total roads) 9.53 44.75 75.32 Electric power consumption (kwh per capita) 100.28 717.46 7,505.93 Water supply failures (days) 31.60 10.00 n/a

Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%)

8 0.00 2002 2003 2004 2005 2006 6 -2.00

4 -4.00 2 -4.33 -4.25 -4.20 -4.70 -4.90 0.25 -0.40 -0.60 -0.70 -6.00 0 2003 2004 2005 2006 -2 Bangladesh Dev eloping Asia (mean) High Income Asia (mean) Bangladesh Dev eloping Asia (mean) High Income Asia (mean) Chart 1.8: Real Interest Rate 2000-2003 (%) Chart 1.7: Inflation Rate 1999-2004 (%) 16.00 16.00 14.00 14.03 13.39 14.00 12.00 12.41 12.00 10.98 10.00 10.00 8.00 8.00 6.00 6.00 6.11 5.67 4.00 4.00 3.33 3.16 2.00 2.21 2.01 2.00 0.00 0.00 -2.00 1999 2000 2001 2002 2003 2004 2000 2001 2002 2003

Bangladesh Bangladesh Dev eloping Asia (mean) Dev eloping Asia (mean) High Income Asia (mean) High Income Asia (mean)

143 Water Market Asia - Bangladesh

has declined. Main Cities of Bangladesh (2001) Population '000 Dhaka 9913.00 Policy Chittagong 3203.00 During the 1990s, water featured as a high priority in the government’s Khulna 1227.00 development plans but was given little emphasis in the Interim Poverty Rajshahi 647.00 Reduction Strategy Paper. The National Policy for Safe Water Supply and Sanitation was adopt- water supply in some large metropolitan areas. In other urban areas, ed in 1999. In it, the government recognises: the need for the involve- paurasavas (municipalities) are responsible with support from the ment of communities in planning, implementation, management and central government. cost-sharing in projects; the need for behavioural changes in relation to sanitation; that existing facilities are not used optimally; and the Historically, the Department of Public Health Engineering (DPHE) in need for strategic partnership with non-government actors. the Ministry of Local Government, Rural Development and Coopera- tives (MLG) was responsible for the installation and maintenance of Its key objectives include increasing access to both water and sanita- water systems. Services were provided mostly free of charge and tion, bringing about behavioural changes, reducing water-related dis- were implemented without the participation of local communities. The ease, ensuring proper storage, management and use of surface water Local Government Division (LGD) was responsible for administering and preventing its contamination, making greater use of rainwater, im- development by the local governments, including those in the water proving stormwater drainage and building the capacity of local govern- and sanitation sector. ments and communities to deal more effectively with problems. This has changed considerably with the enactment of the Upazila The policy also delineated goals to be achieved ‘in the near future’: Parishad Act in 1998. Schedule 2 of the Act specifi cally deals with the water resources sector development, in particularly relating to plan- - Increasing coverage of safe drinking water in rural areas by lowering ning and management of small-scale water resources schemes under the average number of users per tube-well from 105 to 50; 1,000 hectares. Local communities in rural areas are now responsible - Ensuring the installation of one sanitary latrine in each household in for operation & maintenance of hand-pump tube-wells. rural areas and improving public health standards through inculcating The responsibility for installation, operation & maintenance of urban the habit of proper use of sanitary latrines; water supply was initially with DPHE only but is now shared with the - Making safe drinking water available to every household in urban 257 municipalities. In the cities of Dhaka, Narayangong and Chit- areas; tagong, water and sanitation services are the responsibility of the City Corporation. WASAs were established in Dhaka and Chittagong in - Ensuring a sanitary latrine within easy access of every urban house- 1983, and have responsibility for water and sewerage in the respec- hold using appropriate technology options ranging from pit latrines to tive cities. WASAs and the paurasavas set tariffs, institute by-laws, water borne sewerage; and appoint utility staff. Billing and collection targets of 90% and 80% - Installing public latrines in schools, bus stations and important public respectively have been introduced, while the target for UFW is 30%. places, and community latrines in densely populated poor communi- Municipalities receive assistance from the DPHE in carrying out ties without suffi cient space for individual household latrines; their responsibilities. They receive support for planning, designing, - Ensuring supply of quality water through observance of accepted implementation, management and human resource development. quality standards; The DPHE leads future planning and strategy formulation regarding development projects. The Local Government Division’s Monitoring, - Removal of arsenic from drinking water and supply of arsenic-free Evaluation & Inspection Wing monitors other activities in the sector. water from alternate sources in arsenic affected areas; The LGD leads policy and investment planning in consultation with the - Taking measures in urban areas for the removal of solid and liquid Planning Commission, Physical Infrastructures Division and WARPO waste and their use for various purposes. Ensuring the use of waste (Ministry of Water Research). The LGD and Planning Commission for the production of organic fertiliser (compost) in rural areas. propose 5-year planning programmes (1997-2002, 2002-2007) and prepare guidelines and budgets for the implementation of specifi c The policy outlines the principles of a sector development frame- activities for the implementing agencies (City Corporations, munici- work: palities, DPHE, WASAs, LGED, NGOs, etc.). The Local Government - Participation of users in planning, development, operation & mainte- Division is charged with liaison and negotiation with donors (bilateral, nance through local government and community based organisations multilateral, etc.) through the External Resources Division (ERD) for (CBOs); projects in the water and sanitation sector. - Development of the sector through local bodies, public-private part- Most of the urban municipalities now have Water Supply and Sanita- nerships, NGOs, CBOs and women’s groups involving local women, tion Committees made up of user groups, which supervise water and particularly elected members of local bodies; sanitation activities. - Gradual community cost-sharing and introduction of economic pric- In addition to DPHE, the Local Government Engineering Department ing for services; (LGED) is also involved in the planning and implementation of water and sanitation services in certain municipalities and industrial areas - Assigning priority to underserved and unserved areas; identifi ed by the Planning Commission, as well as other infrastructure - Adoption of water supply and sanitation technology options appropri- services for local governments. ate to specifi c regions, geological situations and social groups; In the 1990s, under decentralisation policies, the role of municipalities - Local government institutions and municipalities to bear increasing in planning local services was increased, but their capabilities and share of capital cost; available resources were often not adequate to carry out their new responsibilities. Municipalities had received funds from the central - Improvement of existing technologies and conduct of continuous re- government in the form of grants, which were gradually replaced by search and development activities to develop new technologies and loans. The DPHE is predominantly an engineering organisation with coordination between research organisations and extension agents/ little capacity to advise municipalities on fi nancial and organisational implementing agencies; issues. - Social mobilisation through publicity campaigns to ensure behav- Improving coverage in rural areas is an important achievement. In the ioural development and change in sanitation and hygiene; late 1970s, approximately 4 million wells were drilled to replace the - Capacity building at the local/community level to deal effectively with traditional contaminated surface water sources, giving a total of 8-12 local water and sanitation problems; million shallow tube-wells in the country (WHO estimate). The projects made signifi cant headway and mortality due to water-related diseases - Mobilisation and coordination of resources from users, public sector and development partners;

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 144 Water Market Asia - Bangladesh

Table 2.1: Income Level Bangladesh Developing Asia High Income Asia GDP per capita 2004 (US$) 379.00 1,104.30 23,628.57 Population on less US$1 per day 2004 (%) 36.00 18.23 0.00 Unemployment 2004 (%) 2.50 6.73 4.89

Table 2.2: Area & Population Bangladesh Developing Asia High Income Asia Population Growth 2003 (%) 2.10 1.67 0.64 Urban Population Growth 2003 (%) 4.06 3.48 1.18 Population Density 2002 (pop/km2) 998.70 231.45 2,335.17 Area (thousands Ha) 14,400.00

Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban 2000-2003 (cst 2000 US$) (millions) Population (%) 26.77 310 303.03 155.00 27.00 149.76 296.23 26.18 300 150.00 146.74 26.50 287.40 143.81 26.00 25.59 290 145.00 140.88 279.19 137.95 25.50 25.00 140.00 280 25.00 270 135.00 24.50 130.00 24.00 260 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002 2003

- Providing credit facilities for the poor to bear costs of water and sani- service quality. tation services; Almost all rural piped water supply systems in Bangladesh are grant- - Regular monitoring and evaluation and revision of the strategy; based. In general, communities are supposed to contribute a propor- - Wherever feasible, safe water from surface water sources shall be tion of construction costs, but they have in fact contributed only 3-4%. given precedence over other sources; The policy states the expected levels of community cost-sharing: (a) 50% for hand tube-wells in shallow water table areas, (b) 25% for - With a view to controlling and preventing contamination of drinking hand tube-wells in low water table areas, (c) 20% for deep hand tube- water, regular and coordinated water quality surveillance by the De- wells and other technologies for diffi cult areas. Communities are ex- partment of Public Health Engineering (DPHE), National Institute for pected to meet full operation & maintenance costs. Preventive & Social Medicine (NIPSOM), Atomic Energy Commission and Department of Environment (DOE) and random testing of qual- The rest of the costs are borne by the sponsoring organisation. The ity of drinking water (including bottled water) by DPHE, Bangladesh DPHE has implemented 91 schemes under a fully government fi - Standard Testing Institute (BSTI) and DOE to determine the level of nanced project, under which construction is carried out by the DPHE. contamination; There have also been donor-funded schemes, such as those supported by UNICEF, DANIDA and UNDP. - Adopting of necessary measures in urban areas to prevent contamination of ground and surface water by solid and liquid waste. DPHE, under a UNICEF-assisted action research project, launched a piped water supply programme with the help of a national NGO, Progress in reforming the water sector has been very mixed. Imple- BRAC (formerly known as Bangladesh Rural Advancement Commit- mentation of the National Water Policy has been less successful, and tee). DPHE has also initiated mini piped water supply schemes named revision of water-related laws is also taking time. There has been Community Water Supply and Sanitation Programme (CWSSP) un- substantial international investment and technical assistance in sector der the UNDP-assisted Sustainable Environment Management Pro- administration and reform, but results up to 2000 were so limited that gramme (SEMP). This programme is implementing a few simple piped several donors scaled back or suspended assistance for the sector water schemes in rural areas. Rural Development Academy (RDA), at that time. Bogra, a government-funded autonomous institution, is also implementing piped water supply schemes. II.2 Financing Major investments in the water sector are made by the Ministry of Wa- Participation of the small-scale private sector is being introduced in ter Resources through the BWDB, and by the Ministry of Local Gov- the context of the World Bank-assisted Bangladesh Arsenic Mitiga- ernment for Rural Development and Cooperation through its LGED. tion Water Supply Project (BAMWSP). The project will support private However, other water-related ministries have their own investment sponsors’ proposals to build and operate piped water supply systems programmes. Each of these agencies has, in the past, attracted donor in villages of more than 200 households. The project will pay the cost support for projects in a manner that has little coherence and has cre- of the feasibility study and project preparation to selected sponsors ated much duplication. and will provide matching funds for up to 50% of capital costs for selected projects. The sponsor fi nances 50% from its own equity, local In urban areas, water supply systems are meant to achieve full cost bank loans and community participation. 40% of matching fund will be recovery, according to the national policy, although it is not clear provided in instalments after achieving predetermined milestones and whether capital costs are included. The water tariff is to be determined the remaining 10% will be in the form of a success bonus, payable on the basis of the cost of water production, operation & maintenance, after successful operation of the schemes for at least three months. administration and depreciation. This is far from being achieved: public utilities generally have low levels of cost recovery and inadequate At present, there is no local credit market for water supply in Bangla- budgets for O&M, resulting in the deterioration of assets and poor desh. Local banks are generally unable to provide loans with long-term maturity and lack experience in fi nancing such schemes. The World

145 Water Market Asia - Bangladesh

Bank and other donors have supported the development of local fi - Open defecation is a common practice. There is also widespread use nance for private sponsors through credit guarantee mechanisms. of hanging latrines, which pose a particular threat to both health and the environment. II.3 Private Sector Participation In 1994 to 1998, the government of Bangladesh, with the support of The government recognises in its policy that many functions of the UNICEF identifi ed sanitation as an issue of national concern and impor- water supply and sanitation sector can be undertaken by private or- tance. The Social Mobilisation Programme (SOCMOB) was launched ganisations and that the involvement of these organisations is desir- in the 1990s. Due to these efforts, sanitation coverage showed an able in order to reduce the fi nancial burden on the government and upward trend which, however declined again after discontinuation of to improve the fi nancial viability of the sector. The government also SOCMOB in 1998. In 2002, the government again adopted sanitation recognises its role in creating an ‘enabling environment.’ However, the as a priority, launching a new emphasis on hygiene and sanitation policy does not provide a timeframe for increasing tariffs towards cost- across the country. recovery levels or address issues of capital investment in the sector in more detail. The policy envisages opening up the sector to BOO/BOT The government has set a target of ‘total sanitation’ by 2010, where- and other arrangements, and outsourcing contracts for billing and col- by every household will have latrine. In order to achieve this target, lection. A guideline on private sector participation in the sector is being sanitation coverage in Bangladesh will need to increase at 8% a year, prepared by the government. against the current 1%. In 2003, the government conducted a sanitation ‘census’ across the country to establish existing conditions. The There has been little involvement of the commercial private sector in government has also set intermediate targets for 2005 and 2008. In the provision of water services so far, although NGOs and community 2002, it started the National Sanitation Campaign and a National Task organisations have been very active. There is currently no regulatory Force was formed headed by the Secretary of the Local Government framework for either private sector participation or for groundwater Division. A secretariat was established to support the National Task management and administration. Technical assistance to the govern- Force. ment on the design of these frameworks is provided as part of an ongoing World Bank-supported water sector project. City Corporations and municipalities set tariffs, by-laws, and appoint staff for sanitation services. The Ministry of Water Resources plays a PSP has been considered in the context of several donor projects. coordinating role in sewerage and drainage networks. Under a World Bank project for water supply in medium-sized cities, a pilot project was conducted in Nawabganj to invite a private sector Sanitation in rural areas is coordinated by the DPHE but several minis- operator to restructure and upgrade the system, change the water tries are meant to work together to implement the behavioural aspects sources to provide arsenic-free water, and manage the water utility of the policy, notably the Ministries of Health, Education, Social Wel- under a design-build-operate contract. The project linked funding for fare, Information, Women & Children’s Affairs and DPHE, as well as similar reforms in water service delivery in self-selected municipalities NGOs, CBOs, local government bodies and other related agencies. (or groups of municipalities) willing to undertake reform of their water supply services but the municipalities showed little interest. III.2 Financing The sector is funded largely by donor grants and loans onlent to mu- II.4 Tariffs nicipalities and City Corporations by the central government. As for Water services are subsidised by the state and tariff structures and the water sector, cost recovery is extremely low. The current policy collection provide little incentive for water conservation. There is an does not expect cost recovery to be achieved in rural areas and poor increasing block tariff structure with heavy cross-subsidisation of do- communities, educational institutions, mosques and other places of mestic users by commercial and industrial users. Tariffs are generally worship are entitled to full or partial cost subsidies. very low, despite evidence that communities would be willing to pay more for a better quality of service. III.3 PSP Government policy allows for PSP in wastewater collection, treatment II.5 Regulation and disposal, but there is unlikely to be any interest in such projects Monitoring of water quality is the responsibility of DPHE, DOE, BSTI, from private companies. Small-scale and informal providers are active Atomic Energy Commission and CBOs who report to the water qual- in sanitation in both rural and urban areas and in some cases are sup- ity control committee in the Local Government Division. There is no ported by donors and NGOs. In one scheme, public and community independent economic regulator for the sector. latrines were to be set up by City Corporations or municipalities and leased out to the private sector for maintenance, but no contracts of II.6 Performance this kind have yet been signed. The water service levels in cities in Bangladesh are very poor, with levels of coverage of only 30-60%, 3-12 hours of service per day, and III.4 Tariffs presence of arsenic in some of the water systems. In principle, tariffs are set by City Corporations and municipalities, but the limited scale of service provision, with the only sewerage network In Dhaka, treated water supply is 1,520mld, against demand of being in Dhaka, means that tariffs are not charged in practice. 1,600mld. The city is served by the Sayedabad Water Treatment Plant constructed in 2000. In 2005, the ADB agreed a US$1m Technical As- III.5 Performance sistance grant for Dhaka. Sanitation performance in Bangladesh is extremely poor. Collection, Chittagong WASA installed two deep tube-wells, two pump houses treatment and disposal cover only a tiny amount of wastewater pro- and completed other physical construction in the port city at a cost of duced and pollution of water sources from household and industrial Taka 1,597m in 2001. The Third Interim Water Supply Project, exten- wastewater constitutes a signifi cant threat to health. sion of the Mohra Plant and the Maduna Ghat Water Supply Project, Access to any kind of improved sanitation is limited. is in progress (2002). IV. Environment and Legal Aspects III. Wastewater IV.1 Water and Wastewater Fundamentals III.1 Sector Policy & Structure Bangladesh has abundant water resources but the pattern of rain- The country’s only sewerage system is in Dhaka, while all other cities fall is highly seasonal, with 80% of rain falling during the monsoon. rely on private provisioning through septic tanks. In Bangladesh, it is The country suffers regularly from droughts and cyclones, as well as estimated that only 43% of urban and 10% of rural households use a fl oods. Most of Bangladesh is located in the fl oodplain of three large water seal latrine. If simple pit latrines are included, the fi gure rises to rivers, the Ganges, the Brahmputra and the Meghna. The combined 61% urban and 41% rural coverage. This equates to a national aver- discharge of these three rivers is among the highest in the world, es- age of approximately 43%. However, there are some under-served timated at 335,000m3/s. Most of the catchment area (93%) of these areas, which give rise to particular concern. For example, it is esti- rivers lies outside Bangladesh, leaving the country vulnerable to diver- mated that only 14% of slum households in the metropolitan cities sion or pollution of river waters in India, the main upstream country. have sanitary latrines (water seal 6.6% and pit latrine 6.9%). (WEDC) The river water fl ow is also seasonally concentrated, with 85% of the

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 146 Water Market Asia - Bangladesh

Table 3.1: Water Service Coverage Indicators 2002 (%) Bangladesh Developing Asia High Income Asia Population with Access to Improved Water 75.00 76.85 100.00 Households Connected 6.00 22.27 98.00 Urban Population with Access 82.00 86.17 100.00 Urban Households Connected 26.00 48.27 99.33 Rural Population with Access 72.00 71.42 100.00 Rural Households Connected 0.00 14.58 95.50

Table 3.2: Water Resources Bangladesh Precipitation Volume 2002 (bn m3/yr) 383.90 Precipitation Depth 2002 (mm/yr) 2 666 Groundwater: produced internally 1998-2002 (bn m3/yr) 21.09 Surface water: produced internally 1998-2002 (bn m3/yr) 83.91 Overlap: surface and groundwater 1998-2002 (bn m3/yr) 0.00 Water resources: total internal renewable 1998-2002 (bn m3/yr) 105.00 Water resources: total external 1998-2002 (bn m3/yr) 1,106.00 Water resources: total renewable 1998-2002 (bn m3/yr) 1,211.00 Agricultural water withdrawal 1998-2002 (bn m3/yr) 76.35 Domestic water withdrawal 1998-2002 (bn m3/yr) 2.53 Industrial water withdrawal 1998-2002 (bn m3/yr) 0.52 Total water withdrawal 1998-2002 (bn m3/yr) 79.40

Table 3.3: Water Resources II Bangladesh Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 730.10 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 8,418.00 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 552.10 507.25 544.73 Dependency ratio 1998-2002 (%) 91.33 33.33 1.39 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 6.31 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 6.56 16.19 13.19

Chart 3.1: Water Uses 2002 (%) Chart 3.2: Fresh Water per Capita 1999-2004 (m3/head) 10,000 9,014 8,809 Indus. 8,472 8,279 9,000 7,950 1% 7,710 8,000 Dom. 3% 7,000 1999 2000 2001 2002 2003 2004

Agricult. 96%

Table 3.4: Estimated willingness to pay for piped water supply Public Stand Posts Domestic Connections O&M O&M Capital Cost (Tk.) Capital Cost (Tk.) (Tk./month) (Tk./month)

All 51 960 87 1787 Poor 44 838 68 1401 Non- 59 1119 112 2318 Poor (Ahmad et al (August 2003), Willingness to pay for Arsenic-Free, Safe Drinking Water in Bangladesh, WSP)

147 Water Market Asia - Bangladesh water crossing into Bangladesh between June and October. The fl ow Ministry for water issues, but it does not have responsibility for water of water to Bangladesh is controlled by India via a dam located near supply and sanitation. the border. The release of water from this dam is governed by a treaty There has been a major shift in the approach to water resources man- signed in 1996. agement within government since 1999. In particular, the dominance The agricultural sector is by far the largest user of water, accounting of fl oods as the issue and infrastructure as the solution is challenged for 86% of total water withdrawals. Industrial use accounted for only by the new policy, which prioritises a range of issues and recognises 2%. Despite the abundance of surface water resources, only 27% of the importance of, in particular, institutional change, coordinated by water use is drawn from surface water sources. The rest is ground- WARPO. water. WARPO is intended to be the exclusive government institution for About 22% of the area of the country is fl ooded each year. Flood con- macro-level water resource planning but has yet to take on this role. trol and drainage are used to reduce the depth of fl ooding. Flood con- WARPO’s mandate to develop and monitor standards of effl uent dis- trol and drainage projects have accounted for about half of the funds posal (in consultation with the Department of the Environment) and spent on water development projects since 1960. to regulate water resource use has not been carried out. It does not yet have the powers or capacity to act as a regulator and there is no The groundwater table below the metropolitan city of Dhaka is falling other agency mandated to do so. As the policy is yet to be endorsed at an alarming rate and some deep tube-wells are expected to be ren- by the Parliament or backed by an Executive Order, WARPO’s ability dered inoperative. Annual abstraction of groundwater increased from to coordinate activities is constrained. Government agencies includ- 177 million m3 in 1990 to 346 million m3 in 1999. A study in 2000 (Ban- ing BWDB and LGED or the Ministries of Fisheries and Livestock or gladesh University of Engineering and Technology for Dhaka WASA) Roads and Highways are not at present obliged to submit their plans found that the water level in the central part of Dhaka is expected to and projects to WARPO, even though this is seen as an integral part drop 36m by 2010 at the present rate of abstraction and if abstraction of the policy. increases as the trend suggests, the fi gure could rise to 56m. In 2000, WARPO produced the National Water Resources Manage- WASA currently operates over 300 deep tubewells and relies almost ment Plan (NWMP) to implement the government’s National Water entirely on groundwater for the supply of drinking water to 10 million Policy. The Plan involves action by 24 line agencies under seven residents. It would have to operate 450 deep tube-wells by 2010 in ministries and was approved by NWRC in March 2004. WARPO is order to meet demand. However, land subsidence resulting from the engaged in a review of all existing legislation related to water and falling water table in Dhaka is forecast to be 200mm over the next ten the preparation of a consolidated and comprehensive Water Act incor- years, less than had been predicted earlier. porating the existing laws and any additional legislation that may be Water Resources Policy needed to implement the National Water Policy and the NWMP. As of end 2005, this had not yet been implemented. Sustainable water resource management is a critical element of the government’s poverty reduction strategy.The government has made IV.2 Laws and Institutions progress in improving water resources management, particularly in - Water Resources Planning Organisation (WARPO), under the Min- terms of the provision of information concerning resource availability istry of Water Resources, has a mandate to ensure coordination of all and the social and environmental effects of development but as yet relevant ministries through the National Water Council and to plan all there is no formal structure for water allocation. Wastewater discharge aspects of water development including major and minor irrigation, regulations are poorly implemented. navigation, fi sheries and domestic water supply. International water agreements are extremely important to Bangla- - Bangladesh Water Development Board (BWDB) is responsible for desh, which is the most downstream riparian state, with its main river the planning, implementation and operation of small-, medium- and catchment areas located outside the national territory. However, the large-scale fl ood control, drainage and irrigation schemes. country has not reached comprehensive agreements with its neighbours. The 1996 Ganges Water Treaty with India is not comprehen- - Bangladesh Rural Development Board (BRDB) guides the develop- sive and there are no agreements with regard to other shared rivers; ment of two-thirds of the national cooperative irrigation system. The projects generally are carried out unilaterally, in some cases to the country is divided into fi ve regions for water management purposes. clear disadvantage of Bangladesh. There is evidence that the fl ow - Local Government Division is responsible for overall planning, agreed under the 1996 Treaty is insuffi cient to redress the problems identifi cation of investment projects and coordination of activities of of high levels of salinity in surface and groundwater, and problems for agencies under it (DPHE, LGED – Local Government Engineering De- navigability, fi sheries and general deterioration of river ecosystems in partment – WASAs) and local government bodies, the private sector, Bangladesh. NGOs and CBOs Flood management is a particularly important issue in Bangladesh. - Department of Public Health Engineering is responsible for water Since 1989, the government has implemented a policy of ‘controlled supply and sanitation throughout the country, except in the two cities fl ooding’ to mitigate the effects of fl ooding under the Flood Action Plan of Dhaka and Chittagong. In these two cities, WASA is solely respon- (FAP) and the Flood Planning Coordination Organisation (FPCO). The sible for the provision of services. In other urban areas, the DPHE is Bangladesh Water and Flood Management Strategy was endorsed by either directly or jointly responsible for services with the paurasava the government in 1995 and the FPCO merged into the WARPO in and assists the local authorities to design and implement their invest- 1996. During natural disasters, WASAs and relevant agencies shall ment programmes. In ODA-fi nanced projects, where it is specifi cally take appropriate measures for providing safe drinking water. This will required as a component of an infrastructure package, LGED may un- include repairing and cleaning pipelines, production wells and other dertake water supply and sanitation-related activities. In these cases, installations, emergency supply through water trucks and other neces- the LGED provides support to the municipality for implementation and sary measures. The government will reimburse the cost of water sup- technical assistance. plied free of charge by the municipalities, WASAs and other related agencies during emergency situations. V. Sources The National Water Resources Council (NWRC) is the highest na- EIU, ADB, World Bank, Interviews tional body relating to the water sector. The NWRC has high level political participation as it is chaired by the prime minister, but its size (47 members) means that it convenes rarely. NWRC is intended to coordinate all water resources management activities in the country. To support the work of the NWRC, there is an Executive Committee of the NWRC (ECNWRC) chaired by the Minister of Water Resources, which has 15 members. The ECNWRC is supported by the Water Re- sources Planning Organisation (WARPO), which acts as a Secretariat for the ECNWRC. The Ministry of Water Resources is the main line

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 148 Water Market Asia - Cambodia

Cambodia

IFIs have drafted and imposed the blue print for a modern and effi cient water and sanitation sector, but implementation will take a very long time. PSP works on a very small scale and exclusively for local, unregulated investors. The successes of PSP in Cambodia say more about the extent of government failure than about how the private sector is bringing effi ciency and value-for-money to users. Affordability, for both users and operators, is a key issue in this cash-poor, debt-ridden economy. One-third of Cambodia’s GDP is the product of tourism. This is a potential market for small-scale, standalone water treatment facilities. The other big sector is textiles, a big polluter, which is expected to slump by end 2006 due to the end of the multifi bre agreement. The Cambodian government is weak and unable to raise suffi cient revenues. Attention to funding long-term social infrastructure is minimal. Investment and commercial opportunities are very limited in Cambodia for foreign players, although one Singaporean fi rm has found a niche market in small-scale, World Bank-sponsored water supply projects.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Success with very small scale Many small scale projects recently projects came online. The average capex is US$200,000. The World Bank is Future Opportunities None (too small ventures) pioneering output-based subsidies Local competition Significant for very small scale for private operators in Cambodia. projects

Equipment Markets Comments Future Opportunities Very limited The rare contracts that can be of Local competition Negligible interest to an international player are IFI-funded projects, with the corollary procurement rules. Tourism resorts could also present some opportunities.

Public Utilities Comments Track record Very bad Decades of war have the left the Sustainability Poor country virtually without any working public infrastrcuture. Reliance on ODA Very high Government Comments Commitment to deliver service No Fiscal Resources Very weak Economy & Finance Comments Recovery since Asian crisis 1997 Above average Local capital maket Non-existent

149 Water Market Asia - Cambodia

I. General Information tal expenditures fell by 8%, as those fi nanced from domestic sources were constrained by the need to repay arrears to domestic suppliers. The country consists of 20 provinces and 4 municipalities and is divided into 172 districts. The urban population has been growing very On a year-on-year basis, infl ation rose steadily to 5.6% in December fast over the past decade. However, farmers still constitute 85% of 2004 from 0.5% 12 months earlier, giving annual average infl ation of the population. 3.8% for 2004, up from 1.2% in 2003. One of the characteristics of rural households in Cambodia affect- There were higher infl ows of offi cial loans and grants and an increase ing water supply is their reliance on more than one source of water. in FDI to US$90.8 million in the fi rst 9 months, from US$66.1 million For example, even where small piped systems are in operation, most for the same period of 2003. The stronger FDI was attributed to invest- consumers also harvest rainwater. In Cambodia, many of the people ments in the garment sector. who purchase treated piped water for their homes are also purchas- Total external debt at end-2004 is estimated at 68% of GDP. The debt ing untreated water from door-to-door water sellers and harvesting to service ratio of the country was 14.8% in 2003, placing Cambodia rainwater to offset the cost of these two purchases. In communes in in the category of debt-stressed countries. Cambodia, metered water from a piped scheme costs from US$0.30- 0.50 per cubic metre, while untreated surface water can cost as much The economy has entered a new phase with the ending of the MFA. as US$2.50 per cubic metre. Notwithstanding investments in the garment industry in 2004, the sector is likely to be hurt by increased competition in world markets, es- I.1 Macroeconomic Situation pecially from the PRC, where production costs are up to 30% lower. GDP growth for 2004 is estimated to have strengthened to 6% from The slowdown in garment exports will be partly counterbalanced by 5.2% in 2003, underpinned by a pick-up in industry and a recovery in expected strong growth in tourism. services. Industrial output is estimated to have grown by 16.9%, due Despite attempts to increase revenues in 2005, the projected budget mainly to a 25% rise in the textile, apparel and footwear subsectors as defi cit (excluding grants) for the year, at 6.3% of GDP, will remain at stronger world trade and a higher quota allocation by the US lifted gar- around the previous year’s level of 6.4% due to diffi culties in raising ment exports. The services sector experienced robust 7.3% growth revenues in an environment of slower economic growth. owing to a 30% increase in activity in restaurants and hotels, following a rebound in tourism from 2003 levels when the SARS outbreak and I.2 Political & Investment Environment anti-Thai riots hurt visitor arrivals. Cambodia has only recently emerged from many decades of war and Although Cambodia has made important socioeconomic gains over internal confl ict that shattered many of the foundations for growth and the past decade, poverty remains widespread and intense: 35-40% development in the country – physical, social, human and economic. of the population is below the poverty line and inequality appears to Since the 1993 elections, the Royal Government of Cambodia has be widening. Relatively robust growth in the recent past has not led to been engaged in building the basic institutions and processes of a a signifi cant reduction in poverty. The challenge of reducing poverty democratic, market-oriented economy. has become more daunting with the expected sharp downturn in the Prospects for a major increase in public investment are limited be- economy caused by the ending of the Multifi bre Arrangement (MFA) cause of the very low government revenue base, while private invest- at the start of 2005. ment is hampered by a poor business environment. During the fi rst 11 months of 2004, government revenues and expen- The need to broaden the growth base, and for the private sector to ditures came in at 88% and 76%, respectively, of the target for the raise its competitiveness in light of the country’s 2003 accession to period. However, compared with the year-earlier period, revenues the WTO, has led to renewed attempts to promote private sector de- strengthened by 15%, due largely to a 25% rise in tax collection. Capi- velopment. The new government, formed in July 2004, a year after

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 15.00 2006 5,271 10.00 2005 4,797 5.00 2004 4,514 0.00 4,000 4,200 4,400 4,600 4,800 5,000 5,200 5,400 -5.00 1998 1999 2000 2001 2002 2003 2004 2005 2006

Cambodia Dev eloping Asia (mean)

Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean)

12.00 10.00 7.86 Chart 1.3: 2004 Sector Share of GDP 8.00 6.67 6.00 4.15 4.03 3.63 4.00 2.06 Serv ices Agricult. 2.00 0.00 34% 34% 0.00 1998 1999 2000 2001 2002 2003 2004

Cambodia Dev eloping Asia (mean) High Income Asia (mean) Industry 32%

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 150 Water Market Asia - Cambodia

Table 1.1: Sovereign Risk Indicators Cambodia Developing Asia High Income Asia External Debt Per Capita 2004 (US$) n/a 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) n/a 59.60 50.84 Short Term Debt / Total Debt 2004 (%) 7.05 10.49 n/a Fitch Sovereign Rating (2004) n/a

Table 1.2: Legal Risk Indicators 2004 Cambodia Developing Asia High Income Asia Time to enforce a contract (days) 401.00 392.62 103.67 Time to register property (days) 56.00 62.82 16.50 Time to resolve insolvency (years) n/a 4.45 1.15 Time to start a business (days) 94.00 67.08 14.33 Legal rights of borrowers and lenders (0=low) 4.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Cambodia Developing Asia High Income Asia Political Rights 5.00 4.23 2.43 Civil Rights 6.00 4.69 2.14 Corruption Perception 3.80 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 Cambodia Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) n/a 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 37.82 185.54 1,281.59 Roads, paved (% of total roads) 16.20 44.75 75.32 Electric power consumption (kwh per capita) 0.00 717.46 7,505.93 Water supply failures (days) 3.50 10.00 n/a Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) Chart 1.7: Inflation Rate 1999-2004 (%)

0.00 16.00 14.00 2002 2003 2004 2005 2006 -2.00 12.00

-4.00 10.00 8.00 -6.00 6.00 -5.80 -6.20 -6.66 -6.40 4.00 4.01 3.81 -8.00 -7.02 3.21 2.00 1.22 0.00 -0.60 Cambodia Dev eloping Asia (mean) High Income Asia (mean) -0.79 -2.00 1999 2000 2001 2002 2003 2004

Cambodia Chart 1.8: Real Interest Rate 2000-2003 (%) Dev eloping Asia (mean)

25.00 High Income Asia (mean)

Chart 1.5: Current Account Balance 20.00 19.42 as a share of GDP 2003-2006 (%) 15.85 15.00 8 13.82 6 10.00 4 5.00 2 0 0.00 -2 2003 2004 2005 2006 2000 2002 2003 -4 -3.70 -3.90 -6 Cambodia -5.70 -8 -6.30 Dev eloping Asia (mean) Cambodia Dev eloping Asia (mean) High Income Asia (mean) High Income Asia (mean)

151 Water Market Asia - Cambodia

funds from donor or RGC sources have been grossly inadequate com- Main Cities of Cambodia (1998) Population '000 pared to the needs), and institutional capacity in the utilities virtually Phnom Penh 999.80 non-existent. The IDA-fi nanced Cambodia Urban Water Supply Proj- Battambang 703.10 ect developed a pilot water supply expansion in Sihanoukville, with the idea of testing whether the successes of PPWSA could be replicated elections, launched a private sector development programme focus- at provincial level, but the results have been marginally satisfactory ing on trade facilitation, SME development and private participation in at best. The problem has in part arisen because the public fi nancing infrastructure. available has been such a small fraction of that required that there has been a tendency among the relevant ministries to ‘micro-manage’ For infrastructure projects, the government has committed itself to project implementation. implementing a new Concession Law, which defi nes the process for private participation. It is also committed to enforcing amendments to There are 15 other urban water systems serving provincial towns in the Law on Investment that create a transparent 28-day process of Cambodia. They are centrally managed and operated by the Ministry investment approval. of Water Resources and Meteorology. Coverage in those provincial towns with a network is generally low. A related problem is the ab- Despite progress, the outstanding reform agenda for private sector sence of incentives on the part of provincial water utility staff to redevelopment remains large, particularly in the legal, judicial, and civil spond to consumer demand for services. service systems, which forces the private sector to operate under uncertain rules. These and other constraints to the private sector, such Informal Sector as a lack of access to, and high cost of, transportation and energy; A number of small-scale providers supply water in urban and rural ar- a limited skills base; and limited access to land, seriously limit the eas. Outside of Phnom Penh and Sihanoukville, almost all new invest- private sector’s ability to promote growth and generate employment ments in water supply networks have been made by small-scale, local on a sustainable basis. private investors. Many of these initiatives were set up in response to Foreign investors cannot own land in Cambodia, and cannot own the weakness of public utilities and encouraged by the absence of a more than 49% of a company that owns land. Although the situation regulatory regime. is made more complicated by the lack of documents testifying to land One of the alternative sources of water in Cambodia is water deliv- ownership, most of which were destroyed by the Khmer Rouge, these ered by vendors, which is generally on a small scale and may provide restrictions can sometimes be circumvented by leasing, rather than water of questionable quality. It is estimated that 11.5% of the urban purchasing land. Foreigners are permitted to lease land for up to 70 population and 3.5% of the rural population in Cambodia consume years, at which time the lease may be renewed for a further period. water from such sources. Water sellers collect water from open water The corporate tax rate is 9% and a tax exemption on profi ts can be sources, community pumps and open wells, and sell it directly to the obtained for up to 8 years. public at an average rate of US$2.5 per cubic metre. This untreated water is purchased for human consumption purposes. II. Water The next best thing to water vendors is the series of small pump- II.1 Sector Policy & Structure and-pipe operators that have emerged in the more densely populated Cambodia is one of the poorest countries of the region and this is areas. Using water storage tanks, they supply untreated water from refl ected in the performance of the sector. A fast growing urban popu- rivers, drilled wells or ponds to individual households via a network of lation is also putting strain on an already very inadequate system. small diameter pipes. Such informal low-cost schemes are paving the While Cambodia has abundant water resources, only a fraction of its way for larger investments in village-wide piped schemes that are now population has access to potable water. Most facilities were built be- beginning to emerge. However, the lack of regulation and the limited fore the 1960s, with some parts of the system dating back to the 19th access of the local private sector to capital are major constraints on century. Wars, ineffective management and lack of maintenance have the development of the sector, from informal businesses to reliable put the majority of facilities out of production. In some towns raw water service providers. is pumped directly into the distribution network without any treatment. Leakage rates of 60% are not uncommon. Low pressure and irregular Water Services Policy supply are the norm in all urban areas. Providing access to water services and sanitation is offi cially an integral part of the government’s efforts to improve health and living con- Provincial towns in Cambodia are served by public water utilities. Most ditions in Cambodia and to meet the related Cambodia Millennium De- of these utilities were shut down during the Khmer Rouge regime and velopment Goals. Urban populations with access to safe water have were reopened in the 1980s, at which point the infrastructure had be- increased in Phnom Penh, Sihanoukville and fi ve provincial towns come very degraded through lack of maintenance. Some of these utili- with the reorganisation of the Phnom Penh Water Supply Authority ties have since been rehabilitated with support from various bilateral (PPWSA) and the water supply management infrastructure in three and multilateral agencies. provincial and eight district towns along public-private partnership The best example of this is the PPWSA. The Phnom Penh Water Sup- lines. PPWSA is widely seen as a good example of successful tariff ply Authority (PPWSA) was transformed in 1996 from a governmental reform: it has demonstrated how fi nancial and operational autonomy department into a public enterprise with fi nancial and administrative and enforcement of full cost recovery have improved water services autonomy under the Law on the General Status of Public Enterprise delivery and transformed it into a good public utility in the region. (No. 0696 of 17 June 1996). It operates under the supervision of the While Cambodia has made progress in providing water and sanitation municipality and a board of directors consisting of seven members services, rural water coverage remains the second lowest in Asia. The (the governor of Phnom Penh is the chairman of the board). great majority of rural and poor households still rely on self-provision The PPWSA operates the largest system in Cambodia with 90,000 through groundwater abstraction, rainwater collection, or use of sur- connections serving approximately 60-70% of the city’s population. face water, with little government investment to ensure sustainable Extensive rehabilitation of the system has been carried out in the last quantity or to monitor water quality. Sanitation in rural areas is almost few years with approximately US$100 million of donor assistance from non-existent and limited to simple on-site facilities, and the majority of the ADB, the World Bank, JBIC and the French government, and new the rural population still practices open air defecation. production facilities are under construction. Between 1997 and 2002, Water is meant to be fi rmly on the agenda in Cambodia because of its non-revenue water was reduced from 65% to 22%, service coverage importance to food security and rural livelihoods. However, progress is was doubled and special programmes were launched to connect low being hindered by political uncertainty and governance issues, while income families. the socio-economic environment (particularly in terms of the extent of Outside Phnom Penh city, the results have been less encouraging. rural poverty and diffi culties in increasing rates of economic growth) is The provincial water utilities have been unable to replicate the suc- not conducive to innovative approaches to resource management. cesses of PPWSA. Coverage has been extremely small (averaging Progress has been made on sector review and policy development, 15 to 20% of urban populations), fi nancing minimal (because available and the senior political leadership has taken an active interest in ad-

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 152 Water Market Asia - Cambodia

Table 2.1: Income Level Cambodia Developing Asia High Income Asia GDP per capita 2004 (US$) 331.00 1,104.30 23,628.57 Population on less US$1 per day 2004 (%) 34.00 18.23 0.00 Unemployment 2004 (%) n/a 6.73 4.89

Table 2.2: Area & Population Cambodia Developing Asia High Income Asia Population Growth 2003 (%) 2.39 1.67 0.64 Urban Population Growth 2003 (%) 4.96 3.48 1.18 Population Density 2002 (pop/km2) 76.28 231.45 2,335.17 Area (thousands Ha) 18,104.00

Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Urban Population (%) 2000-2003 (cst 2000 US$) (millions) 15.00 14.49 19.00 18.61 249 247.98 14.50 14.14 18.50 18.04 13.81 248 14.00 13.48 18.00 17.47 247 245.42 13.50 13.15 17.50 246 16.91 244.18 13.00 17.00 245 244 12.50 16.50 243 12.00 16.00 242 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002

Table 3.1: Water Service Coverage Indicators 2002 (%) Cambodia Developing Asia High Income Asia Population with Access to Improved Water 34.00 76.85 100.00 Households Connected 6.00 22.27 98.00 Urban Population with Access 58.00 86.17 100.00 Urban Households Connected 31.00 48.27 99.33 Rural Population with Access 29.00 71.42 100.00 Rural Households Connected 1.00 14.58 95.50

Table 3.2: Water Resources Cambodia Precipitation Volume 2002 (bn m3/yr) 344.70 Precipitation Depth 2002 (mm/yr) 1,904.00 Groundwater: produced internally 1998-2002 (bn m3/yr) 17.60 Surface water: produced internally 1998-2002 (bn m3/yr) 116.00 Overlap: surface and groundwater 1998-2002 (bn m3/yr) 13.00 Water resources: total internal renewable 1998-2002 (bn m3/yr) 120.60 Water resources: total external 1998-2002 (bn m3/yr) 355.50 Water resources: total renewable 1998-2002 (bn m3/yr) 476.10 Agricultural water withdrawal 1998-2002 (bn m3/yr) 4.00 Domestic water withdrawal 1998-2002 (bn m3/yr) 0.06 Industrial water withdrawal 1998-2002 (bn m3/yr) 0.02 Total water withdrawal 1998-2002 (bn m3/yr) 4.08

Table 3.3: Water Resources II Cambodia Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 8,731.00 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 34,476.00 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 295.40 507.25 544.73 Dependency ratio 1998-2002 (%) 74.68 33.33 1.39 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 0.84 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 0.86 16.19 13.19

153 Water Market Asia - Cambodia ministrative reform. Passage of a draft Law on Water Resources Man- In principle, all concession contracts are required to go through an agement appears to have been hindered by political uncertainty, and approval process. In practice, the majority of them bypass this pro- consequently implementation of policies is hindered by the lack of a cess and are awarded contracts without competitive bidding, using the legal base for enforcement. loophole in Article 9 that provides for direct negotiation where “special qualifi cations” are required. Contracts appear to be chosen, negotiat- The development of a consistent, coherent, enforceable water policy ed and signed at high levels in the government with little involvement is still in its infancy, especially with regard to private sector participa- of the sector ministry, and their contents are not made public. Very tion. In 2000, the MIME issued a Water Supply Policy Statement that little is known about contract performance requirements or regulation, outlines the government’s policies for the sector. It includes specifi c monitoring and quality control by Cambodian government agencies. provision for encouraging private sector participation, stating that the “private sector shall be encouraged to be involved in all areas of ser- Early Schemes vice provision contracts, including service contract, management con- There is domestic private sector involvement in the provision of water tract, lease contract, concession contract, BOT contract, BOO con- services in four provincial and two district towns in Cambodia. These tract.” The broad objectives of the policy are to increase urban water initiatives were developed in response to the lack of networks outside supply in both quality and service coverage and to promote market of Phnom Penh and are backed by local construction fi rms or busi- competition in response to consumer demand. nessmen. The contracts, awarded in 1997-1998 and licensed by the Like the Water Regulatory Law, the Cambodian Water Policy is heav- Ministry of Industry, Mines and Energy (MIME), are BOT or BOO con- ily infl uenced by donors, who in turn fund the sector almost entirely, tracts (although the arrangements involved are more like concession and does not necessarily refl ect the political willingness or administra- contracts) with the contract periods ranging from fi fteen to thirty years. tive ability to develop and enforce a reliable legal framework for the The projects range in size, but in all cases the operating contracts water sector, whether publicly or privately fi nanced. were unsolicited and were not competitively bid for. The contracts that resulted are generally incomplete and several are silent on many im- This is well exemplifi ed by the last ADB grant for Cambodia. In July portant issues or are inconsistent with the operating licenses issued 2005, the ADB agreed to spend US$500,000 to “accelerate the eco- by MIME, which has led to some disputes over their terms. nomic reform process in Cambodia.” The Technical Assistance programme will strengthen national policy analysis and development In three of these towns (Banteay Meanchey, Kampong Speau and management in the Supreme National Economic Council (SNEC), Takeo), the private companies entered into contracts giving them full created in 1999 as a high-level body to provide the Prime Minister with use of existing assets. At the end of a 20- to 40-year period, all assets independent technical analysis, advice, and policy recommendations are to revert to the public sector. In addition, MIME granted the private on socioeconomic development. Reform still has a long way to go. companies a three-year renewable license to supply water to residential consumers in the area. The renewal of these licenses depends on II.2 Financing each company’s compliance with water quality and tariff stipulations. Because of the relatively low coverage levels of water supply and lack Although the discrepancy in the duration between these licenses and of sewerage facilities, the investment needs of the water and sani- the contracts appears to be a substantial source of investment risk, in tation sector in Cambodia are substantial, relative to the size of the practice operators seem to accept that renewal will be automatically country, totaling around US$50 million annually to reach the Millen- granted, suggesting that, as a legal instrument, the licenses hold little nium Development Goals (MDGs), according to the World Bank. weight. For the fi rst socioeconomic development plan of the Cambodian gov- In Kien Svay, in contrast, no public assets were transferred to the ernment (1996-2000), water supply and sanitation accounted for 70% private company. Instead, the company entered into a build-own-oper- of the urban sector budget of US$383m, with 58% of that sum going ate (BOO) contract with MIME, under which it operates in the periph- to Phnom Penh. eral areas of Kandal while the public utility retains responsibility of the town’s core area. Current investment comes almost entirely from bilateral and multilateral assistance. The World Bank estimates that current investment in Despite concerns over the lack of transparency involved in the privati- the sector averages less than US$20 million a year. During the period sation process for the six towns, initial research on outcomes of priva- 1994-1996, public sector expenditure only totaled about US$2 million, tisation indicated that households served by private utilities were sig- while ODA funding for the same period totaled approximately US$71 nifi cantly more satisfi ed with the piped water than customers of public million. Planned government expenditure for the sector between 2001 utilities. The daily availability and quality of piped water was better and and 2003 was about US$8 million. service interruptions less frequent. However, access to water supply from private utilities is not yet an option for all households, and, where II.3 Private Sector Participation available, the private supply tends to be more expensive than supply In 1998, as part of an initiative to address budgetary defi cits, the Cam- from public utilities. High connection fees also limit the ability of low bodian government embarked on a policy of increased private sector income customers to connect to the networks. participation (PSP) in the delivery of public services and infrastructure Recent Schemes projects, utilising private sector fi nance to boost state funds in return for granting concession contracts. PSP takes several forms, ranging The government and the World Bank have initiated a programme in- from complete privatisation of state assets, private sector build-oper- volving public and private participation. The project requires the public ate-transfer (BOT) projects in sectors such as power and water, the sector to provide fi nancing and to set standards and the regulatory contracting out of health services, joint ventures in telecommunica- framework. The private sector contributes to capital costs (10%) and tions, concessions to private operators to manage existing state as- manages the implementation, operation & maintenance and recov- sets in sectors such as transportation, and the conversion of state ers income through collection from users under a design-build-lease enterprises into private concessions. To support this policy, a BOT agreement for at least 15 years. Sub-Decree was issued in February 1998. The World Bank loan (IDA) to the Cambodian government will be The 1998 Sub-Decree provides extremely broad principles for what repaid from the lease payments. Twenty suitable communities have are referred to as BOT contracts. It does not address the different been identifi ed and ICB tenders released, which constitutes a signifi - forms of privatisation and various contract structures that are needed cant legal improvement in comparison with the previous MIME-issued for contracts for (among others) BOT, build-own-operate-transfer, con- contracts. cessions to operate and manage existing state assets without addi- The tariff was set individually but averaged US$0.4/m3 and allowed tional construction, and providing monopoly services on behalf of the the operator a 20% rate of return after payment of the lease fee. Six government. Apart from stating that BOT contracts will be procured DBL-type contracts have been awarded to companies incorporated in through competitive bidding, except when special qualifi cations are Cambodia (with at least 60% Cambodian ownership). required, it does not adequately cover many of the complex aspects of BOT contracts, such as the procedures to be followed when the Output-Based Aid and PSP contracting party has to raise fi nance. While private providers offer improved service, their high one-time

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 154 Water Market Asia - Cambodia

Chart 3.1: Water Uses 2002 (%) Chart 3.2: Fresh Water per Capita 1999-2004 (m3/head) 38,000 36,983 Indus. 36,333 37,000 35,766 35,386 0% 36,000 34,776 34,510 Dom. 35,000 34,000 1% 33,000 1999 2000 2001 2002 2003 2004

Agricult. 99%

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) Cambodia Developing Asia High Income Asia Population with Access to Improved Sanitation 16.00 54.64 100.00 Households Connected 4.00 7.22 97.50 Urban Population with Access 53.00 77.09 100.00 Urban Households Connected 23.00 18.11 98.33 Rural Population with Access 8.00 48.08 100.00 Rural Households Connected 0.00 2.57 90.00

connection charges put that service out of reach for all but the more II.5 Regulation affl uent. The government of Cambodia is piloting an output-based Most public enterprises, including utilities, in Cambodia are still regu- approach in four towns as part of the same IDA-funded project. In lated or managed by the relevant ministries within the government, these pilot schemes, the private operator will be paid on the basis of despite the issuing of the Law on the General Status of Public Enter- performance – in large part only after it has made a connection to a prises in June 1996, which granted public enterprises legal indepen- customer (output-based Aid, OBA). The government will pay 80% of dence and a degree of fi nancial autonomy. the subsidy per connection for all connections invoiced after receiving certifi cation for each connection from an independent engineer. It will In the water sector, the PPWSA was established as a public enterprise pay the last 10% (a “functional guarantee”) after water quality and in December 1996, obliging it to operate according to commercial hydraulic testing are done for each system. Late payments will include practices and to prepare annual business plans. However, this au- a modest interest penalty. tonomy has not been granted to public sector water suppliers outside Phnom Penh. Where the connection is made to a poor household deemed unable to pay, the operator will receive an IDA-funded subsidy. The communi- For the private sector, the government’s Water Supply Policy has ties themselves decided which households would be eligible for the identifi ed the need for establishing a national independent regulator, connection subsidy. The contracts for the pilot schemes were won by and the government is now in the process of developing a regulatory a joint venture between a Cambodian and a Singaporean company, law to create a Water Supply and Sanitation Regulatory Institution and which bid a connection charge 22–28% lower than the cost under set out the framework for regulating water companies. public provision. A second batch of four towns is being developed for There is currently no overall regulatory framework governing the op- bidding (see PSP project table 5.1). erations of private water companies in Cambodia. The regulation that II.4 Tariffs does exist is generally inadequate; for example, it is not clear how water tariffs are revised nor how contractual disputes are settled. Progress is being made in several aspects, particularly in adopting policies with regard to cost recovery, water tariffs, regulation of As a result, the licenses and contracts that have been awarded to lo- wastewater discharges, and benefi ciary participation. The PPWSA is cal companies are ambiguous on some important issues that have an the leading example of how these policies are being implemented; impact on incentives. The urban water sector operates under a set of implementation in other areas of water use is much less advanced. informal rules, practices, and regulations. Consequently, while private Only recently have decision-makers begun to realise that Cambodia sector involvement faces few legal constraints, there are also no clear is “water-wealthy” only in the wet season, and that water conservation procedures for new entry because the legal basis for granting licenses during the dry season is essential. to the private sector is uncertain. The government has recognised, however, that in order to achieve The licences issued by the Ministry of Mines and Energy (which was the aim of improved supply, water utilities must remain fi nancially the competent ministry before the 1999 reform and creation of the sound. Accordingly, to counter-political pressure to keep tariffs low, Water Ministry) were granted under a “general principle” (Number 02 it has stipulated in its Water Supply Policy that tariffs should cover all GTS, dated 10 June 1997) laying down the basic principles for PSP. costs and be effi ciently collected. There is also recognition that water In the absence of a specifi c law on PSP, the licenses and contracts must be affordable to the poor, and the policy provides that subsidies, derive their legal groundings from other cross-sectoral laws and sub- designed to give the poor access to the water supply network, should decrees for water supply outside Phnom Penh. also be clearly outlined. A new draft law for a regulatory institution continues to undergo revi- With tariffs for the OBA pilot towns ranging from 1,800 to 2,000 riels sion by MIME. MIME would like to retain the responsibility for overall (around US$0.50) per cubic metre, households will spend an average sector policy, strategies and planning for urban water supply and sani- of about 4.1–6.4% of their income on water. tation services. The relationship between ministries and the regula-

155 Water Market Asia - Cambodia tor would be limited to coordination and consultation. Although the The internal renewable surface water resources (IRSWR) have been regulator’s scope, powers and functioning have yet to be fi nalised, its computed as the difference between outfl ow and infl ow, i.e. 115.9km3. responsibilities would include issuing licenses to both the public utili- This fi gure does not include the unknown discharge of small rivers to ties and private sector operators, and regulating tariffs. the Gulf of Thailand and is thus probably an underestimate. The system for setting tariffs still needs to be developed. The only Groundwater resources are estimated at 17.6km3, most of which (an formal statement of tariff-setting principles is that the “water cost cal- estimated 13km3/yr) is drained by the rivers and cannot be considered culation method” is to be used, allowing a profi t of 20-25% (although as additional water resources. The total renewable water resources of it is not specifi ed whether this is on capital, costs or revenue) to the Cambodia are therefore estimated at 476.110km3/yr. private party, which is required to submit a detailed proposal of its The quality of groundwater is generally satisfactory, although high iron expected costs. concentrations and increased salinity levels have been encountered However, it is unclear whether any detailed formula is actually used in in some provinces (Svay Rieng, Prey Veng and Takeo). practice, and tariffs in Phnom Penh have been noted to be substantial- The capacity of the existing dams has, so far, been very low. Only one ly below those in the rest of the country. Tariffs for the private provid- small dam (Ochum, in the northeastern province of Ratanakiri) is used ers, which in general are about CR1,500 per cubic metre (US$0.39), as a hydropower station with an installed capacity of 1MW. A number are currently regulated by MIME. of dams with high storage capacity are planned for the near future. III. Wastewater Water withdrawal was estimated at 520 million m3 in 1987, of which Sector Policy & Structure 94% was for agricultural purposes. Funding for sanitation and hygiene promotion and activities has gen- The total population with access to water supply was estimated at erally been limited in Cambodia, and has not been a priority in budget 19% in 1992. At that time, it was estimated that only 7,000 wells had allocation. A World Bank-funded pilot project is being implemented in been constructed (by international organisations) out of the 30,000 Phnom Penh. needed. Most of the systems combined sewage and drainage water, and have Water Resources Policy not been maintained over the past two decades. As a result, they are Under the National Water Resources Strategy and Strategic Develop- now in a poor condition and not functioning properly. Drainage water ment Plan for the Water Sector, a river basin approach to IWRM is en- often mixes with drinking water, with obvious health implications. visaged and will be piloted in at least two to three major river basins in Floods are frequent during the rainy season as the sewers clog rap- 2005-2006. Institutional arrangements to implement IWRM have been idly. In Battambang, in the west of the country, about 13,000 people made, improving coordination among many government ministries: are served by a water sewage system. The average treated sewage - MOWRAM exercises overall responsibility for water management fl ows are estimated at 157,000m3/yr. When they can afford it, most and conservation, including IWRM; residents invest in on-site sanitation (i.e. construct pit latrines and septic tanks). In contrast, poor families use river banks and canals - The Cambodia National Mekong Committee (CNMC) coordinates for excreta disposal. As a result, Cambodia has one of the highest in- with the water-related Ministries and the Mekong River Commission fant mortality and morbidity rates in the world caused by water-related (MRC). The framework and principles of IWRM will be adopted by contamination. MRC by the end of 2005 under the Basin Development Plan (BDP). CNMC has recently conducted several workshops on IWRM at the In 2002, 16% of the population had access to sanitation, with only 4% central, provincial and basin levels; of households connected to the sewer system (table 4.1). - The Ministry of Industry, Mines and Energy (MIME) provides drinking IV. Environment and Legal Aspects water supply to cities and towns; IV.1 Water and Wastewater Fundamentals - The Ministry of Rural Development (MRD) provides clean water to Water Resources rural areas; Cambodia has a wet monsoon climate. The wet season starts in May - The Ministry of Environment is in charge of wastewater treatment in and ends in October. In August, a short period of drought may occur. cities and towns; In Phnom Penh, the monthly rainfall ranges from 5mm in January to - Plans to establish The Basin Management Council and the Offi ce of 255 mm in October. Average annual rainfall is estimated at 1,463mm Basin Management are underway. but varies from about 1,000mm in Svay Check in the western province of Banteay Meanchey to nearly 4,700mm in Bokor in the southern Over recent years, the government has given priority to stimulating province of Kampot. The mean annual evaporation varies from 1,000 the rural economy to alleviate poverty, and considers that water re- to 2,300mm/year. April is the warmest month of the year with a maxi- source management and rural infrastructure are the two most urgent mum temperature of 36°C, while January is the coldest with 21°C. constraints that need to be addressed. Improving irrigation to boost agricultural production is a key goal in order to provide food security Cambodia has a unique hydrological system. The Mekong River and in rural areas. Therefore, efforts need to focus on planning and imple- Lake Tonle Sap are connected by the Tonle Sap River, which twice a mentation of projects to increase the area under irrigation, with atten- year reverses its direction of fl ow. From July to the end of October, tion to farm level issues to ensure effi cient and sustainable operation when the level of the Mekong is high, water fl ows into the Tonle Sap & maintenance of the systems involving benefi ciary participation. The River, which fi lls Lake Tonle Sap, thereby increasing the size of the government also recognises the need for a comprehensive and coor- lake from 2,600km2 to about 10,500km2 at its maximum. The storage dinated approach to water resources management and development capacity of Lake Tonle Sap is estimated at 72Km3. In early November, within river basins, although this approach is not yet widely adopted. when the level of the Mekong decreases, the Tonle Sap River revers- Projects are planned without full consideration of basin issues and es its fl ow, and water fl ows from Lake Tonle Sap to the Mekong River without consulting other stakeholders. Despite the overall abundance and thence to the Mekong Delta. About 86% of Cambodia’s territory of water resources in Cambodia, there is already competition and con- (156,000km2) is included in the Mekong River basin, the remaining fl icts between water users in some river basins during the dry sea- 14% draining directly towards the Gulf of Thailand. son. The average annual discharge of the Mekong River entering Cambo- Progress in water resources management is very mixed. There has dia is estimated to be close to the discharge at Paksé (324.45km3/yr) been some recent good progress in diverse areas such as fl ood disas- in Lao PDR, some 120km upstream from the border with Cambodia. ter response, social and environmental impact analysis, and promot- Other infl ows to the Mekong-Tonle Sap system from outside the coun- ing community engagement in projects. MLA-funded projects gener- try amount to 29.9km3 from Vietnam and 1.2km3 from Thailand. On ally promote “good practice”. However, there are areas of weakness, average, 471.4km3/yr fl ows out of the country in the Mekong channels such as a very inadequate information base, a lack of enforceable and tributaries to Vietnam. mechanisms for water allocation, and limited effort in the management

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 156 Water Market Asia - Cambodia

Box: Transition to a self-suf cient water utility – the Phnom Penh Water Supply Authority The Phnom Penh Water Supply Authority, the public water company that serves Cambodia’s capital city, has undergone a remarkable transformation into an autonomous, commercially oriented and fi nancially self-suffi cient water company. In 1993, the company was highly subsidised, ineffi cient, and served only 20% of the city. Under new leadership supported by a strong government and external assistance, the company embarked on a process to change the culture within the organisation. Today, the company serves 70% of the city and is no longer dependent on government support. Comparison of Performance – 1993 and 2002 Year 1993 2002 Customers 26,881 82,000 Billing ratio 28% 78% Collection ratio 50% 99.64% NRW 72% 22% Total revenue* 0.7 34 Total opex* 1.4 9.4 *in billion riels

The key steps that the company has undertaken to enable this change included: Organisational restructuring: New management was brought in, stafﬁ ng was streamlined, and incentives for good performance introduced Water metering and stopping illegal connections: Today all water connections are metered and there are heavy penalties assessed on those using illegal connections Improved customer management: A customer survey was carried out and an automated billing system installed Public education: Consumers (including high level politicians) were educated about paying their bills Water tariffs were also increased during this time. To avoid a huge tariff increase, the company proposed a three-step tariff increase over a period of seven years. The ﬁ rst increase was in 1997 and the second in 2001. The company did not push for the third increase because its revenue already covered its cost, due to a higher collection ratio and reductions in NRW

of water quality and catchments/forests/wetlands. National Environmental Action Plan. Environmental Policy Provision of water services presents many challenges, with heavy involvement of public agencies, inadequate budgets and minimal levels The key environmental issues affecting Cambodia are (i) an inad- of cost recovery, and limited engagement of the private sector or ben- equate legislative framework, (ii) limited coordination among water- efi ciaries. As a result, physical infrastructure commonly is in a very related institutions, (iii) unsustainable extraction of fi shery and forestry poor state and water service delivery quality is poor or non-existent. resources, (iv) weak land and water resource management, (v) severe The Phnom Penh Water Supply Authority (PPWSA) is a notable ex- pressure on the Tonle Sap ecosystem, and (vi) unplanned urban and ception to this, as a result of heavy investment by multilaterals, au- industrial development. tonomy, and strong leadership. A number of decrees and sub-decrees In the recent past, sedimentation of Lake Tonle Sap has given cause were passed in the late ‘90s to allow PPWSA to charge cost recovery for concern. This concern is mainly due to the Mekong silt load and tariffs including a wastewater charge. to deforestation in the upper reaches of the Tonle Sap watershed. In Cambodia has abundant water resources, but we can not develop and the absence of reliable data on hydrology and sediments in this area, manage it yet. Water resources are the main key for the development many scenarios have been developed. The most pessimistic forecast of Cambodia (agriculture, hydroelectricity, fi sheries, health, tourism, a drying-up of the lake over a ten-year period, while other studies navigation…). Due to the importance of water resources management estimate that the lake will take 600 years to dry up. All these estimates and development, the RGC has formulated a legislative framework reveal a need for reliable hydrological data. What is agreed by all con- comprising water law, water policy, etc. cerned is the negative effect of sedimentation on the environment, particularly on fi sh. Before 1999, responsibilities were split between Ministries. The Min- istry of Agriculture, Forestry and Fisheries was responsible for water IV.2 Laws and Institutions supply in rural areas while the Ministry of Mines and Energy was re- Water sector policy and legislative reforms in Cambodia are ongoing. sponsible for water supply in provincial towns. The Ministry of Public The Ministry of Water Resources and Meteorology (MOWRAM) was Works and Transports was in charge of drainage systems in provincial established in 1999 as lead water sector agency. A comprehensive towns, but general sanitation was under the responsibility of the Min- water sector assessment was conducted in 2001 2002 which led to (i) istry of Health. a National Water Sector Profi le, (ii) a draft National Water Resources Phnom Penh was the exception with the PPWSA (Phnom Penh Water Strategy, (iii) a draft Strategic Plan for the Ministry of Water Resourc- Supply Authority), which was under the control of the municipality, as es and Meteorology (MOWRAM), and (iv) a draft National Water Re- was drainage and sanitation (albeit given fi nancial dependence on the sources Policy, and a draft Law on Water Resources Management. A Ministry of Public Works). Since 1996, PPWSA has been turned into Water Sector Roadmap was also completed in 2003 and updated in an independent organisation, with the result of dramatically improving 2004. The National Water Resources Policy was approved in Janu- performance, thanks to a US$20 million ADB loan (see box). ary 2004, and the Law on Water Resources Management is currently at the National Assembly awaiting adoption. A Strategic Development The Ministry of Water Resources and Meteorology (MOWRAM) was Plan for the Water Sector (2006-2010) is currently being drafted. Vari- created during the second mandate of the Royal Government of Cam- ous other sectoral policies and strategies have been drafted or adopt- bodia by the Royal Law in June 1999, following extensive technical ed in recent years, including the National Water Supply and Sanitation assistance from the ADB. MOWRAM has the function to conduct and Policy (NWSSP), Urban Water Supply and Sanitation Policy, and a manage the water resources and meteorology sector of Cambodia.

157 Water Market Asia - Cambodia

Box 2 - The Mekong Secretariat: The River Mekong, whose lower basin covers large areas of Cambodia, Lao PDR, Thailand and Vietnam, is a major regional resource. In 1957, the Mekong River Committee was established under the auspices of the United Nations to coordinate the efforts of these countries in developing the resource. In principle, all proposals to utilise the waters of the Lower Mekong Basin require the unanimous approval of the country representatives on the now renamed Mekong River Commission. On 5 April 1995, Cambodia, Lao PDR, Thailand and Vietnam signed an agreement for the development of the Mekong River. Under the agreement, the Mekong River Committee became the Mekong River Commission. Cambodia participates in the work of the Mekong River Commission, and derives signifi cant benefi t therefrom, particularly with regard to fl ood management and water resources information. As a downstream riparian state, Cambodia has a particular interest in regional cooperation, and there remains much scope for addressing basin-scale issues that impact on its interests.

The functions of MOWRAM include: management, licensing etc.) It also produced a National Water Sector Profi le and a National Water Policy, which was adopted in January - Defi ning the policies and strategic development of water resources 2004 (including a sub-policy on Rural and Urban Water Supply, one in order to serve the exploitation, development and sustainable con- on Irrigated Agriculture and one on FWUC). servation at national and international level consistent with the policy programme of the government of Cambodia; The ministry is also in charge of drafting water strategies and action plans. - Studying and researching potential available water resources, including surface, underground and atmospheric; The creation of the Water Ministry signifi cantly improved Cambodia’s water governance. All sector data and information is centralised within - Preparing short-, medium- and long-term plans for the exploitation, one ministry. development and conservation of water resources and meteorology with regards to both cities and rural areas; A Draft Water Sector Regulatory Law is to be adopted in the near future. It proposed the establishment of an independent regulatory body - Managing and supervising all of the direct and indirect exploitations to regulate public and private sector service providers. of water resources and minimising water/fl ood-related disasters; V. Sources - Drafting the water law, including major principles and regulations related to the management of water resources, and monitoring the EIU, WHO, ADB, World Bank, MOWRAM, interviews. enforcement of the law; VI. Contacts - Collecting, compiling and exploiting meteorological and hydrological Minister: H.E. Lim Kean Hor data; Secretaries of State: H.E. Y KyHeang, H.E. Ngor Pin, H.E. Sam - Providing technical support and advising the private sector, commu- Sarith, H.E. Chea Ratha, H.E. Veng Sakhon nities, and populations with regard to the improvement and exploitation of water resources; Address: No 47, Norodom Blvd., Phnom Penh - Promoting the use of new technologies; Phone: 023 724289/ 724327 - Strengthening and expanding national and international collabora- Fax: 023 426345 tion on water resources management and meteorology; Email: [email protected] - Participating in the implementation of works by the Mekong River Homepage: www.mowram.gov.kh Commission (MRC) in accordance with the obligations of MOWRAM. In the years following its creation, MOWRAM helped to draft a law on water resources management (including a sub-decree on Participa- tory Irrigation and development, one on FWUC, one on Watershed

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 158 Water Market Asia - Cambodia Known PSP Projects in Cambodia Bavet Svay Rieng

DBL Total investment (US$m) 0.32

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2004

Equity investor Sincam Water Technology

Chrey Vien

OBA Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Distribution 2,700 pop Contract awarded 2004

Equity investor Sincam Water Technology

Kampong Chak, Svay Rieng

DBL Total investment (US$m) 0.19

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2004

Equity investor Cambodia Construction Enginners

Kandieng Reay

DBL Total investment (US$m) 0.22

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2004

Equity investor Cambodia Construction Enginners

Kien Svay

BOO Total investment (US$m) n/a

Sector 1 Water Sector 2 No data

230 connections 2% of households, pop 58,264

Capacity Timeline

Distribution 1,000 pop Contract awarded 1998

Equity investor unkown local investor

Kompong Speu

BOT Total investment (US$m) n/a

Sector 1 Water Sector 2 No data

159 Water Market Asia - Cambodia

1,700 connections 20% of households, total population 41,478

Capacity Timeline

Distribution 8,000 pop Contract awarded 1997

Equity investor unkown local investor

Kraol Kou

DBL Total investment (US$m) 0.19

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2004

Equity investor Sincam Water Technology

Neak Loeang Prey Veng

DBL Total investment (US$m) 0.99

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2004

Equity investor Kim Mex Construction and Investment

Peam Chi Kang

OBA Total investment (US$m) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Distribution 3,500 pop Contract awarded 2004

Equity investor Sincam Water Technology

Prasat

DBL Total investment (US$m) 0.31

Sector 1 Water Sector 2 No data This project is ﬁ nanced by the World Bank (IDA) as part of the provincial and peri-urban water and sanitation project

Capacity Timeline

Production n/a m3/d Contract awarded 2004

Equity investor Sincam Water Technology

Sisophon, Banteay Meanchey

BOT Total investment (US$m) n/a

Sector 1 Water Sector 2 No data

1500 connections; 8% of households, pop 98,848

Capacity Timeline

Distribution 10,000 pop Contract awarded 1998

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 160 Water Market Asia - Cambodia

Equity investor unkown local investor

Skun

OBA Total investment (US$m) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Distribution 2,570 pop Contract awarded 2004

Equity investor Sincam Water Technology

Sre Ambel

BOT Total investment (US$m) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 1998

Equity investor unkown local investor

Suong

OBA Total investment (US$m) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Distribution 4,400 pop Contract awarded 2004

Equity investor Sincam Water Technology

Takeo

BOT Total investment (US$m) n/a

Sector 1 Water Sector 2 No data

450 connections 6% of households, pop 39,186

Capacity Timeline

Distribution 2,000 pop Contract awarded 1997

Equity investor unkown local investor

Udong

BOT Total investment (US$m) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 1998

Equity investor unkown local investor

161 Water Market Asia - Cambodia

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 162 Water Market Asia - China

China

China is the fastest growing and potentially the biggest water and wastewater market in the world. It started developing rapidly after 2000, with between 25 and 35 new private investment projects signed each year. Major international players now have a signifi cant portfolio of assets in China, while local Asian developers have become a non-negligible source of competition and a few but powerful Chinese developers are starting to establish themselves. China has long passed the 100 privately-fi nanced watsan project mark and will probably have more than 200 PPP projects (water and wastewater) before 2007. Singaporeans and Malaysian investors have become regulars of municipal tendering processes alongside the big French utilities. With rising tariffs, rising demand and rising expectations, the Chinese water industry is not about to know a recession. But the next big thing is not water: China has an enormous pollution problem and needs to make an herculean effrot to develop suffi cient wastewater treatment capacity. Sewerage charges are rising as well, even though there is a long way to go before cost recovery levels are reached, and equipment makers who have seen the light are already building assembly lines in China. It is only a matter of time before China becomes a net exporter of water and wastewater treatment technology.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Success PSP in China is the great gold rush of the sector Future Opportunities Numerous since 2000, it often is the great gamble as well. So far, investors have been asking for more. Local competition Very significant

Equipment Markets Comments Future Opportunities Numerous Chinese utilities need solutions to their multiple Local competition Significant treatment problems, but when they can pay they become highly coveted prizes.

Public Utilities Comments Track record Mediocre The track record ranges from acceptable to Sustainability Limited horrendous. In most cases, Chinese public utilities are very keen to attract foreign partners, Reliance on ODA Limited sometimes just to boost their credit rating with Chinese banks. Government Comments Commitment to deliver service Yes at central level The central government has fully taken environ- Fiscal Resources Limited -mental concerns on board. While it was long at odds with the imperatives of economic development, these days water is big business too.

Economy & Finance Comments Recovery since Asian crisis 1997 Above average The possibility of financing operations in local Local capital market Basic currency is a great plus in China.

163 Water Market Asia - China

I. General Information considered overheated. On the supply side, the growth rate of industry fell to 11.1% in 2004 from 12.7% in 2003. Supply shortages were China is one of the world’s most active markets for water and waste- still experienced in coal, electricity, petroleum, and transport. For ex- water. A rising urban population, rapid economic growth and a favour- ample, 26 out of 31 provinces suffered power outages. The growth able policy environment combine to create seemingly limitless oppor- rate of agriculture more than doubled to 6.3%, supported by subsidies tunities for investors. to grain growers and a cut in agricultural taxes. Each of China’s 660 cities is a potential client for private operators Grain production recovered from a 4-year decline to increase by 9% and with new regulations being implemented to open up the water to 469.5 million tons. The services sector grew by 8.3%, a percentage and wastewater sectors, a large proportion of them are looking to the point faster than in 2003, when services were hurt for a while by the private sector to provide fi nancing and expertise. outbreak of SARS. There are many risks associated with operating in China but the risk Fixed asset investment grew by 25.8% in 2004. Investment grew fast- profi le of the Chinese market does not fi t the average emerging econ- er in manufacturing than in agriculture, services, and SMEs. omy risk profi le, especially in comparison with other Asian countries: When the growth rate of fi xed asset investment shot up to 43% in the - Contrary to most emerging markets, there is little or no foreign ex- fi rst quarter of 2004, the Government implemented a combination of change risk because the deep and liquid local capital market makes monetary, fi scal, and administrative measures to cool it, especially in raising fi nance easy, especially for foreign companies with good col- the overheated steel, cement, aluminium, automobile, and real estate laterals. sub-sectors. As a result, growth of investment in manufacturing eased - Contrary to the typical pattern in the region, the introduction of pri- for the full year to 38.3% from 46.3% in 2003. vate investment does not coincide with a retreat of the state and falling Total consumption increased faster in 2004 than in 2003, driven by public expenditure, quite the contrary. improving rural and urban incomes. Due to rising grain prices and sub- - There is a strong commitment on paper and in policy to increase sidies to farmers, real rural incomes grew by 6.8% in 2004, the highest water and wastewater tariffs. rate since 1997. Urban incomes increased by 7.7%. However, investors in Chinese water and wastewater projects face The PRC continued to be a favoured destination for foreign invest- three key hurdles: ment. Actual FDI rose by 13.3% to $60.6 billion in 2004. The country’s infrastructure continues to strengthen, and its business environment - Despite regular increases, tariffs still remain below cost recovery has improved signifi cantly since it joined WTO. Multinational enter- levels; prises have accelerated their relocation of labour-intensive and ex- - A complicated institutional framework that involves the central, pro- port-oriented industries to the PRC. vincial and municipal authorities and the many different agencies and WTO membership has prompted an opening of services to more for- ministries whose work relates to the water and wastewater sector; eign participation, so that FDI in services during 2002-2004 on aver- - A complex regulatory framework setting out the rights and obliga- age grew slightly faster than in agriculture and manufacturing. tions of government and investor. FDI in steel and cement slowed signifi cantly in the second half of 2004 I.1 Macroeconomic Situation as those industries faced government curbs. GDP growth in the People’s Republic of China (PRC) accelerated Infl ation measured by the consumer price index (CPI) picked up to from 9.3% in 2003 to 9.5% in 2004, the highest level since 1997, even 3.9% in 2004 from 1.2% in 2003. Unemployment edged down to 4.2% though the Government took several steps to damp sectors that it of the urban workforce from 4.3% in 2003.

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 10.00 2006 1,955,350

2005 1,773,388 5.00 2004 1,587,914 0.00

0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 1998 1999 2000 2001 2002 2003 2004 2005 2006 -5.00

China Dev eloping Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean) 12.00 10.00 Chart 1.3: 2004 Sector Share of GDP 8.00 4.62 Agricult. 6.00 3.91 3.76 3.88 3.55 3.26 3.50 14% 4.00 Serv ices 2.00 34% 0.00 1998 1999 2000 2001 2002 2003 2004

China Dev eloping Asia (mean) Indutry High Income Asia (mean) 52%

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 164 Water Market Asia - China

Table 1.1: Sovereign Risk Indicators China Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 179.00 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 29.90 59.60 50.84 Short Term Debt / Total Debt 2004 (%) 37.70 10.49 n/a Fitch Sovereign Rating (2004) A-

Table 1.2: Legal Risk Indicators 2004 China Developing Asia High Income Asia Time to enforce a contract (days) 241.00 392.62 103.67 Time to register property (days) 32.00 62.82 16.50 Time to resolve insolvency (years) 2.40 4.45 1.15 Time to start a business (days) 41.00 67.08 14.33 Legal rights of borrowers and lenders (0=low) 2.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) China Developing Asia High Income Asia Political Rights 7.00 4.23 2.43 Civil Rights 6.00 4.69 2.14 Corruption Perception 3.40 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 China Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 7.12 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 423.80 185.54 1,281.59 Roads, paved (% of total roads) n/a 44.75 75.32 Electric power consumption (kwh per capita) 987.09 717.46 7,505.93 Water supply failures (days) n/a 10.00 n/a

Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%)

8 0.00 -1.00 2002 2003 2004 2005 2006 6 5.30 4.10 -2.00 -1.40 3.70 -1.70 3.17 -2.00 4 -3.00 -2.83 2 -4.00 -3.39 -5.00 0 2003 2004 2005 2006 -2 China Dev eloping Asia (mean) High Income Asia (mean)

China Dev eloping Asia (mean) High Income Asia (mean)

Chart 1.8: Real Interest Rate 2000-2003 (%) Chart 1.7: Inflation Rate 1999-2004 (%)

9.00 16.00 8.00 14.00 7.00 12.00 10.00 6.00 5.91 8.00 5.00 4.86 6.00 4.00 4.00 4.00 3.00 2.99 2.00 2.00 1.16 0.00 0.26 0.46 1.00 -1.41 -0.77 -2.00 1999 2000 2001 2002 2003 2004 0.00 -4.00 2000 2002 2003 China China Dev eloping Asia (mean) Dev eloping Asia (mean) High Income Asia (mean) High Income Asia (mean)

165 Water Market Asia - China

Main Cities of China 2000 urban districts only Pop.Mn II. Water Shenyang 4.33 II.1 Sector Policy & Structure Chengdu 3.46 Demand for water services is constantly rising. Urban populations are Changchun 2.88 growing across all of China’s provinces, in some places very rapidly. Xian 2.86 Growth may be tailing off in Beijing and Shanghai, but new million- Nanjing 3.10 plus cities are emerging each year. There is considerable variation Dalian 2.75 between the provinces, with the Eastern seaboard still far ahead of Shanghai 9.86 the Central and Western regions. However, even in the poorer provinces there is usually one city or more taking off economically. As FDI Beijing 7.61 projects climb the technology chain, we can expect to see increasing Chongqing 6.61 demands for high-quality water. Tianjin 5.33 In terms of water demand, as would be expected, demand is highest Wuhan 4.41 in the East and in the most economically active areas of the county: Guangzhou 4.36 the Beijing-Tianjin axis and the Yangtze and Pearl River Deltas. Urban Harbin 4.35 areas typically demand 2-3 times more water per capita than rural areas. I.2 Political & Investment Environment Water demand structure and growth Although China’s economy is turning in some spectacular fi gures, its growth is far from evenly distributed. That has led to a situation in Most of China’s water goes to the agricultural sector (67%) with 90% which the south east corner of China has become home to both a of this going to irrigation. Approximately 26% goes to commercial or new middle class and an equally new, and growing, underclass. The industrial users, while the remaining 7% is used for drinking, cooking, tensions emanating from that situation are already becoming evident sanitation and other domestic purposes (see chart 3.1). The rate of through the signifi cant increase in the number of protest rallies and the water use for this last category is growing rapidly with urbanisation like that have taken place in 2004-05. Nor are those protests confi ned and rising living standards. to the areas immediately surrounding the urban centres of economic Overall water demand is not growing in China. The annual rate of growth. Increasingly, the very poor rural population is demanding to increase in water use from 1978 to 1998 was only 0.1%. Natural short- have its voice heard, and its socioeconomic stagnation addressed. ages tend to curb demand growth and multiple initiatives to encourage The potential for popular protest to become a force for instability in water savings through tariff increases and effi ciency gains have left China is a real one, and given the raft of socioeconomic development demand growth fl at for the past decade (see chart 3.3). The impact and stability measures that the government unveiled in March 2005 as of rising prices on demand had been ignored in some of the earlier part of its national development agenda, it is a potential that worries projections for urban level water supplies, leading to over-capacity in the government. certain places. A further worry is that China’s economic growth has happened amidst However, the structure of demand is changing. Industrial water, both extensive corruption, and that this has led to overinvestment in some consumed and discharged (wastewater) has been falling while resi- sectors that might yet lead to them becoming unsustainable, triggering dential consumption has been increasing at 2-4% per year. Expo- the sort of collapse that occurred in the region after 1997. nential growth of the urban population has fed the rise in domestic tap water demand while water-saving technologies, the closing of old The government is keen to slow the pace of growth and tighten regu- industrial plants and the encouraged use of recycled water have di- latory controls, imposing targets for real GDP growth and infl ation. minished the need for industrial uses of water. Thus, even though total However, when it tried to limit growth in 2004-5, it failed to hit these industrial water discharge is still rising (see chart 4.4) organic water targets, and there is little to suggest that it will be any more successful pollutant emissions are decreasing (see chart 4.1 & 4.2). in the future. Water demand is expected to increase at only 1-2% in the next few The decision to change the peg of the RMB from a dollar peg (at years. It is now estimated that the total demand for water will be be- RMB8.3 per dollar) to a slightly loosed peg to a basket of international tween 720 and 800 billion cubic metres by 2050. currencies is an important development. Increasing supply: the diversion projects There remains, however, an inherent contradiction between the government’s stated policies and actions. On the one hand, it says it wants With the Three Gorges Dam, the PRC demonstrated its willingness to slow economic growth, but on the other it is forcefully pursuing the to take on massive infrastructure projects. Another hugely ambitious raw materials, oil, nuclear power, and the like, necessary to keep the project, the South-North Water Diversion Project, is now being imple- economy operating at full tilt. That suggests that the government is mented to address the uneven distribution of water resources across prepared for the kind of social upheaval that will be all but inevitable if the country. The project is seen as a vital step if the North of the coun- socioeconomic disparities continue to grow, and believes that it is able try is to have adequate water supplies in the coming years and if the to keep a suffi cient lid on corruption to avoid an economic meltdown. risk of fl ooding in the Yangtze Valley is to be reduced. In effect, government expenditure priorities were shifted in 2004 from The fi rst two stages of the project are due to be completed in 2007. infrastructure construction to agriculture, education, health care, and The long-term environmental impact of a project of this scale in un- social security. Poorer central and western regions received greater known but, as with the Three Gorges dam, the Chinese Government attention, as did rundown industrial locations, and areas where ethnic is standing fi rmly behind the project despite criticism from some envi- minority groups live. ronmentalists and non-governmental organisations. The South-North diversion is the largest of a great number of diversion projects within Progress was also made in SOE reform in 2004-05. The State-owned localities and provinces. Assets Supervision and Administration Commission continued its efforts to strengthen its supervision over 178 major central SOE groups Policy: the recent focus on sustainable development and improve the management of SOEs nationwide. The commission Policy changes in the water sector should be set against the back- tightened policies on management buyouts and stated that privatiza- ground of a gradual shift in the role of the PRC Government. While tions should be carried out through open and competitive bidding. the role of state-owned enterprises in the economy will continue to be Efforts to repair state-owned commercial banks continued when the very important, the Government is keen to separate more clearly its Government injected US$45bn of its foreign exchange reserves into administrative and commercial functions while opening up new areas the Bank of China and the China Construction Bank to strengthen of the economy to private sector activity. Thus the PRC has moved their balance sheets and prepare them for stock market listings. ahead faster than many of its Asian neighbours in encouraging the For the private sector, the Government issued guidelines to improve commercialisation of water supply services and opening up water pro- the legal, policy, and market environment. vision to private investment.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 166 Water Market Asia - China

Table 2.1: Income Level China Developing Asia High Income Asia GDP per capita 2004 (US$) 1,220.00 1,104.30 23,628.57 Population on less than US$1/day 2004 (%) 17.00 18.23 0.00 Unemployment 2004 (%) 9.90 6.73 4.89

Table 2.2: Area & Population China Developing Asia High Income Asia Population Growth 2003 (%) 0.60 1.67 0.64 Urban Population Growth 2003 (%) 3.17 3.48 1.18 Population Density 2002 (pop/km2) 135.70 231.45 2,335.17 Area (thousands Ha) 959,805.00 Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban 2000-2003 (cst 2000 US$) (millions) Population (%) 38.65 1,310.00 1,300 39.00 37.70 480 1,300.00 1,292 38.00 458.38 1,290.00 1,285 36.74 460 1,276 37.00 432.90 1,280.00 35.79 440 1,267 36.00 410.38 1,270.00 420 1,260.00 35.00 400 1,250.00 34.00 380 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002

Chart 2.4: Consumer Exp. on Water 1999-2004 (US$m) Chart 2.5: Consumer Exp. on Water Growth Forecast 2005-2009 (%)

3,000 8.00 2,356.15 2,400.29 7.31 2,500 2,125.50 1,852.04 2,000 1,697.81 1,746.88 6.00 4.94 1,500 5.50 4.00 1,000 500 2.00 0.58 0 0.47 0.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

A second broad policy trend which is shaping the PRC water sector is the recent and strong embrace of environmental issues. President Hu China Dev eloping Asia (mean) Jintao and Premier Wen Jiabao are both public fans of sustainable de- High Income Asia (mean) velopment and frequently emphasise the importance of environmental protection in their public announcements. In a speech in March 2004, President Hu reaffi rmed this stance: “We must fi rmly establish and People’s Congress in March 2004, said his Government would “make seriously implement the concept of people-centred, all-round, coordi- development our top priority” but would at the same time “adhere to nated, and sustainable development….We must completely change the scientifi c viewpoint of development” and would “put people fi rst”. the extensive growth mode that requires paying the price of sacrifi cing Pan Yue, Vice-Minister in the State Environmental Protection Agency the environment and destroying resources; we cannot pay the price (SEPA), is a leading proponent for sweeping changes in China’s de- of sacrifi cing the environment in exchange for economic growth for a velopment strategy. “If we continue on this path of traditional industrial time,” he said. civilisation, there is no chance that we will have sustainable develop- This new emphasis on the environment is part of the vision of ‘people- ment,” Pan said in April 2004. centred’ or ‘scientifi c’ development set out by the country’s current Economists estimate that the fi nancial cost of environmental damage leadership. After several decades in which economic growth was the to China’s resources and workforce could be as high as 7% of gross only policy priority, ‘people-centred development’ introduces social domestic product every year. “China’s population, resources, environ- and environmental concerns into the policy mix. Offi cially, economic ment have already reached the limits of their capacity to cope. Sus- growth is no longer considered desirable when it involves the unsustainable development and new sources of energy are the only road we tainable depletion of natural resources. can take,” Pan announced in the same statement. This is understood China thus seems to be redefi ning its development strategy towards by observers to signal a new level of commitment on the part of the human-based approach to development, with a major thrust – at least government to tackle environmental problems. at the rhetorical level – on equity, social progress and ecologically sus- Against the background of a changing development model, the events tainable development. Premier Wen, in his report to the 10th National

167 Water Market Asia - China of 1998 were the catalyst that pushed the environment to the top of the Institutions: a complex and changing web of agencies nation’s agenda. In 1998, devastating fl oods struck the Yangtze River. China has a complex institutional structure for the water and waste- Deforestation and agricultural expansion upstream had increased water sectors, with overlapping responsibilities between central, pro- river silt while simultaneously reducing the soil’s capacity to absorb vincial and municipal levels of government and between departments rainwater, leading to massive run-off. and agencies at each level. The absence of clear boundaries and lack The fl ooding resulted in 4,000 deaths and economic losses totalling of coordination make the regulatory structure of the sector confusing almost US$20 billion. With the economic costs of neglect so plainly and at times contradictory. demonstrated, the government responded immediately with a policy At the state level, four Ministerial level agencies are directly involved programme to prevent further environmental destruction. in setting sector policies. At lower government levels there are also The change of heart in China’s leadership has led to several policy commissions and bureaus responsible for planning, construction, measures designed to face the country’s serious environmental prob- fi nance, industry, environmental protection and pricing, all of which lems, including an expanded role for the private sector and major re- could relate to water supply and sanitation. These commissions and forms to tariff structure and tariff levels. bureaus report to both local government bodies and to their state- level counterparts. Moreover, there has been a power shift in the past China was thus expected to spend US$84 billion on environmental decade, as the development and commercialisation of utilities be- protection to meet the goals of the 10th Five Year Plan (2001-2005). came the priority. While the Ministry of water resources used to be the During this 5-year period, the central government is supposed to make leader in the sector, mostly because treatment facilities did not exist 11.4% (US$9.7 billion) of the investment, while 34% would come from and most of the activity was at the raw water supply level, the Ministry provincial and local governments and the remaining 55% were left for of Construction is now the undisputed leading agency for the water the private sector to invest. The government has also promised US$4 and wastewater sectors. Similarly, the emphasis on development and billion just for investment in wastewater treatment facilities between investment in the sector has somewhat sidelined the State Environ- 2001 and 2010. Unsurprisingly, these targets have not been met so mental Protection Agency (SEPA). far and most probably will not be met as scheduled. Municipal governments are primarily responsible for providing and But the imposition of such unrealistic targets is mostly the effect of regulating water and wastewater treatment services, owning and central-planning and the necessary anticipation by the central govern- managing more than 60% of capacity. Most municipalities have one ment that its agents will not meet their required quota of investment or more water utilities responsible for supply and distribution, while (for fear that they will be increased in the next plan). Despite the fact wastewater systems are usually managed separately. Recently, many that most investment targets have not been met, the change and the municipalities have restructured their water utilities as fully publicly- effort have been tremendous. owned companies, with autonomous accounting structures, encour- China spends more on the water sector than on air and solid waste, aged by the government’s policy for commercialisation. Some of these especially on the clean-up of heavily polluted river basins and lakes. water companies have listed publicly, including the Shenzhen Water Reducing water pollution forms the bulk of the spending for the 10th Group and Tianjin Capital Environmental Protection, which provides Plan. wastewater treatment services to its municipality. Beijing Municipality is leading the way in this environmental clean-up For some municipalities, commercialisation of water utilities is seen as programme in preparation for the 2008 Olympics. The municipal gov- a fi rst step toward involving the private sector. However, these com- ernment anticipates spending US$12 billion on environmental projects panies often do not have operational autonomy as they operate under in preparation for this event. the supervision of municipal public utility bureaus. This raises con-

2020 Desalination Plans China’s desalination capacity may increase 100 fold by 2020 according to a joint report by China’s National Development and Reform Commission, Additional desalination in China by 2010 and 2020. the State Oceanic Administration and the Ministry of Finance. China’s Province/city 2010 ('000m3/d) 2020 ('000m3/d) desalination capacity is said to be 31,000m3/d. This will be increased to Tianjin 200-250 450-500 381,000m3/d by plants currently under construction. Hebei 150-180 200-250 Most of the investment in desalination will go into the four north east- Liaoning 60-80 150-200 ern coastal provinces including Tianjin, Hebei, Liaoning and Shandong, where the total shortage of water in the region is expected to reach be- Shandong 200-250 450-500 3 3 tween 16.6bn m /year and 25.5bn m /year in 2010 and between 27.3bn Jiangsu 0-5 10-20 m3/year and 39.3bn m3/year in 2020. Shanghai 0-5 30-50 The report’s authors envisage China’s seawater desalination capacity reaching 0.8-1.0m m3/d by 2010, which should solve 16-24% of the water Zhejiang 100-150 450-500 shortage in the north east coastal region. By 2020 desalination capacity Fujian 0-5 30-50 will rise to between 2.5m and 3m m3/d, satisfying 26-37% of the shortfall. Desalination will be designated a “sunrise industry” which qualifi es for Guangdong 10-20 50-100 international competition, although there is a target for 60% “import sub- Guangxi 0-5 10-20 stitution” by 2010. 90% of the needs of the industry will be supplied by Hainan 0-5 30-50 local companies by 2020, the report suggests. The government is committed to subsidising local suppliers to promote achieving these import Dalian 80-100 150-200 substitution rates. Qingdao 180-200 350-400 3 The strategy is to build plants of up to 100,000m /d in the period to 2010, Ningbo 10-20 100-150 rising to larger units of up to 500,000m3/d by 2020. The report envisages that the cost of constructing a m3 of desalination capacity will be between Xiamen 0-5 30-50 RMB6,000-RMB8,000 (US$742-$990). This suggests that the total cost Shenzhen 10-20 30-50 of the desalination programme by 2020 may be as much as US$3.06 billion. It is expected that private capital will be involved in fi nancing the Total 800-1,100 2,520-3,090 build out of desalination plants using a variety of different structures. Proj- Note: Targets of provinces do not include that of those ects will be divided into two types: general projects, which will be fi nanced cities listed. For example, the target for Liaoning province by the capital markets, and social infrastructure projects, which will re- does not include that of Dalian city ceive public funding and subsidies. Subsidies will also be made available for demonstration plants.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 168 Water Market Asia - China

Table 3.1: Water Service Coverage Indicators 2002 (%) China Developing Asia High Income Asia Population with Access to Improved Water 77.00 76.85 100.00 Households Connected 59.00 22.27 98.00 Urban Population with Access 92.00 86.17 100.00 Urban Households Connected 91.00 48.27 99.33 Rural Population with Access 68.00 71.42 100.00 Rural Households Connected 40.00 14.58 95.50

Table 3.2: Water Resources China Precipitation Volume 2002 (bn m3/yr) 0.00 Precipitation Depth 2002 (mm/yr) 0.00 Groundwater: produced internally 1998-2002 (bn m3/yr) 828.80 Surface water: produced internally 1998-2002 (bn m3/yr) 2,712.00 Overlap: surface and groundwater 1998-2002 (bn m3/yr) 727.90 Water resources: total internal renewable 1998-2002 (bn m3/yr) 2 812 Water resources: total external 1998-2002 (bn m3/yr) 17.17 Water resources: total renewable 1998-2002 (bn m3/yr) 2,829.00 Agricultural water withdrawal 1998-2002 (bn m3/yr) 426.90 Domestic water withdrawal 1998-2002 (bn m3/yr) 41.47 Industrial water withdrawal 1998-2002 (bn m3/yr) 162.00 Total water withdrawal 1998-2002 (bn m3/yr) 630.30

Table 3.3: Water Resources II China Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 2,160.00 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 2,172.00 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 484.00 507.25 544.73 Dependency ratio 1998-2002 (%) 0.61 33.33 1.39 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 15.09 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 22.28 16.19 13.19

Chart 3.1: Water Uses 2002 (%) Chart 3.2: Fresh Water per Capita 1999-2004 2,286 (m3/head) 2,300 Indus. 2,280 2,259 2,252 2,249 2,242 26% 2,260 2,237 Agricult. 2,240 67% 2,220 2,200 1999 2000 2001 2002 2003 2004

Dom. 7%

Chart 3.3: Annual supply of tap water and year-on-year growth (1990- 2002)

600 30% 500 25% 20% 400 15% Annual supply of tap w ater 300 10% Year-on-y ear Grow th 100Mm3 200 5% 100 0% 0 -5% 1990 1995 1998 1999 2000 2001 2002

169 Water Market Asia - China cerns about confl icts of interest resulting from the municipality’s dual nese developers on an equal footing with international ones. functions as owner and regulator of the utility. Wastewater companies These domestic companies have become very active in the water sec- have only recently been established in a small number of municipali- tor in the last few years. The restriction on domestic private invest- ties. Most wastewater systems continue to be managed separately ment in the water sector was lifted in 2002 and this released a rush of from water systems by municipal management bureaus. investment. In part, this is a refl ection of the high degree of liquidity in II.2 Financing Chinese capital markets (see charts 5.5 & 5.6). According to World Bank fi gures, in the period 1990-2000 private in- Chinese fi nancial investors are looking for good investment opportuni- vestment totalled about US$700 million, representing just 4% of total ties and the water sector is considered as a good bet for quick returns investment in water and sanitation infrastructure in China (We put the as a result of growth in the sector. As water and wastewater are ‘en- fi gure at US$900 million). Private investment has, in fact, fallen as couraged’ sectors for private investment, it is also easier to raise debt a share of total funding from 1997-2002, from 7.5% in 1997 to less fi nance for such projects. The expectation is that some of these new than 3% in 2002. However, this refl ects an increase in public spending investors will exit the market in the coming years. rather than a fall in the amount of private spending. A second category of Chinese investors includes groups like Bei- 1990-98 saw a jump in government spending in water supply infra- jing Capital and Shanghai Industrial. These investment companies, structure to US$9.5 billion while US$6 billion was invested in sanita- backed by their respective municipalities, have their foundations in tion infrastructure. property development. Vibrant economic growth and an ambitious expansion strategy has led Beijing Capital to expand into other high As a result, the capacity of water production plants and distribution growth areas, including high tech venture capital investments and utili- networks increased by almost 50%. In the same period, municipal ties. Shanghai Industrial, similarly, is a property group that is looking wastewater treatment capacity volume grew 17% a year and 10% a for areas for expansion. year in terms of sewer network length. Both companies have signed numerous water deals but doubts have The government’s investment targets for the urban water sector in the been raised about whether these groups will develop the specialised Tenth Five Year Plan, are unprecedented: over the 2001-2005 period, sectoral expertise needed to be successful in the water sector in the more than US$11 billion is to be put into water supply and distribution long-term. In the short-term, they enjoy considerable fi nancial strength and US$15 billion for sanitation infrastructure. Actual investment how- and are able to accept a lower rate of return than foreign investors. ever is far behind schedule in most provinces. Domestic companies are active in the lower risk areas in the eastern II.3 Private Sector Participation and southern parts of the country. When Suez signed the contract for the Macau water concession in Investment models are much the same for Chinese and foreign inves- 1985, the island was not yet part of the People’s Republic of China tors: Chinese companies invest in water and wastewater utilities either (PRC). Private investment in water and wastewater projects in main- in a JV structure with the local water company, or under a BOT and land China started cautiously in the mid-nineties and then fell, like BOOT-type contract. investment in most other infrastructure sectors during the years of the Asian crisis. Since then, investment in China’s water and wastewater They are also beginning to get involved in deals outside their munici- services markets has positively boomed both in volume terms and in palities, such as Tianjin Capital’s investment in Guizhou province in the number of ventures (see chart 5.2). 2004. Between 1985 and 2004, a total of 133 private projects have been de- A key change in the PRC water market is the opening up of the dis- veloped in China by international and increasingly by Chinese private tribution and customer service side of business to private investors. developers. They represent a total investment commitment of US$4.8 Developers with a long-time expertise in the water business can now billion. Signifi cantly, 80% of this investment volume and 79% of the use the support of local fi nance and local investment partners, thus number of projects occurred after 2000, indicating a very dynamic and minimising their exposure, while applying their know-how to a distribu- a very young market. tion network and realising substantial effi ciencies. In 2005, the market continued to grow with 32 new privately-fi nanced Geography of private investment projects signed. See the end of this profi le for a complete of past, While private ventures can be found in most parts of China, inves- future and failed Chinese projects. tors have a strong preference for the affl uent and economically active Active developers coastal regions. The Coastal East and South-Eastern regions have seen more than two thirds of the number projects, with Guangdong, All the key international players have a presence in China and all Shandong and Jiangsu the main investment destinations for private seem to be hoping for a larger share of the market. Suez, through its companies (see chart 5.1). joint venture partnership, Sino French, Veolia, and Thames (through the China Water Company) all have numerous investments in the Autonomous municipalities like Shanghai, Guangdong or Chongq- market. Other developers such as EarthTech of the US, Berlinwasser ing have a comparatively smaller number of projects relative to their of Germany, Hyfl ux of Singapore or Salcon of Malaysia also have their economic importance in the country. They tend to have strong and feet in the door. well established public utilities. Beijing has a larger number of private projects but most are in connection with the 2008 Olympics. Economi- However, there have been some disappointments, particularly with cally active but politically less visible cities seem to be better bet for two of the largest projects, the Da Chang BOT in Shanghai, from investors, especially foreign ones. which Thames recently withdrew, and the Beijing n°10 BOT where Anglian and Mistubishi are still struggling to resolve differences with The West of the country has seen virtually no private investment in the local authorities and achieve fi nancial close. Many of the smaller water or wastewater so far. projects seem to be enjoying greater success. Remaining potential While the biggest private investors are international players, the ris- Private investment only constitutes a small fraction of the overall mar- ing Chinese private sector is making signifi cant efforts to capture this ket. New World Holdings’ CEO Gerry Lam King-Sang estimates that market. Between 1992 and 2004, 37% of projects were developed by foreign investors have so far taken up just an estimated 2-3% market Chinese water or wastewater investors. share. NWH is Suez’ partner in Sino-French Holdings, the investment It can be diffi cult to determine exactly what a ‘private’ Chinese devel- vehicle with the largest number of projects currently operating in main- oper is. While these organisations have a corporate form, the PRC land China. Other observers estimate that the private sector provides system is such that, down the line, Chinese developers are mostly coverage to 13% of the population. state-owned, either at the central or local level. However, these ‘com- 2002 was a peak year for foreign investment so far, but there are good panies’ are developing very aggressive market behaviour and are now reasons to believe future years will generate even greater investment very real competitors for international players, especially as competi- volumes. A 2003 National Bureau of Statistics report showed that of tive bidding becomes the norm. Thus we have chosen to present Chi-

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 170 Water Market Asia - China

Chart 3.4: Residential water consumption and year-on-year growth (1990-2002)

250 70% Water consumption for 60% 200 residential use 50% Year-on-year Grow th 150 40%

100 30% 100Mm3 20% 50 10% 0 0% 1990 1995 2000 2001 2002

Chart 3.5: Water tariffs in China's four autonomous municipality (2002-2004)

4 3.5 3 2.5 2 1.5 1 0.5 0 2000 2001 2002 2003 2004

Beijing Tianjin Shanghai Chongqing

Table 3.4: Evaluation of the water market size in China's main cities City Name Average tariff Yearly Water Market size RMB Market size Supply m3 US$m Shanghai ᪳1.50 10,427,000,000 ᪳15,664,482,100 $1,887,287,000 Chongqing ᪳2.50 6,030,000,000 ᪳15,075,000,000 $1,816,265,060 Beijing ᪳3.37 3,462,000,000 ᪳11,664,170,400 $1,405,321,735 Tianjin ᪳3.80 1,996,000,000 ᪳7,582,072,133 $913,502,667 Nanjing ᪳2.33 1,256,670,000 ᪳2,930,931,441 $353,124,270 Guangzhou ᪳1.08 1,680,800,000 ᪳1,806,860,000 $217,693,976 Dalian ᪳3.50 318,680,000 ᪳1,115,326,887 $134,376,733 Changchun ᪳3.90 273,610,000 ᪳1,066,595,622 $128,505,497 Shenyang ᪳1.80 525,350,000 ᪳946,207,885 $114,000,950 Harbin ᪳2.73 341,200,000 ᪳932,658,827 $112,368,533 Shenzhen ᪳1.73 460,380,000 ᪳794,155,500 $95,681,386 Jinan ᪳2.28 299,600,000 ᪳683,837,000 $82,390,000 Xi'an ᪳1.95 320,160,000 ᪳625,357,856 $75,344,320 Shijiazhuang ᪳1.77 301,490,000 ᪳533,004,171 $64,217,370 Zhengzhou ᪳1.97 268,550,000 ᪳528,264,705 $63,646,350 Taiyuan ᪳1.85 270,970,000 ᪳501,538,373 $60,426,310 Guiyang ᪳1.63 260,430,000 ᪳423,198,750 $50,987,801 Lanzhou ᪳0.95 334,260,000 ᪳317,201,598 $38,217,060 Qingdao ᪳1.34 222,250,000 ᪳296,992,675 $35,782,250 Fuzhou ᪳0.95 309,760,000 ᪳294,272,000 $35,454,458 Hohhot ᪳1.64 109,570,000 ᪳179,157,907 $21,585,290 Yantai ᪳1.85 87,690,000 ᪳162,305,421 $19,554,870 Yinchuan ᪳1.25 98,010,000 ᪳122,512,500 $14,760,542 China Total ￥1.50 549,727,000,000 ￥824,590,500,000 $99,348,253,012 Tariffs data 2004, water usage data 2002

171 Water Market Asia - China all foreign investment projects, those in water utilities were the most JSC, while featuring rather stringent limitations for foreign investors, profi table, with the highest profi t-cost ratios, sometimes as high as are also becoming a new trend in the water sector, as investors gradu- 24.48 percent. ally move into the distribution and customer service business, further down the value chain. The two Veolia mega-concessions of Shanghai While this particular announcement is what prompted the State Coun- Puding and Shenzhen are JSCs. cil to retroactively ban guaranteed return clauses in infrastructure contracts, it proves that even before the current wave of liberalisation Structures: from BOTs to full concessions water and wastewater projects could make business sense in China. The basic shortcoming of these fi rst BOTs was that the approach was With government policies increasingly favourable to privately-funded fi nancial rather than entrepreneurial: relatively safe, but not optimally projects and the opening up of distribution services, a new wave of rewarding. BOT projects cast foreign companies not as real partners, potential investments is starting to form in China. but as risk-averse bankers. With early BOT deals, there was technically no downside, because returns were guaranteed, but there was Furthermore, while some public utilities are generating good returns, no upside either. This is no longer the case as guaranteed returns are many are not and few municipalities have the fi nancial resources to illegal. invest in the construction or extension of new facilities that will be needed to meet the government’s targets. Municipalities are therefore BOT structures have hidden large underlying ineffi ciencies in distribu- keen to bring private companies into the sector. tion. Similar problems are found in the electricity, telecommunications, and even consumer goods sectors. Foreign-invested projects were Investment models allowed in production but were usually not able to run distribution net- In China, foreign companies tend to be valued as much for their capi- works. This left little incentive to promote effi ciency or, in some cases, tal contribution as for their technical and managerial expertise. This is economies of scale. not just a question of access to credit, even though an international Since a water plant cannot be built in isolation, the construction of utility with a good rating will help convince local banks to grant fund- new intake and outfl ow pipelines is invariably required. The simplest ing. The Chinese market is now fully capable of fi nancing itself and approach would be for the local Chinese water authority to construct does not need the foreign partners’ fi nancial muscle. these pipelines and be responsible for operation and maintenance. Even so, local partners will often judge the quality of the foreign part- The provision of raw water or sewage to the plant and the off-take of ner’s commitment by the amount of cash it is willing to put up front. treated effl uent would then be dealt with under the project agreements. This is why operation and management contracts are rare in China: However, in both the Chengdu 6 and Da Chang projects, the foreign entering into a partnership must mean being ready to take a fi nancial concessionaire had to construct intake facilities to deliver raw water to risk. Private water and wastewater projects in China can take four the treatment plant. In the Chengdu 6 project, the concessionaire also different forms: had to construct a 27-kilometre outfl ow pipeline, connecting the plant to Chengdu’s municipal water supply. Ownership of these pipelines Cooperative Joint Venture (CJV): Profi t and loss distribution ratios are was transferred to the relevant municipal water authority immediately determined in the contract and can vary over the contract term. Capi- after construction completion, but the pipeline construction cost was tal contributions by foreign and domestic partners may be in cash or included in the private party’s overall project fi nancing. Moreover, the assets and ownership of the CJV’s assets would normally be trans- part of the network that was meant to be built by the Chengdu mu- ferred to the domestic partner at the end of the CJV contract. nicipality was never built, leading to a situation of over supply. Similar Equity Joint Venture (EJV): Jointly managed by the foreign and do- provisions are included in the Beijing 10 project. mestic partners. EJV profi ts and losses are distributed according to Another unusual feature of the BOT-style projects in China has been each partner’s equity share. The contribution may be in cash or as- that the intake and outfl ow assets are transferred to Chinese water sets, such as plant or property rights. authorities at no cost. The capital expenditure incurred in constructing Wholly Foreign Owned Enterprises (WFOE): Established exclusively these assets is absorbed within the overall project fi nancing costs, with the foreign investor’s capital. becoming merely an aspect of the tariff charged under the off-take agreement. The tariff includes the capital and funding costs of the Joint Stock Companies (JSC): Established by the Chinese entity pri- intake and outfl ow pipelines, as well as the capital, funding and oper- marily for the purpose of listing on Chinese or foreign stock markets. ating costs of the water plant. The capital stock of a JSC is made up of equal value shares and capital contributions can be made by both domestic and foreign share- Although neutral for the project as a whole, the separation of asset holders. ownership and tariff liability gives the water supply authority a windfall gain (free intake facilities), while imposing additional costs on the rel- The joint venture format has so far been the preferred mode of in- evant water off-taker. This may have little signifi cance where the same vestment for international players. While many projects were originally government body controls the water supply authority and off-taker, but CJVs, the implementation of the ban on guaranteed rates of returns the increasing commercialisation of state-owned enterprises and local prompted many developers to renegotiate contracts and to transform authorities could lead to future diffi culties. CJVs to EJVs. 76% of all active projects are joint ventures with a local utility. Foreign water companies have considerable experience in network management, leakage control and tariff collection. Excluding them WFOE used to be the exception to the norm and were only found from network assets prevented them from applying this expertise in under the central government-sanctioned ‘pilot’ BOT program. This China. experiment led to three projects or pilot BOTs: Da Chang in Shanghai, Chengdu n°6 in Sichuan and Beijing n°10. All three are distinctive be- Foreign developers long argued that they should have access to dis- cause of their size and requirement for several hundred million dollars tribution networks. As soon as it was the sector was opened up again of fi nancing to be raised on a limited recourse basis. in 2002, they jumped in. Suez invested in Chongqing, Veolia fought to get Shanghai Pudong and Shenzhen. Other developers have followed This model never really took off. Thames pulled out of Da Chang in this trend. Most insiders in the water service industry converge to say 2004 and after two years of negotiations, Beijing n°10 is yet to achieve that investing in distribution network is the future of their business in fi nancing to close. Chengdu n°6, while the project is performing ad- China. equately, has generated excess supply, leaving Chengdu municipality to bear the cost as the project’s take-or-pay off-take agreement has II.4 Tariffs priority over other, cheaper municipal plants. According to observers, Water tariffs in China have been rising persistently in the last few years the only reason why Chengdu n°6 has not been forced into renegotia- and this pattern is expected to continue. Behind these increases are tion by the municipality is because of the very high level of involve- several mutually reinforcing factors. ment of the central government who do not want the project to fail. Water tariffs are usually set at the municipal level, although for some Since 2003, however, WFOE projects have become possible without small urban areas, they will be set by the provincial authorities. The central government approval and they have been spreading rapidly. factors infl uencing the level at which tariffs are set are also local and 11% of all active projects are WFOE.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 172 Water Market Asia - China

Table 3.5: Domestic and industrial water markets in China's autonomous municipalities

Domestic water use Industrial water Domestic tariff Industrial tariff m3 use m3

Beijing ᪳3.70 ᪳3.20 1,163,000,000 754,000,000 Tianjin ᪳2.60 ᪳3.80 475,000,000 45,000,000 Shanghai ᪳1.70 ᪳1.30 1,629,000,000 76,000,000 Chongqing ᪳2.40 ᪳2.60 1,481,000,000 2,479,000,000 Domestic tariff x Industrial tariff x Domestic water Industrial water dometic water use - industrial water use - market US$ market US$ RMB RMB Beijing ᪳4,303,100,000 ᪳2,415,665,200 $518,445,783 $291,044,000 Tianjin ᪳1,234,002,500 ᪳171,063,000 $148,675,000 $20,610,000 Shanghai ᪳2,771,743,500 ᪳99,035,600 $333,945,000 $11,932,000 Chongqing ᪳3,554,400,000 ᪳6,445,400,000 $428,240,964 $776,554,217 Tariffs data 2004, water usage data 2002 - Note: 'domestic water use' and 'industrial water use' does not include commercial and other uses

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) China Developing Asia High Income Asia Population with Access to Improved Sanitation 44.00 54.64 100.00 Households Connected 17.00 7.22 97.50 Urban Population with Access 69.00 77.09 100.00 Urban Households Connected 42.00 18.11 98.33 Rural Population with Access 29.00 48.08 100.00 Rural Households Connected 2.00 2.57 90.00

Table 4.2: Water Pollution 2001 (% of total BOD Emissions) China Developing Asia High Income Asia Water pollution, chemical industry 14.84 9.94 8.81 Water pollution, clay and glass industry 0.47 0.46 0.15 Water pollution, food industry 28.09 43.27 42.73 Water pollution, metal industry 20.45 7.62 4.84 Water pollution, other industry 9.22 6.08 13.17 Water pollution, paper and pulp industry 10.92 9.38 26.14 Water pollution, textile industry 15.00 21.17 8.17 Water pollution, wood industry 1.00 2.67 2.17

Chart 4.1: Daily organic water pollutant emissions 1999- 2004 (kg)

7,000,000 6,519,911 6,500,000 6,204,237 6,058,337 5,824,108 6,000,000 5,678,442 5,523,927 5,500,000

5,000,000 1999 2000 2001 2002 2003 2004 this accounts for the large spread of tariffs seen across the country. and increase the chance of attracting investors and of maximising the amount investors are willing to pay for equity in a water project. Looking to the local level, two key forces are acting on the authori- These two trends are likely to become more powerful over the coming ties. Firstly, municipal authorities face increasingly strict fi nancial con- years. straints and broad responsibilities. At the same time, ad hoc transfers from the central government to fund capital expenditures on urban In some cases, tariff increases may come after the entry of the private infrastructure are both unreliable and falling. This is making it neces- investor. The bid prices offered by certain investors in some recent sary for municipal governments to consider alternative methods of fi - tenders for water projects suggest that private fi rms also believe that nancing the provision of urban services and in particular the possibility tariffs will rise, making an aggressive bidding strategy pay off over the of recovering costs from end-users. project life. Another ‘pull’ on tariffs at the local level is that municipalities are keen However, most investors tend to be more comfortable with projects in to involve private and, especially, foreign investors in the provision which tariffs are already at a commercially viabile level and so private of water and wastewater. Local offi cials are aware that by raising sector projects so far are concentrated in cities where the government tariffs, they make privately funded projects more commercially viable has already taken steps in this direction.

173 Water Market Asia - China

There are no independent regulatory institutions in China, creating According to the Ministry of Construction’s blueprint, all cities are re- signifi cant regulatory risk for investors. Tariffs are subject to a national quired to establish waste water treatment facilities that process 45% limit and set according to guidelines set out by the central government of sewage by 2005 and 60% by 2010. This means the daily capacity but interpreted locally. All tariff increases need to be approved by the of Chinese urban sewage treatment plants is expected to more than local government and are thus sensitive to political considerations. double. The rate in cities with a population of more than 500,000 was Even Beijing, which is strongly committed to a policy of cost recovery set at 60%. At the end of 2003, the rate was only 22.3%, according to for tariffs, delayed promised increases in 2004 to soften the political offi cial fi gures. impact. Water Pollution Causes and Impacts Tariff increases at the local level are strongly supported by central Groundwater pollution is severe in urban areas. Municipal water sup- government policy, regulation and guidance. Under the guidelines is- ply systems, and many self-supplied industrial sources, have relied on sued by the central government, cost recovery is a key principle. More groundwater developments, which in turn rely on recharge from local recently, the central government has added the aim of water conser- rainfall and nearby rivers. vation in tariff-setting, encouraging cities to raise prices to a level that will discourage excessive use of water as a way to deal with water Continued reliance on such systems has had several negative environ- shortages. mental impacts: over-extraction and dropping of groundwater tables, ground subsidence, pollution of urban groundwater from wastewater The central government has also announced that cities should intro- infi ltration, and a gradual build-up of salinity in the upper portions of duce a progressive pricing structure in which high volume users pay groundwater aquifers as a consequence of inadvertent wastewater a higher rate than customers who use less water by the end of 2003. infi ltration and subsequent re-cycling of the groundwater. The fi rst city introduced it in 2004. Water quality of rivers and lakes is impaired by rural or agricultur- III. Wastewater al activities, as well as by urban wastewater. The 238 million rural In 2003, there were 516 wastewater treatment plants (WWTPs) in households are organized into 21 million township enterprises (TVEs), China operating in China’s urban areas. They served all or parts of which carry out a range of agricultural and industrial activities that are 294 cities, out of the 667 cities in PRC. relatively unregulated and un-monitored with regard to water pollution control. The total volume of wastewater generated in 2002 was 43.9 billion cubic meters, of which industry generated 20.7 billion cubic meters and Intensive agriculture and high crop yields in the PRC have resulted non-industrial (domestic, commercial and institutional) sources gener- in part from the highest application rate (in kg/ha/year) of chemical ated 23.2 billion cubic meters (53%). Approximately 40% of municipal fertilizer in the world. wastewater received treatment before discharge. Eutrophication of lakes and bays by nutrients is a major problem. III.1 Sector Policy & Structure A forced transition to low-phosphate detergents has been adopted to protect Lake Taihu, Lake Chaohu, Guanting Reservoir (Beijing’s The central government has set ambitious targets for wastewater standby water source), and 13 coastal cities; SEPA would support treatment coverage. The 10th Five Year Plan for the period 2001- a national-level ban on high-phosphate detergents, but thus far this 2005, calls for the sewage treatment rate in the country to rise to 45% measure has not been widely adopted to reduce the fl ow of organic from the current level of around 10%. In cities of more than 500,000 nutrients into lakes and the sea. people, 60% of wastewater must be treated, while towns with a population of more than 200,000 must treat 40% of their wastewater. The The PRC faces the risk that the current emphasis on point-source biggest cities, like Beijing and Tianjin, are aiming for a coverage target controls (municipal and industrial wastewater treatment) will not by of 90% by 2007. Industrial water recycling, meanwhile, is intended to itself assure a solution to water quality problems. Considerably more rise from 50% to 60% in all cities by 2010. attention should be paid to agricultural and other non-point sources of pollution. Government policies announced in 2002 specify the following for the wastewater sector: Industrial and Municipal Wastewater Treatment - Municipalities are encouraged to commercialise local wastewater Water pollution control in cities of the PRC has followed a course simi- companies, i.e. to incorporate them as private companies and to op- lar to that found in developed countries, particularly in the control of erate them according to commercial principles. industrial wastewater. SEPA and the EPBs at lower levels of government have had a strong regulatory and monitoring role in control of in- - They are encouraged to seek foreign investment in their wastewa- dustrial wastewater, but have had less infl uence in control of municipal ter systems and to seek preferential multilateral loans for wastewater domestic wastewater. sector improvements. Industries have responded relatively quickly, and have been generally - They are encouraged to use funds from the regular construction responsive in adhering to a national deadline for industrial wastewater budget for wastewater and to mortgage wastewater charge incomes treatment of December 2000. to generate cash for construction and rehabilitation of municipal sewers. Improvements in industrial wastewater pollution control have occurred in concert with other developments in the PRC: economic restructuring, - Water and wastewater charges should be combined to ensure that which has closed ineffi cient factories that were also heavy polluters; the full amount is collected. clean technology, in the course of modernizing production processes; - A reduction in the amount of funds to be transfered to municipalities limitations on available water supply, which has encouraged recycling from the central government for capital expenditures. and reuse of wastewater effl uent; and inclusion of water pollution control among the formal responsibilities of SOE plant managers. - The central government will no longer provide fi nancial support for projects that do not fi t with the policy of commercialisation. Industrial effl uent requirements have been set within the constraints of affordable or practicable treatment technologies, matched to the Central and local governments have introduced various policies to requirements of the effl uent disposal location (low level treatment for support commercialisation. These include the provision of land for discharge to large rivers providing adequate dilution; high level treat- wastewater facilities, tax breaks, electricity and credit guarantees for ment for discharge to smaller quality-limited streams; and pre-treat- private investors. The government is also working on formulating stan- ment for discharge to public sewers with or without municipal treat- dards for construction, operation and technology for the industry. ment). The provision of additional municipal WWTPs is the major need in The vast majority of industries are located within cities; fi fty years urban wastewater management, with the objectives of providing cov- ago the PRC was largely rural, and the nation’s goal was to estab- erage to a signifi cant portion of the population and industries in their lish a strong industrial base around which the cities grew in a tightly service areas, and with adequate levels of treatment to achieve the controlled manner. As a result, most industries provide pre-treatment water-use goals for the receiving waters. followed by discharge to public sewers, but in many cases the central-

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 174 Water Market Asia - China

Chart 4.2: Daily organic water pollutant emissions / 1000 people 1999-2004 (kg) 10.00

8.00

6.00 5.18 4.89 4.75 4.53 4.38 4.24 4.00

2.00

0.00 1999 2000 2001 2002 2003 2004

China Dev eloping Asia (mean) High Income Asia (mean)

Chart 4.3: Wastewater targets Chart 4.4: Industrial and living wastewater discharged (1990-2002)

100% 240 100% 90% Industrial w astew ater 80% 230 60% 80% discharged 60% 45% 220 70% 40% 210 60% Living w astew ater 40% 50% discharged 200 40% 20% 43% 40%

29% 100 million tons- 190 30% Percentage of industrial 20% w astew ater up to the 0% 180 10% discharge standards Large cities Medium National 170 0% cities av erage 1990 1995 2000 2001 2002

Actual (2003) Target 10th Plan ized municipal WWTPs are not yet in place or do not intercept all the ammonia production (GB13458-92), iron and steel (GB13456-92), wastewater generated within their potential service areas. ordnance manufacture (GB14470-93), phosphate fertilizer (GB15580- 95), and caustic alkali and polyvinyl chloride (GB15581-95). Wastewater Ef uent Standards and Their Application In the integrated industrial wastewater discharge standard, the COD/ The pollutants of concern in urban wastewater include the BOD (bio- SS/BOD limits of 500-1000/400/300-600 mg/l are relatively high com- chemical oxygen demand) and SS (suspended solids) found in do- pared to the limits for discharges to receiving waters. In the industry- mestic/commercial/institutional wastewater. Additional pollutants are specifi c standards, maximum concentration limits are relatively strict. of concern in various types of industrial wastewaters, such as heavy For example, wastewater concentration limits for offshore petroleum metals, toxics, carcinogens, acids or alkalis, and/or chemicals that in- development are 200/200/100 mg/l for COD/SS/BOD. terfere with biological treatment in a municipal WWTP. The industrial upper limits of 1000/400/600 on COD/SS/BOD to a mu- In the absence of a municipal WWTP, the local EPBs have the au- nicipal WWTP can almost always be accommodated in the design of thority to monitor and enforce industrial effl uent standards, including the municipal plant, particularly when the quality after pre-treatment the imposition of fees on the pollutant loads that are in excess of the is considered. standards. For pollution parameters in common to both industrial and municipal wastewater, the relevant standards for both treated effl uent In practice, industries which pre-treat to meet the sewer discharge and stream water quality are summarized in Table 2. standards produce an effl uent that is relatively weak compared to the standard; in the case study cities, the major industrial dischargers typi- The integrated Wastewater Discharge Standard (GB8978-1996) is- cally produce an effl uent COD in the range of 100-150 mg/l. sued by the central government stipulates maximum wastewater concentration limits for the majority of industries. The current regulatory approach to controlling urban wastewater treatment provides a practical fi rst approximation toward minimizing the The same standard applied to municipal WWTPs until recently, when overall cost of water pollution control. For any single pollutant such the Standard GB 18918-2002 (effective after July 1, 2003) was issued; as BOD, a theoretical analysis could be conducted to minimize the the new municipal standards include quality criteria for the effl uent, overall cost of industrial pre-treatment and municipal treatment for a and also air emissions and sludge intended for agricultural reuse. given city. In addition, specifi c standards are enforced for several industrial High concentrations of a pollutant can be removed most economically sectors: pulp and paper (GB3544-92), shipbuilding (GB 3552-83, at the industrial source, balanced by the fact that a municipal WWTP GB4286-84), offshore petroleum development (GB4914-85), dyeing provides economy of scale compared to numerous small industrial and fi nishing of textiles (GB4287-92), meat packing (GB13457-92),

175 Water Market Asia - China treatment plants, and a synergistic mixture of wastewaters that is or a recognized necessity in the larger and more prosperous cities, more likely to achieve the low effl uent concentrations suitable for dis- where construction has been undertaken on wastewater interceptors charge to receiving waters. and municipal wastewater treatment plants. Major complications in cost minimization for a single parameter arise As a result of tightly controlled and high-density urban housing devel- from two factors: the mixture of pollutants found in the wastewater for opment, programs to establish house sewer connections are seldom a given industrial sector or factory, and the variety of industrial pro- needed in PRC cities, which are relatively free of the squatter housing cesses found in large PRC factories. in peri-urban areas seen in other developing countries. For the wastewater from a given industrial process, there will typically In the diminishing portions of the oldest village-style housing within the be a key pollutant that determines the wastewater process selection cities, careful attention has been given to the public health impacts of and cost; rather than BOD, it might be an acid, heavy metal, or an- sewage and excreta disposal. other pollutant. Removal of the key pollutant may result in essentially Public toilets and bathhouses are generally provided, and the tradi- complete removal of the pollutant targeted for cost minimization. tional PRC system of night-soil collection and disposal continues to be Many factories in the PRC contain diverse types of industrial activities; provided as a public service to the remainder of the population. a steel mill may also produce coke, electricity, and chemical by-prod- The existing septic tanks serving apartment blocks do not provide ucts as required historically to achieve stand-alone operation. any signifi cant degree of wastewater treatment, and are generally not Each manufacturing process within a factory may have its own waste- serviced unless blockages or other problems arise. After municipal water treatment requirement, and the treated effl uents are recycled for WWTPs are built and operational, the septic tanks can be abandoned use among the manufacturing processes. in place and bypasses installed. For example, in Taiyuan (Shanxi province), water is recycled an aver- The older portions of urban areas are often served by combined sewage of seven times before discharge; in Xuanhua (an urban district of ers, while the newer developed areas are served by separate sanitary the city of Zhangjiakou), a steel mill contains 19 pre-treatment plants sewers and storm drains. Infi ltration of groundwater is a signifi cant scattered over half of the urban area. problem in Wuhan, Suzhou and other cities where groundwater levels are higher than the sewer inverts, and little attention has been paid to Such complications can be handled best by a separation of deci- providing tight joints on sewer pipes and repair of cracked manholes. sion-making between the industry and municipality. A suitable tariff structure for the municipal WWTP, that refl ects the relevant prices by After initial installation of interceptors and WWTPs, a period of years unit volume and by unit of pollutant load, can guide each industry in for extensive sewer rehabilitation may be required to bring groundwa- minimizing its total costs (for both pre-treatment and municipal treat- ter infi ltration under control. However, combined sewer overfl ows (as ment), and lead toward a global least-cost solution for the service area distinct from groundwater infi ltration) should have a relatively small as a whole. impact on the capacity and operating costs of wastewater treatment plants. However, several issues must be resolved before this becomes possible: Based on analysis of highly-detailed rainfall data and detailed com- puter modelling of runoff in Bangkok, the accumulated period of over- - The MWWC (municipal wastewater company) must be allowed the fl ows in a typical PRC city should be less than about 100 hours per fl exibility to set or negotiate prices and service conditions with indus- year, and the volume of storm water treated should be less than 3% of tries, and to grant waivers to the existing limits on such parameters the wastewater volume. as BOD and SS. Ultimately, protection of water quality in urban waterways may require - A higher level of trust and adherence to the terms of contract agree- sewer separation, but the immediate need is to intercept and treat the ments is also required. For example, the industry’s own effl uent moni- wastewater. Based on the studies in Bangkok, more than 99% of the toring reports (hourly or daily) should be accepted as a basis for mu- wastewater can be intercepted and less than 1% will overfl ow to the nicipal wastewater charges, while the infrequent (monthly or quarterly) waterways. EPB or MWWC sampling results should be considered as an audit rather than as the basis for charging. In the USA and UK, self-moni- Stormwater Drainage toring by industries and municipal WWTPs is the norm, with criminal Some of the WWCs also have responsibility for storm water drainage, penalties for falsifi cation or hiding of violations. but in most cities this is a small expense that is separately funded by - Only the industrial fl ows and loads large enough to affect the opera- the Municipality or other agency. Among the case study cities of Tang- tion or effl uent quality of the municipal WWTP should be monitored, shan and Chongqing, funds are provided by the Municipality to meet and pretreatment requirements should be applied to only the major the O&M costs of stormwater handling. dischargers. For example, a cutoff limit of about 200 m3/day could be The Changzhou wastewater management department operates fl ood used to minimize the administrative burden while providing a practical control pump stations and receives funds to meet operations and level of protection for the municipal WWTP. maintenance from another Changzhou Municipal government agency Municipal Wastewater Collection and Interception Infi ltration of groundwater into the wastewater system is a problem during start-up of treatment systems in coastal or low-lying cities, but The PRC has made signifi cant progress over the last 50 years, in is seldom a problem in water scarce northern PRC where the ground- transforming a largely agrarian country of villages into a heavily in- water levels have been drawn down by over-abstraction. dustrialized economy centred on large cities. Urban growth has been tightly controlled, and closely tied to development of industry within Flat coastal cities such as Shanghai and Tianjin have reduced infi ltra- the cities. tion to acceptable levels by selection of appropriate sewer pipe joints and materials for many years now, and suitable allowances can be Urban housing and infrastructure have been developed by state predicted accurately in design of sewers and treatment plants. owned enterprises and public agencies, in accordance with national norms and planning guidelines (covering such items as housing den- As a result, the primary cost element in completing a municipal waste- sity, per capita water supply allowances and provision of septic tanks water system is for the WWTP itself, while the cost of interceptors and for on-site treatment of wastewater from apartment buildings). trunk sewers is often less than the treatment cost. In the early stages of urbanization, effl uent from on-site septic tanks The high-density urban development also provides a relatively low per was routed through a local separate sewer system to the nearest capita cost for interception of wastewater. drainage ditch or stream, in order to remove wastewater from the immediate vicinity of high-density urban development (at 150 to 200 Policy Implementation persons/hectare in many cities, with up to 600 persons/hectare seen The slow pace of implementation of policies, laws and regulations in Shanghai and Tianjin). at the local government level is partly due to the speed with which economic and structural reforms are moving ahead in China. Local Gradually, municipal wastewater facilities have become affordable governments may fi nd it diffi cult to keep up and so the implementation

Opportunities in the Water & Wastewater Sectors in Asia & the Pacifi c 176 Water Market Asia - China of reforms at the local level is often resisted and justifi ed as a result of Political considerations are demonstrated by the Beijing Govern- “local circumstances”. To deal with this problem, the central government’s July 2004 decision to bring down planned tariff increases and ment is now using a gradual approach, establishing a limited number to postpone their implementation. In all cases, tariffs are likely to be of demonstration city implementations which function as role models increased incrementally over the course of several years to ease the for other cities to follow. burden on consumers. In May 2004, Xie Zhenhua, Minister of the State Environmental Pro- How far tariffs will rise is another question. Beijing and Tianjin, well tection Administration (SEPA) noted that implementation targets were ahead of most other cities, have tariffs at cost recovery levels. How- not being met: “Urban discharge of sewage has been increasing ever, Beijing offi cials have pledged to raise tariffs further, from the cur- rapidly, but the construction of treatment plants lags far behind.” He rent level of RMB3.7 to RMB6 in the coming years. Shanghai, on the confi rmed that, “Local governments should launch the planned proj- other hand, a city usually at the forefront in implementing economic ects by 2005 and seek funds for the projects. Local fees for sewage reforms, still has tariffs of RMB1.7 for domestic users and RMB2 for treatment should be raised so that the cost of building and operating industries. treatment plants can be covered.” Reforms are not confi ned to the rich coastal provinces. In 2003, the One large hurdle in implementation has been the fi nancial situations city of Urumqi, in Xinjiang, increased its water tariff from RMB0.7/m3 of some municipalities. In some cases, they do not have enough to RMB1.2/m3 and the wastewater treatment fee to RMB0.15/m3 to money to run the wastewater plants that have been constructed. Ac- RMB0.3/m3. The city also imposed a water resource fee of RMB0.03/ cording to a recent SEPA report, only half the sewage plants that had m3. The overall increase amounts to just below 100%. been built are actually functional, while the remainder were not in use The central government has affi rmed that tariff increases should go because local authorities considered the costs of operation to be too much further. In May 2004, a spokesman for the Ministry of Construc- high. Many more are operating under capacity to reduce operating tion announced that the water price was still lower than it should be losses. and was failing to encourage people to cut back on their use. Reforms This highly ineffi cient system could be partly rectifi ed through the im- to the structure of tariffs are just beginning. Cities were meant to have plementation of wastewater tariff increases, also a part of the central introduced a progressive pricing system by the end of 2003 but in government’s strategy. However, the roll-out of tariff reforms is taking fact few had done so by this deadline. Beijing Municipality introduced place slowly. progressive pricing in August 2004. Implementation of the national water tariff guidelines will take time. On the wastewater side, charges are gradually being introduced. Of Starting from a very low base – in some areas as low as RMB 0.6 per the 660 cities in China, 325 were charging for sewage treatment in cubic metre, as in some counties of Shandong province – it is political- 2003. However, charges are generally below cost recovery levels and ly and socially diffi cult to raise tariffs quickly. Utility pricing is inevitably cities continue to modify wastewater charges without having full re- a politically sensitive issue, despite the small proportion of the aver- gard to cost recovery or fi nancial sustainability of the service. age household budget that goes on water. On average, consumers For example, the charge for waste water treatment was recently set spend less than 1% of income on water and sewage tariffs, well below at RMB0.2 (US$0.25) per cubic meter by local government in Quan- the 5% that the ADB considers the benchmark for affordability. zhou City in Fujian Province, in coastal China, while the cost is about

Chart 4.6: Wastewater discharge and treatment ratio by urban area type (2003)

40 0.5 33.8 0.46 35 0.43 0.4 0.4 30 0.33 25 19 0.3 0.29 0.3 20 0.24 15 10.6 0.2 6.3 6.4 5.9 10 4.1 0.1 5 0 0 National East China Central West China First-tier Medium-size Small Cities Total China Cities Cities

Annual w astew ater discharged (bn tons) Treatment Ratio

Chart 4.5: Wastew ater treatment capacity (1996-2002) Chart 4.7: Total Wastew ater Discharged (1999-2002)

240 45,000 43,900 44,000 43,300 230 43,000 41,500 220 42,000 210 41,000 40,100

200 million tons 40,000

Million ton/day Million 39,000 190 38,000 180 1999 2000 2001 2002 1996 1997 1998 1999 2000 2001 2002

177 Water Market Asia - China

RMB0.9 (US$0.11) per cubic metre. Nevertheless, the former pollu- ing funds; for example, by selling or leasing commercial and residen- tion discharge fees are being gradually replaced by direct wastewater tial land plots to raise funds for WWTP development. tariffs to fund wastewater service delivery and servicing of loans. Private sector intervention is a relatively new and unknown phenom- Failure to meet targets enon in the wastewater sector; the private sector has been involved in few of the key investment, manufacture, management, operation China consistently misses its emissions and discharge targets. Urban or maintenance functions. However, this situation will almost certainly discharge of wastewater has been growing rapidly, while the imple- change in the coming years. mentation of investment programmes for the construction of wastewater plants is well behind schedule. Planned investments SEPA recently announced that the construction of some 700 major The most recent plans for environmental protection are very ambi- projects aimed at cutting water pollution nationwide, half the total tious. China is expected to spend US$84 billion (1.2% of GDP) on planned by the central government for the 2001-2005 period, had yet environmental protection to meet the goals of the Tenth Five Year Plan to begin construction by the end of 2003. The Agency also found that (2001-2005). During this fi ve year period, the central government is only one third of the money targeted for pollution control in rivers and expected to make 11.4% (US$9.7 billion) of the investment, while 34% lakes during the 10th Five Year Plan had actually been spent. will come from provincial and local governments and the remaining 55% from private enterprises. Beijing alone is projected to spend at At the same time, regulations are poorly enforced: during a recent least US$5.4 billion on environmental clean-up in preparation for the provincial inspection, SEPA found that over 30% of factories inspected 2008 Olympics. were polluting illegally. Some progress in reducing water pollution is being made. In the past six years, more than 70,000 state enterprises, The proposed projects have not all been implemented, however. In including chemical plants, steel-makers, and cement producers, have the summer of 2004, Minsiter Xie Zhenhua, head of the State Envi- been closed down. ronmental Protection Administration (SEPA), warned that water pollution control goals for the Tenth Five Year Plan in major river regions However, although pollution in big state-controlled factories is begin- were far from being reached. Of the 2,418 water pollution control ning to be addressed, smaller, less easily regulated private enterprises projects designed for China’s major river regions, only 777 had been are now causing environmental headaches. This includes everything completed and 673 were under way. The remaining 40% had not been from unregulated coal mines across the country and highly polluting launched at all. paper mills, tanneries and dye plants along the Huai River in Anhui Province, one of China’s water pollution black-spots. As of May 2004, about RMB64.5 billion (US$7.8 billion) has been invested in the projects (RMB14.7 billion - US$1.7 billion - from the cen- Improving the Policy Framework tral government and RMB49.8 billion - US$6 billion - from local gov- China has made strides in strengthening the legal and institutional ernments), while the total planned investment stands at RMB192.6 environment but much remains to be done. One pressing problem is billion (US$23.0 billion). poor coordination in the enforcement of water pollution laws. There The amount of chemical oxygen demand (COD)-related pollutants dis- is no institution with sole responsibility for the water supply and man- charged into three major rivers in China, including the Huaihe River in agement system, including discharges. Thus, violation of wastewater Central China, Haihe River in North China and Liaohe River in North- treatment regulations by PRC industries is widespread. Private waste- East China, has been cut by only about one fi fth of the planned sum, water treatment facilities in China operate amidst numerous regula- according to fi gures released recently by SEPA. The total amount of tory inadequacies. ammonia and nitrogen, other major water pollutants, has not been In the current framework, industries have to pay effl uent discharge reduced as planned, and some provinces had reported increase in the fees to their local EPBs which are used to fund local pollution control amount of those pollutants. programmes and the body’s administrative costs. Private wastewater SEPA is trying, albeit with limited success, to have local governments service providers then fi nd it diffi cult to collect additional fees from launch planned projects, seek funds and raise local fees for sewage these industries for their treatment services. As local authorities do treatment to achieve cost recovery by 2005. Despite recent advances not always enforce emissions standards vigorously, new wastewater in China’s environmental policies, SEPA still lacks the resources and facilities may face low demand for their services. At the same time, the political clout to do its job effectively. wastewater treatment plant operators, like industrial polluters, have to pay effl uent discharge fees to the EPB. It is regularly trumped by more powerful ministries in environmental disputes, and even when it does take action, it is muzzled by regula- III.2 Financing tions that mandate fi nes generally far lower than the cost of reduc- Wastewater facility funding is from municipal sources, often supported ing pollution, leaving little incentive for compliance. In addition, SEPA by national level government fi nance or international multilateral, bi- lacks the authority to close down polluting enterprises without co-op- lateral and private sector sources of fi nance. Municipal sources are eration from local authorities, who are keen to protect local business. principally from the regular capital investment budgets of municipali- III.3 Private Sector Particiption ties, wastewater tariffs, Environment Funds, and loans provided by local banks. Wastewater PSP is the next big thing in China. Since 1997, national government has also provided signifi cant fi nanc- While existing projects have mostly been treatment facilities, with a ing for the wastewater sector, in line with a policy to fund public works clear dominance of water projects over wastewater ones, this is set to projects in order to stimulate economic growth. Cumulative investment change (see charts 5.3 & 5.4). in wastewater facilities funded through government defi cit spending Investment in the water sector has been encouraged by signifi cant has now risen to approximately RMB10 billion. increases in water tariffs since 2000, in contrast to the wastewater The lending programs of both ADB and the World Bank include many sector which remains very heavily subsidised. This led to a strong wastewater treatment projects, often with enabling sewerage compo- preference for water treatment plants among investors, especially for- nents. Bilateral lenders, especially Japan, Australia, and some Euro- eign ones. pean countries, have also been active in helping to fi nance WWTPs Wastewater needs are gigantic and mostly unanswered. The realisa- – often on an “aid for trade” basis. tion that cost-recovery was necessary for any kind of investment to be There is, however, no dedicated and long-term mechanism of nation- sustainable has led Chinese authorities to push hard for wastewater al-level funding for wastewater facilities; rather, resources tend to be charges that would make a minimum of economic sense. Certain for- made available when economic conditions are conducive to increased eign players like Veolia have already taken the plunge into municipal public spending. Municipalities cannot rely with certainty on national wastewater, followed by others. funding and must take the lead in preparing fi nancing plans for their Chinese developers have invested in more wastewater than water WWTP projects. projects, partly because they are later entrants in the market, and As a result, municipalities have become quite resourceful in generat- partly because they do not require the rates of return that international

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 178 Water Market Asia - China

Chart 5.1: Number of private projects by province (1992-2005)

0 Jilin Hebei Anhui Hubei Fujian Henan Tianjin Hunan Beijing Jiangxi Hunan Yunnan Jiangsu Xinjiang Shaanxi Sichuan Guiyang Liaoning Guizhou Zhejiang Shanghai Shandong Chongqing Chongqing Guangdong Hainan Dao Heilongjiang Inner Mongolia

wastewater water

Chart 5.2: Number of private water and sanitation projects (1992-2004)

0 1992 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Chart 5.3: Signed PSP projects by sector Chart 5.4: Announced PSP projects by sector (1992-2005) (2004-2005)

wastewater 34% water 45% wastewater 55%

water 66%

179 Water Market Asia - China investors do (see charts 5.5 & 5.6). solete techniques and polluting companies. Urban discharge of sewage has also been increasing rapidly, while the construction of treat- III.4 Tariffs ment plants remains behind schedule. Wastewater tariff policy is guided by the Law on Prevention and Con- According to SEPA, the several hundred state-funded WWTPs built trol of Water Pollution (Revised 1996). It establishes the legal basis during the past decade remain idle for lack of sewerage collection pipe for wastewater tariffs for domestic, commercial and industrial users of networks, or are operating under capacity to reduce operating losses. municipal wastewater systems. In addition, a government regulation Furthermore, during a recent provincial inspection, SEPA found that jointly developed by SEPA, MOC and SDPC (Circular 1192, Septem- over 30% of factories inspected were polluting illegally. ber 1999) stipulates the use of a volume-based tariff, to be set at levels that will achieve cost recovery from user-charges. The guidance In the past six years, more than 70,000 state enterprises, including given within this Circular has not been fully implemented however, chemical plants, steelmakers, and cement producers, have been and cities continue to modify wastewater-charges without having full closed down. To replace them, China is encouraging light industry regard to cost recovery or fi nancial sustainability of the service. start-ups in areas like electronics and telecommunications. Nevertheless, the former pollution discharge fees are being gradually Although pollution in big state-controlled factories is beginning to be replaced by direct wastewater tariffs to fund wastewater service deliv- addressed, smaller, less easily regulated private enterprises are still ery and servicing of loans. By the end of 2003, approximately 325 of the cause of environmental degradation. That includes everything from the 660 cities in PRC had introduced wastewater tariffs. unregulated coal mines spread across mainland China, to paper mills and dye plants along the fl ood-prone Huai River in Anhui Province. Central government regulations specify that cities are meant to replace discharge fees with sewage tariffs, raise tariffs to a cost recov- SEPA announced in mid-2004 that private investment in sewage and ery level and charge water and wastewater fees jointly to achieve water treatment plants may receive tax breaks and preferential treat- higher collection rates. ment in terms of land allocation electricity and credit guarantees. The agency is also working on formulating standards for construction, op- However, implementation has fallen behind. In some places, where eration and technology for the industry. water tariffs started at levels as low as RMB0.6 (Shandong Province), and no wastewater tariff was charged at all, it will inevitably take time The key areas targeted by the latest Five Year Plan are home to 62% to reach cost recovery pricing. Some cities, like Beijing and Tianjin, of the country’s population and account for 75% of the country’s GDP. have already achieved cost recovery levels and intend to go further. Economists estimate that the fi nancial cost of environmental damage Beijing is committed to raising the tariffs from their current level of to China’s physical and human resource base could be as high as 7% RMB3.6 to RMB6. of gross domestic product every year. Another good example of dramatic increases is the city of Urumqi, IV. Environment and Legal Aspects in Xinjiang. In 2003, it increased its water tariff from RNB0.7/m3 to RNB1.2/m3 and the wastewater treatment fee to RNB0.15/m3 to IV.1 Water and Wastewater Fundamentals RNB0.3/m3. The city also imposed a water resource fee of RNB0.03/ Water Resources m3. The overall increase amounts to just below 100%. Veolia is look- Continued investment has led to a dramatic increase in urban water ing at investing in a wastewater project in this municipality. treatment capacity. Overall urban supply has been growing on aver- The central government wants tariffs increases to go much further: age at 2.8% yearly since 1996. Urban drinking water production ca- several key government fi gures in the Ministry of Construction and pacity has increased signifi cantly, while the proportion of the Chinese SEPA have publicly announced that implementation is falling behind population with access to tap water has been increasing dramatically and must be addressed. to reach 78% in 2002. III.5 Regulation However, China is still listed as one of 13 countries facing the worst water shortages in the world by the United Nations, with average The most pressing regulatory problem is the lack of a legal framework water resources of 2,350 cubic metres per capita. This constraint is governing water rights. There is no institution with sole responsibility made worse by the extremely uneven pattern of water resource dis- for the water supply and management system, including enforcement tribution. of water pollution laws. Thus, violation of wastewater treatment regulations by PRC industries is widespread. About 80% of the total volume of water in the country is located in the Yangtze River and the Southern part of China, while half of the popu- Private wastewater treatment facilities in China operate amidst nu- lation and 65% of the land are in the North. Government fi gures show merous regulatory inadequacies. For example, industries must pay that more than 300 Chinese cities are short of water, with over 100 of local Environment Protection Bureaus (EPBs) fees based on their ef- them facing a serious shortage. fl uent discharge levels. There are 71 severe water shortage cities located in the North and 43 The EPBs use these fees to fund pollution control programs and their in the South. In the North, the water shortage is mainly the result of own administration. Private-sector wastewater service providers then the lack of water resources: the water requirement of socio-economic fi nd it diffi cult to collect additional funds from these industries for treat- development exceeds the capacity of water supply. ment services. Meanwhile, the wastewater treatment plant operators, like industrial polluters, are themselves subject to effl uent discharge Water is particularly scarce in the so-called “3-H” catchment areas of fees. the Huai, Huang, and Hai rivers, where about 35% of national GDP is produced. Water is already heavily over-exploited in Beijing, Tianjin, Central government guidance on cost recovery has not been fully and provinces such as Hebei and Shandong. To alleviate this, water is implemented and cities continue to modify wastewater-charges with- now regularly transferred from other river basins. out full regard for cost recovery considerations or the fi nancial sustainability of the service. Nevertheless, the former pollution discharge The most severe shortages occur in cities such as Dalian, Changchun, fees are being gradually replaced by direct wastewater tariffs to fund Qinghuangdao, Beijing, Tianjin. Taiyuan, Xian, Datong, Qindao, Jinan, wastewater service delivery and servicing of loans for sector develop- Yantai, Weihai and Zibo. (See Section VIII: Market Fundamentals). ment. Although water transfer projects are currently operating in Dalian, Qin- Of the 660 cities in China, only 325 were charging for sewage treat- ghuangdao, Tainjin and Xian, water stress in these cities is still severe. ment in 2003, albeit often at below cost recovery levels. As an exam- Water shortage has become a crucial constraint for the economic de- ple, the charge for waste water treatment was recently set at RMB0.2 velopment of these areas. per cubic meter by local government in Quanzhou City in Fujian Prov- In the South, water shortages are mostly the result of water pollution ince, in East China, while the cost of providing the service is about and insuffi cient water treatment investment and facilities. More spe- RMB0.9 per cubic meter. cifi cally, shortages are mainly caused by inadequate facilities for stor- SEPA blames the current situation on local governments’ pursuit of age, transportation and the public water supply, and contamination economic growth, insuffi cient investment and failure to phase out ob- of water bodies. Water-short cities include Shanghai, Suzhou, Wuxi,

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 180 Water Market Asia - China

Chart 5.5: Private Wastewater investors by origin Chart 5.6: Private Water investors by origin (1992-2005) (1992-2005)

HK HK western 6% Western 19% 20% 29%

Regional 16% PRC PRC Regional 32% 58% 20%

Ningbo, Wenzhou, Guangzhou, Xiamen, Dongguan and Zhongshan. from the diversion may still pursue desalination, albeit at the municipal For example, the severe water contamination in Huangpujiang, an es- level. Water re-use is also a new focus for the government. Cities are tuary of the Yangtze River, is the cause of the water crisis in Shanghai, being encouraged to reuse wastewater. while the same problem of pollution in the Taihu Lake affects the city Overall, the responses of the Chinese government to the challenge of Suzhou. of water shortages have been slower and less well coordinated than Shortages in urban areas have also led to the unsustainable extrac- steps taken to control water pollution. However, these dual challenges tion of groundwater: the exploitation rate of shallow groundwater on constitute opportunities for the private sector to develop technologies China’s plains is 100%. This has led to land subsidence and other and construct and manage facilities. associated problems, particularly in Shanghai. Water Resources Policy A water resource fee was introduced in 1988 in the Water Law, which Water resources management has traditionally focused on water allo- is meant to be charged for the direct extraction of urban groundwa- cation, and the construction of water projects for irrigation, hydropow- ter, but it is not levied in most provinces. On the other hand, some er, and fl ood control. More recently PRC Government has recognized provinces and municipalities have begun to set restrictions and even the need for broader management strategies, including the need to to forbid extraction and to replenish underground water from surface enhance and protect the water environment. Elements include: water diversions. Jiangsu Province, and the cities of Suzhou, Wuxi and Changzhou in Eastern China region have begun phasing out ex- - Water conservation through legislation, policy and practice; traction of underground water but implementation is patchy. - Wastewater treatment to improve the urban environment, protect In other places, municipal governments have been reluctant to impose water resources, and reduce the need for investment in water sup- bans on wells in cities, even where such a ban is specifi ed in a con- ply; and tract between the government and a private water supplier. - The optimal allocation and effi cient use of surface water, groundwa- Redistribution is a further element in the government strategy to deal ter, rainwater, seawater, and recycled water. with shortages. There are a number of active redistribution projects There is a recognized need to move to a more integrated approach of including projects diverting water from the Yellow River into the Hai overall water resource management. Some PRC cities, led initially by River Basin, from the Yangtze River and the Yellow River into the Huai Shanghai, have created an integrated Water Authority or Water Bu- River Basin, from the Yellow River into Shandong Peninsula, and from reau that has responsibility for water resources development, urban the Yellow River into inland rivers in the Hexi area of Gansu Prov- water supply, urban drainage and urban wastewater treatment. ince. Creation of this type of Water Bureau refl ects the growing recognition The largest trans-basin diversion project is the South-North water that water resources must be managed in a more coordinated and diversion project which will divert a large amount of water from the integrated fashion. Yangtze River to the North of China. In 2004, Prime Minister Wen Jia- bao announced that construction work had begun on the Eastern and China’s newly adopted ideas on water resources management and central routes and that the work timetable was being accelerated. allocation give priority to domestic water use. The government introduced water conservation targets and principles in the Tenth Five Year The impact and value of diversion projects have not always been Plan in 2001. It was at this time that the government began to coordi- well thought through. Economically sound water diversions should be nate the use of water resources with pollutant discharge control and based upon making full use of the local water resources potential of water quality monitoring. The concept of integrated water resource the receiving area but in the past, diversions have increased supply management was brought in as a result. Since then, Water Affairs Bu- without improving the effi ciency of water use in the receiving area. A reaus have been set up in several cities including Beijing, Shenzhen, further consideration is the quality of the diverted water. Tianjin City Shanghai and Wuhan to ensure coordinated management of water recently refused to accept and use diverted water from the eastern resources. line of the water diversion project because it was concerned over pollution along the diversion route. Water Resources Commissions have been set up for each of the seven major rivers under the Water Resources Ministry, although these The government is encouraging more effi cient use of water as there have limited power to deal with vested interests. is plenty of scope to raise water-use effi ciency in industry and domestically. On average, 91m3 of water is used for every RMB10,000 of Recent shortages have also raised questions about how the available industrial production, ten times the average for industrialised nations. water should be allocated between different uses. The government The main strategy adopted by the government is to support tariff in- has taken steps on this front to sort out the competing claims of differ- creases and to penalise high volume consumers. ent regions and user groups, fi rstly by water zoning (classifying water resources according to user groups) and then allowing entities to con- The government appears to have rejected the possibility of large-scale tract with each other to buy and sell water. investment in desalination technologies as an alternative source of water for the coastal cities of China’s North-East. It apparently views The fi rst transaction between separate entities was the sale of 50 mil- the South-North diversion as a more satisfactory approach to deal- lion cubic metres between two cities in Zhejiang Province in 2000. ing with shortages. However, local governments that will not benefi t Since then, a number of transactions of this kind have been agreed

181 Water Market Asia - China between municipalities or other entities. The Ministry of Finance (MOF) is in charge of all fees. The State Envi- ronmental Protection Administration (SEPA) is responsible for waste- IV.2 Laws and Institutions water control and fees. In the PRC, urban water supply and water tariffs are administered by The Ministry of Water Resources (MOWR) is the administrative de- agencies that function within a single hierarchical government system partment for water resources. The respective bureaus of the city gov- extending from the central government down to city or town govern- ernments at a county level or above have the same mandate as these ments. Four primary tiers within this hierarchy are the state, the prov- ministries within their administrative regions. ince, the city and the county or district. The People’s Congress and its executive body, the State Council, op- National Ministries and Agencies erate at the state level. One level down are ministries and commissions A consolidated environmental management system operates accord- of the State Council, the provincial governments, the autonomous re- ing to the scope of duties of the ministries as determined by the State gion governments, and the governments of municipality cities. Council. Cities at the prefecture level are under the direct jurisdiction of provin- The State Environmental Protection Administration (SEPA) supervises cial governments. Vice provincial cities within the provinces operate environmental protection and pollution control nationwide. The Minis- at a level above the prefecture but below the province. County level try of Construction (MOC) is responsible for the management of ur- cities within each prefecture are under the jurisdiction of the prefecture ban water supply, drainage, and wastewater treatment in accordance cities. with regulations issued by SEPA, by the Ministry of Water Resources (MOWR) for water conservation, and by the Ministry of Health (MOH) Within the Central Government, the Ministry of Construction (MOC) for drinking water quality. and the State Development and Reform Commission (SDRC) are responsible for the administration of water supply and water tariffs. Thus the MOC is the core Ministry with responsibility for urban wastewater management, in accordance with environmental objectives, The MOC is responsible for national policies and programs relating targets and criteria laid down by SEPA. MOC’s Urban Construction to urban water supply. Construction commissions of the provinces department is the key department within the Ministry. and autonomous regions are in charge of water supply within their regions. The Water Division is responsible for the national supervision and management of urban water supply, water conservation, and waste- Water supply administrative agencies of city governments at a county water treatment. level or above are responsible for water supply within their administrative regions. The State Development and Reform Commission (SDRC), also has two very important roles. The State Development and Reform Commission (SDRC) is the price administration agency of the State Council and is in charge of general Firstly all major capital investment projects must be approved by price policies and national prices while other agencies of the State SDRC, which examines project feasibility, technical viability, and fi - Council are responsible for price management within their respective nancing before giving project approval. Subsequently upon project administrative departments. commissioning SDRC audits the project and confi rms implementation has taken place in accordance with the earlier approvals. Price bureaus or commissions are the price administration agencies of the provinces and autonomous regions and are responsible for The second very important role of SDRC is in relation to the adminis- prices within their administrative regions. tration of the PRC’s Pricing Law. Basically SDRC acts as the senior pricing regulator, although in practice most decisions are currently Price bureaus or commissions are the price administration agencies delegated to the Provincial or Municipal level and SDRC restricts it- of the city governments at a county level or above in charge of prices self to major pricing decisions of national signifi cance and providing that fall within the mandate of their departments. regulatory guidelines for local Governments to follow with respect to

Macau Water Services

Macau Macau SAR 25 -year Concession Total investment (USDm) 100.00

Sector 1 Water Sector 2 No data The Macao concession is a fl ag-ship for Suez operations in the Greater China region. Since 1985, the company has kept ahead of rising demand in the territory, driven by the development of the tourist industry and has extended services to newly reclaimed land. It deals directly with the Zhuhai authorities in Guangdong Province in PRC to secure raw water supplies. Tariffs have been increased with infl ation as specifi ed in the contract, but the period of stagnation in the Macao economy in the late 1990s meant that tariffs were stable for several years. The company has introduced automation processes, improved customer services and conducted a large meter replacement programme. Capital investment in 2005 was projected to rise to MOP60m (US$7.8m) from MOP45m in 2004. Post-tax profi t for the company in 2004 was MOP50.8m (US$6.5m) and should be up again in 2005 due to rapid growth in the territory’s tourist industry. NRW was reduced from 40% in 1985 to 13% in 2000. Water tariffs in real terms decreased by 20% over the same period.

Capacity Timeline

Distribution 500,000 pop Contract awarded 1985

Production 260,000 m3/d

Equity investor SUEZ (Ondeo) 42.50%

Equity investor New World Infrastructure 42.50%

Investment vehicle Sino-French Holdings 85.00%

Opportunities in the Water & Wastewater Sectors in Asia & the Pacifi c 182 Water Market Asia - China their pricing decisions. Similar Water Authorities have been set up in other large PRC cities, notably Wuhan and Harbin, whilst other large cities (including Beijing The Ministry of Finance, along with SDRC and MOC, plays a key role and Tianjin) continue to follow a more traditional structure of local gov- in the establishment of fi nancing and cost recovery strategies of the ernment. sector. Currently, the Chinese government directly funds roughly 70% of wa- Key Water & Wastewater Agencies ter supply and treatment costs, with the remainder paid for by effl uent State Development & Reform Commission (SDRC, formerly fees from industry and the public. SDPC) Local Government Arrangements Address: 38 Yuetannanjie, Xicheng District, Beijing, 100824 Telephone: (86-10) 68502114 As determined by the PRC Constitution, the government is divided Fax: (86-10)-68501090 -68502728, -68512929 into central and local levels, with the various departments and func- Web site: http://www.sdpc.gov.cn tions performed at local level supervised by the relevant Ministry at Minister: Zeng Peiyan the national level. Functions and responsibilities These supervisory arrangements have traditionally led to a replication of the different ministries at each of the relevant lower levels. For The SDPC reports directly to the State Council. For the water and urban management the relevant levels of Government are: Provinces wastewater sectors, SDRC’s responsibilities are to: (including Autonomous Regions, and the 4 directly-managed Munici- • propose objectives for national price level controls, palities); Municipalities (or Prefectures); Urban Districts; and Street • recommend macro-economic controls, Committees. • prepare annual, medium and long term plans for price adjustment and reform, The allocation of responsibilities between the different levels of gov- • formulate price regulations, ernment depends on the size of the city, but in all cases the municipal- • formulate plans to adjust the scope and method of price administra- level government is responsible for coordinating service delivery for tion by the State, both water supply and wastewater. • set prices of essential products and products supplied by monopo- In smaller or medium-sized cities almost all wastewater management lies, functions will be performed at the Municipal level. • set charge standards managed by the State Government, • direct local price agencies to relax the lower and upper limits of regu- In larger cities the Urban Districts will have a more prominent role lated prices when necessary, and and be responsible for local sewerage networks. Urban Districts that • organize and direct work for price reviews and price supervision. are physically detached from the main part of a city will often have After restructuring, the number of divisions and staff in SDPC were re- a greater degree of autonomy than Districts forming part of a city’s duced. The previous Price Bureau now is a price management depart- central area. ment of SDPC. There are several divisions under the price manage- In any given province, water resource management responsibilities ment department responsible for price regulation and supervision. are split among between at least four agencies: the Water Conser- Ministry of Construction (MOC) vancy, the Construction Commission, the Environmental Protection Bureau and the Public Health Bureau. Address: No. 9 Sanlihe Road, Beijing 100835 Tel: (86) 10 6839-4114 The Water Resource Management Committee coordinates the activi- Fax: (86) 10 6839-3333 ties of these agencies. Web site: http://www.cin.gov.cn The State Environmental Protection Bureau and local-level environ- Minister: Yu Zhengsheng mental protection bureaus (EPBs) are charged with monitoring and Vice Ministers: Liu Zhifeng, Song Chunhua, Zheng Yijun, Ye Rutang, maintaining environmental and water quality. Zhao Baojiang They set environmental and discharge standards, impose and collect Functions and responsibilities pollution charges, and enforce pollution laws. The MOC restructured a number of divisions of the Department of When they exist city wastewater unit depend from the local construc- Urban Construction in July 2000. An Urban Water Division and Urban tion commission. Transportation Division were established while the Policy and Regula- tion Division and Public Utilities Division were eliminated. The Urban These units run wastewater treatment facilities. Municipal sanitation Water Division is responsible for formulating regulations, guidelines, bureaus handle solid waste disposal. economic and technical policies, development strategies and plans The result of this institutional structure is that local-level government and reform methods. It also guides activity relating to urban water sup- water bureaus have the most say in water-sector decision making, ply, water conservation, urban wastewater collection and treatment, and lack of cooperation among these local groups often stalls invest- and groundwater utilization and protection in urban planning areas. ment plans. The Urban Water Division has three staff, which is an increase from the previous level of one staff for these duties. The fragmented division of authority also has resulted in poor man- As a result of the restructuring, the human resources and functions for agement of the water sector, and has slowed the development of an urban water administration have been strengthened. It is the fi rst time adequate regulatory framework to oversee the industry’s transition to that the administration of urban water, wastewater and water conser- a market-driven system. vation is under one division. The integrated management will improve At the provincial level, the duties of departments concerned with con- effi ciency and coordination. struction, environmental protection, water resources, and health are For the water and wastewater sector, MOC’s responsibilities are to: similar to those of their national-level counterparts. • Formulate principles, policies, regulations and relevant strategies, long term plans, and provide guidance for their implementation. The organization structures of the autonomous regions are similar to • Direct national, urban and township planning, and review and ap- those of the provinces. During the most recent re-organization of local prove urban master plans assigned by the state council. Government, some municipalities, led by Shanghai, have departed • Set national standards for construction and develop regulations for from the traditional replication of higher-level agencies within their tendering, survey, design and installation. Government structure. • Direct nationwide construction activities and regulate the construc- In Shanghai a Water Authority has been formed from departments and tion market. Formulate regulations and guidelines on survey, design units belonging formerly to the Water Resources Bureau, Public Utili- and construction. ties Bureau and the Engineering Administration Bureau. • Direct urban water supply and water conservation. Direct groundwater exploration and protection in the urban planning area. This new Water Bureau has been set up to achieve the benefi ts of • Direct national housing construction and housing system reform. Di- integrated water management at the local level.

183 Water Market Asia - China rect and regulate the real estate market. • Planning urban water use and use of water resource funds; • Formulate planning of science and technology development and • Overseeing the water-extraction permit system and fee collections policies of technology and economy for sectors under the administra- for water use; tion of MOC. • Recommending price, taxation, credit and fi nance policies to regu- • Set educational level for universities teaching in the construction late water resources; fi eld. • Directing national hydrological work; ensuring the safety of reser- • Administer foreign economic and technological cooperation activities voirs and dams; in the construction sector. Provide guidance for enterprises to enter • Examining feasibility studies for major water construction projects; into foreign markets. • Formulating standards and procedures for such projects; • Administer human resources within its administrative jurisdiction. • Directing the management of water facilities, water surfaces and • Undertake other work assigned by the State Council. coastlines; • Previous MOC responsibilities no longer in its current administrative • Directing the development of large rivers and lakes; scope include: (i) groundwater resources management in the urban • Directing rural electrifi cation through hydropower; planning area and (ii) urban fl ood prevention. Some of MOC’s respon- • Limiting sewage discharge into drinking-water resources; sibilities were transferred to the municipal governments such as de- • Monitoring the quantity and quality of water resources and determin- tailed urban water planning and conservation. ing the pollution absorption capacities; • Within the MOC, the Department of Urban Construction is respon- • Organizing national and rural water and soil conservation work; sible for the overall administration of activities pertaining to national • Running the State Anti-Flood and Anti-Drought Command Head- urban development, construction and management. Its main respon- quarters. sibilities associated with water are to formulate urban infrastructure development strategies including medium and long term plans, de- State Environmental Protection Agency (SEPA) velop public utility policies, and direct national urban public works and Director, Waste Division of Pollution Control Department: Peng Defu environmental sanitation programs. Department of Planning Finance: Liu Chunyan Department of International Cooperation: Zhang Mengheng Ministry of Water Resources (MOWR) Responsibilities of SEPA Address: No. 2 Ertiao, Baiguang Rd., Xuanwu district, Beijing 100761 Tel: (86-10) 6320-2114 • Ministerial-level national environmental regulatory body. Minister: Wang Sucheng • Formulate national policy, laws and administrative regulations for Vice Minister: Suo Lisheng the environmental impact assessment of major economic and technological policies, development plans and key economic development Functions and responsibilities plans. The MWR is directly responsible to the State Council. It is responsible • Formulate national environmental protection plans, national plans for for: pollution control and ecological conservation in key regions and river basins, and organise environmental zoning. • Drafting policies, strategies, plans, regulations and laws related to • Formulate and organise the enforcement of laws and regulations water resources; on the exploitation of natural resources including marine resources, • Overseeing drafting of national and regional long-term water supply and distribution plans; arbitrating regional and sector water disputes;

A Weak SEPA? The State Environmental Protection Administration (SEPA) has risen from an offi ce in the mid-1970s to an agency with the rank of ministry in 1998. At the provincial level, 27 out of 31 provinces have Environmental Protection Bureaus (EPBs) of fi rst tier rank, meaning that they report directly to the provincial government without being subservient to another bureau. At the city level, most cities have now had EPBs of fi rst tier rank for some time. At all three of these levels, EPBs are better staffed than they were at their inception. The dominant interest within the political system is economic growth and, therefore, government agencies that work toward this goal are the most powerful in local politics. This is most pressing at the county level where the majority of EPBs are seriously impeded in their work by insuffi cient bureaucratic rank. While 40% of county level EPBs are of fi rst tier rank, general institutional subservience to economic interests is apparent if one examines the fi nancial relationship between EPBs and local governments. Following a recent inspection, SEPA found that only one-third of the money targeted for pollution control on the river during the 10th Five-year Plan had actually been spent. Over 30% of factories inspected were found to be polluting illegally. What’s more, only half the sewage plants that had been built were actually functional, with the remainder shuttered because local authorities considered them too expensive to operate. These failures are not isolated events, however. SEPA admitted in May 2004 that many emissions-reduction schemes had fallen short of their targets, and that construction of some 700 major projects aimed at cutting water pollution nationwide, fully half the total planned by Beijing for the 2001-2005 period, had yet to begin construction by the end of last year. Despite recent advances in China’s environmental policies, SEPA still lacks the resources and political clout to do its job effectively. It is regularly trumped by more powerful ministries in environmental disputes, and even when it does take action, it is muzzled by regulations that mandate fi nes generally far lower than the cost of reducing emissions, inducing little incentive for compliance. In addition, SEPA lacks the authority to close polluters without co-operation from local authorities, who are keen to protect local business. Although EPBs receive policy guidance from central level SEPA directives, funding to support their staff comes largely from local governments. Local government authorities determine things such as annual salaries, funds for buildings, the number of automobiles necessary for the staff, and occasionally staff housing. It is local governments, therefore, that environmental agencies listen to, and not central policy mandates. EPBs receive funds from city governments and from discharge fees that they collect from polluting fi rms. However, neither is an abundant source of funding. In fact, local EPBs receive barely enough funds to run their offi ces. Only in rare cases will the central government provide funding for a local EPB. Not only is there limited funding for EPBs, but there is also limited funding throughout the environmental protection system. For example, wastewater treatment plant localities receive little or no provincial government funding to build a plant, and none to operate the plant. This explains why there are so few wastewater treatment plants in operation in China. It also explains why large industrial cities have had idle wastewater treatment plants for almost a decade: they simply have not found a way to generate enough funds for daily operation and maintenance of these plants.

Opportunities in the Water & Wastewater Sectors in Asia & the Pacifi c 184 Water Market Asia - China wetland conservation and desertifi cation, maintain and develop nature coordination of international environmental activities. reserves. • Negotiation of multilateral environmental agreements (MEAs); na- • Coordinate responses to and investigate causes of major environ- tional focal point for domestic implementation of MEAs, and coordina- mental problems and accidents involving different departments, locali- tor for foreign funded projects for the implementation of MEAs. ties, river basins and regions. • Mediate environmental disputes between provinces. Other Relevant Agencies • Coordinate river basin management at the national level. Ministry of Finance (MOF) • Monitor the enforcement of environmental laws and regulations at Address: 3 Nansangxiang, Sanlihe, Xicheng District, Beijing 100820 the national level. SEPA has the power to impose penalties on pollut- Tel: (86-10) 6855-1114/1118 ers who fail to meet standards. Fax: (86-10) -68551125 • Set national standards for environmental quality, pollutant emissions Web site: http://www.mof.gov.cn and discharges. In practice, these are decided by SEPA along with the Minister: Xiang Huaicheng Ministry of Construction and the SDRC. Vice ministers: Li Yanling, Lou Jiwei, Zhang Youcai, Jin Liqun, Gao • Compile and submit the national report on the state of the environ- Qiang ment, and release on a regular basis data on the environment quality of key cities and river basins. Functions and responsibilities • Examine and approve environmental impact assessments for devel- The MOF reports directly to the State Council. It is responsible for: opment and construction activities. • Drafting strategies, plans, laws, regulations and reforms on fi nance, • Supervise urban and rural ecological environmental conservation taxation, tariffs, state capital funds and debt; formulating macroeco- and the construction of national ecological demonstration areas and nomic policies and policies for income distribution between central eco-agriculture areas. and local governments and state-owned enterprises (SOEs); • Organize environmental science and technology research projects • Composing and adjusting the annual central budget and fi nal ac- and technical demonstration projects. count plans; • Certifi cation of environmental labels; Establish and enforce rules of • Drafting government procurement policies; controlling the non-trade accreditation for qualifi cation for environmental market access. of foreign exchange of government organs and social groups; and • Promote the development of the environmental industry. balancing international payments covered by the budget; • Responsible for national environmental monitoring at the local level • Verifying assets, defi ning ownership of capital funds and directing through a network of local environmental agencies, Environmental property appraisal; Protection Bureaus (EPBs). • Supervising fi nancial appropriation for economic development and • Collection of statistics; supervisory monitoring of pollution sources restructuring, central government agencies, national defense, foreign at the national level. affairs, regional development, technological renovation and agricul- • Organise, supervise and coordinate a programme of environmen- tural development; tal education, publicity and publications to promote the participation • Controlling social security spending from central fi nance and drafting of the public and non-governmental organisations in environmental the management system for social securities funds; protection. • Planning the issue of state treasury bonds and negotiating over • Formulation of national principles on global environmental issues loans from overseas banks and governments; and and lead international cooperation on environmental issues, including • Supervising implementation of accounting regulations by SOEs and

Table 6.1: Major membrane suppliers in China Producer Presence in China Recent customers Hydranautics Local sales agents (Beijing Shanghai, Shandong) Dow Chemical FilmTec Local sales agents (Shanghai Beijing, Tonghua Dongbao Pharmaceutical, Peninsula Guangzhou, Taiwan, Xianggang) Environmental Science & Technology (Kunshan)

Saehan Joint venture (Tianjin); local sales agents Shandong UBC-Coffee, Ministry of Information Industry, (Beijing, Shanghai) Hebei Langfang municipal government Vontron Enviro-Tech Wholly owned local company (Guiyang, Shanxi aluminium plant Guizhou Province) Toray Industries Local Sales Agent (Sanghai) Huaneng Yuhuan Power Plant Koch Membrane Local Sales Agent (Sanghai) Baosteel, Shougang Group GE Osmonics Local sales agent (Shanghai, Beijing, Coca Cola Water Plant (in China) Hong Kong) Hyflux Wholly owned local company (Shanghai); Shandong Binzhou Chemical Sinolac (in China) Local sales agent (Beijing, Ha’erbin)

X-Flow Local sales agent (Beijing) Sino-Netherlandish Separation Technology Centre, Henigeen Beer Zenon Local sales agent (Beijing) Huaneng Yuhuan Power Plant, Beijing Yanshan petrochemical Shanxi Datong Power Plant Siemens Memcor Local sales agent (Shanghai, Beijing) TEDA Wastewater Treatment Plant

Tianjin Polytechnic Wholly owned local company (Tianjin) TEDA Wastewater Treatment Plant, McDonalds (in University Motian Group China), China Petrochemical Corporation.

Dalian Eurofilm Wholly owned local company (Dalian) Shenyang Chemical Co., Jilin Petrochemical Group, Beijing CNC, Shengli Oil Field, Daqing Oil Field Pall Wholly owned local company (Beijing); Local sales agent Shanghai, Guangzhou, Changchun, Hong Kong)

185 Water Market Asia - China government organs, supervising certifi ed public accountants (CPAs) membranes as a means of meeting the challenges it faces in water and their offi ces, and directing auditing. resources and wastewater treatment. Membranes and fi lters are listed Ministry of Foreign Trade and Economic Cooperation (MOFTEC) as the core technologies for water treatment, reuse, reclamation and reservation in its strategy for sustainable development. Address: 2 Dong Chang’an Avenue, Dongcheng District, Beijing 100731 The policy document, China Water Conservation Technology Policy Telephone: (86-10) 6519-8114 Outline, issued on 21 April 2005, said: “The government encourages Fax: (86-10) 6519-8039 the research, development and application of new technologies, new Web site: http://www.moftec.gov.cn techniques and key facilities for water conservation . . . [it will] develop Minister: Shi Guangsheng and popularise the application of techniques such as ultrapure water treatment, photochemical treatment, advanced biological treatment, Functions and responsibilities: carbon adsorption, and membrane methods in industrial wastewater The MOFTEC reports directly to the State Council. It is responsible treatment; . . . [it will] actively develop seawater and brackish water for: desalination treatment techniques; . . . [it will] enhance the compre- • Formulating strategies, plans, policies, laws and regulations in for- hensive effi ciency of seawater desalination by expanding the scale eign trade, economic cooperation and foreign investment in line with of seawater desalination plants and [by] implementing energy-recov- international agreements; ering techniques reduce the costs of seawater desalination; . . . [it • Reforming state-owned, trade-related enterprises along market lines; will] develop complete serial and standard production techniques for setting qualifi cations for fi rms to engage in trade, economic coopera- seawater desalination equipment.” As the water shortage continues, tion and investment abroad; China is attaching greater importance to membrane technology for • Regulating public bidding for import/export quotas; promoting e- commerce; promoting technology imports and exports; handling anti- dumping, anti-subsidy and assurance matters; managing chambers Table 6.2: Membrane usage by province and financing type of commerce; Province Public Private • Guiding foreign investment in China and China’s investment abroad; Anhui UF MF approving foreign-funded enterprises and projects; managing national absorption of foreign investment; Fujian MF MF • Overseeing related project contracting, labor service and consulting Gansu RO_MF services abroad; Guangdong RO_MF MF • Negotiating economic and trade cooperation with other governments Guizhou RO UF and related international organizations; managing foreign aid; and Hainan MF • Selecting national, foreign trade development-fund projects; man- Hebei RO UF aging fi nancial affairs and accounting in foreign trade and economic cooperation. Heilong jiang NF Henan MF People’s Bank of China (PBOC) Hubei MF MF Address: 32 Chengfangjie, Xicheng District, Beijing, 100800 Hunan Inorganic Membrane MF Telephone: (86-10) 6619-4114 Fax: (86-10) 66015346; -66016704; Jiangsu RO NF Web site: http://www.pbc.gov.cn Jiangxi MF UF Governor: Dai Xianglong Jilin RO, Functions and responsibilities: The PBOC is a ministerial-level agency Liaoning NF,UF UF directly under the State Council, responsible for: Qinghai UF, MF, RO UF, RO • Formulating and implementing monetary policies, and issuing yuan Shandong UF, RO RO and managing its circulation; Shaanxi MF MF • Supervising fi nancial institutions, regulating the fi nancial industry Sichuan MF_UF MF, RO and markets, and operating the state treasury; Yunnan MF_NF RO • Managing state gold and foreign exchange reserves, and safeguard- Zhejiang RO MF ing payment and clearing systems; and • Monitoring government fund raising to ensure legality, reviewing insti- Beijing ED, RO MF tutional qualifi cations to issue bonds overseas, and compiling fi nancial Shanghai RO MF statistics, conducting fi nancial investigations and making forecasts. Tianjin RO_MF RO, MF

V. Construction & Equipment Markets: the Chinese ltration sec- Chart 6.3: Market Share by Membrane Type tor The Membrane Industry Association of China forecasts that the an- Gas separation nual sales of China’s membrane market will be US$2.47bn in 2015, & others with average annual growth of 15%. The market is estimated to be worth US$618m in annual revenues. By 2015, China is expected to 20% account for 10%-15% of the world market. According to the Mem- brane Industry Association, the reverse osmosis (RO) sector is the largest, accounting for 50% of revenues, or US$309m. Ultrafi ltration Rev ers e (UF) and microfi ltration (MF) together account for 20% of the market, Electrodialysis with total revenues of US$124m. The full breakdown of the market is Osmosis 10% shown in chart 6.3. 50% A recent survey of technology in the sector concluded that only 4% of products are at the “contemporary international level”, 20% are at Microfiltration the international level of the 1980s, 40% are at the international level 10% of the 1970s, and 35% are at the international level of the 1950s and 1960s. It is expected that around 20% of the 3,000 product lines in the Ultrafiltration sector will be eliminated by competition, with around two fi fths being 10% improved. Government response The Chinese government has been actively promoting the use of

Opportunities in the Water & Wastewater Sectors in Asia & the Pacifi c 186 Water Market Asia - China sustainable development, and is striving to develop new treatment establishing a domestic membrane industry. Its assessment of this technology and improve its water environment. Membrane technology challenge is that there are three areas in which it must take the lead: is among the programmes listed by the 10th Five-Year Plan (2001- research and development, material manufacturing and engineering 2005) for the Development of Science and Technology, formulated by application. At this stage, it considers itself to be number three in the the Ministry of Science and Technology. world in terms of research and development, behind the US and Ja- pan. This position was reportedly confi rmed at the International Con- The sector is also receiving special funds from the National Develop- gress on Membranes (ICOM) in Korea in August 2004. ment and Reform Commission for further development and applications. Outside the municipal water sector, the expansion of China’s There is also little concern about China in terms of engineering ap- petrochemical, medical, pharmaceutical, electrical and food industries plication. The biggest gap from the Chinese perspective is in mem- is leading to greater demand for membranes. brane material manufacturing. Most of the membrane materials China demands are supplied by leading global chemical corporations such Market sectors Membrane use in China has a geographical dimension as Dow, GE, Dupont, BASF, Asahi Kasei, Toyobo and Toray, whose as well as a fi nancial one. Generally speaking, the more developed a product quality, manufacturing processes and advanced technolo- city or province is, the more effort it will put into environmental protec- gies are undoubted. However, most of these products are classifi ed tion. Guangdong is one of the richest provinces in China and has made as strategic products by their own countries and consequently, the excellent progress in reforming its water industry, so analysts expect it technology cannot be transferred. to be one of the fi rst to develop a mature membrane market. Therefore, 80%- 100% of the membrane materials used in China are There is also a difference between the public and private sectors. Pri- imported: 50% of MF membranes, 90% of RO membranes, 50% of vate companies and water treatment plants are in the minority at the UF membranes and nearly 100% of gas separation membranes are moment, so demand for membrane products is currently from public bought from foreign suppliers. China has been working hard to im- enterprises and water treatment plants. However, private developers prove the situation since the 7th Five-Year Plan, when the Ministry have shown a much greater willingness to use membranes in cases of Science and Technology of the People’s Republic of China started where they have been involved in the project. Overall, MF is the most R&D on membranes. widely used membrane technology in China’s provinces. The Special Public Report on Organizing and Realizing Membrane Market participants Technology Industrialization, published by the State Planning Com- The fastest growing sector is RO, which is dominated by Japan’s Hy- mission in 2001, set the target of 2005 for upgrading the Chinese dranautics. It is believed to have a share of around 40%. Hydranau- membrane industry to the “international level of the 1990s”. By this tics’ main strategy is to turn away from price competition and shift time, the production of MF and UF membranes should have met all the focus to membrane performance. Its toughest price competition national demand and set up some demonstration equipment for RO has come from Vontron, the fastest Chinese player in the RO fi eld. It and NF membranes. Obviously, it will take longer to realise these tar- reportedly sells its membranes at a 30%-40% discount compared to gets. Despite this, the government remains determined to use indus- its foreign competitors, and backs up its prices with service support for trial policy to build a local industry. its customers to ensure that they use and maintain their membranes In the Special Program on Seawater Utilization published this autumn properly. by the National Development and Reform Commission, State Oceanic Another major player in the RO sector is Dow Chemical FilmTec, Administration People’s Republic of China and the Ministry of Finance which has a market share of more than 80% in seawater desalination, People’s Republic of China, the government made a number of com- although it lags behind Hydranautics in other applications. In a break- mitments to building the domestic desalination industry, including: down of the RO market according to vessel diameter, Hydranautics is • Supporting the industrialisation of seawater utilisation technologies thought to have 50% of the 8-inch market, versus 40% for Dow. Oth- ers share the remaining 10%. In the 4-inch market, Hydranautics has • Setting up research centres for national seawater development a reported 75% share and Dow 15%, with others sharing the remain- • Using projects to master core technologies der. The smaller vessel market of 1.8- to 2.5-inch products is shared by CSM/Saehan, Dow Chemical, GE and some Taiwanese producers. • Encouraging corporations and science research institutes to under- All in all, Chinese producers have less than 2% of the market. The MF take international seawater desalination projects and UF market is less concentrated, with no single dominant company • Using such projects to compete globally and create new economic and more players involved. Multinational corporations such as Pall growth and Millipore are well known in the MF fi eld. • Forming a system of seawater utilisation standards for technologies, Certain other multinationals such as Saehan have not developed busi- administration and products, increasing the supervision and inspec- ness in China, although they are producing MF membranes. In the UF tion of seawater desalination equipment and improving the relevant market, those Chinese enterprises that take advantage of compara- legal system tively low prices are able, to some degree, to compete with their foreign opponents such as Koch, X-Flow, US Filter and Zenon. Typically, • Speeding up the process of tariff reform to ensure water prices can Koch and the major foreign brands occupy the high-end of the market accommodate desalination. Large projects for creating substitutes for while Chinese enterprises such as Tianjin Polytechnic University Mo- fresh water will be fi nanced or subsidised by the government. The tar- tian Group and Dalian Eurofi lm share the middle- and low-end. get is to achieve 60% import substitution by 2010 and 90% by 2020. The characteristics of the Chinese UF market and manufacturers are VI. Sources as follows: EIU, ADB, World Bank, National Bureau of Statistics (PRC), Inter- • Numerous brands with wide variations in quality and price views. For a full review of the Chinese market, see Water Market , an investment report published by GWI in October 2004. • The market has little experience of UF product specifi cations and China knowledge of the differences between suppliers is limited, so equipment buyers tend not to be effective judges of quality • Demand is growing fast. Users’ relative inexperience of the products available enables a large number of brands to share in the market Tianjin Polytechnic University Motian Group is the fi rst Chinese enterprise to develop PVDF membrane products. Its’ hollow fi bre MF and UF membrane technology has reached an international audience Table 6.1 summarises how the major players are approaching the Chi- nese membrane market and their recent customers. Import substitution strategy China has an aggressive strategy towards

187 Water Market Asia - China

Known PSP Projects in China

Anhui

Bengbu Water

Bengbu Anhui Total investment (USDm) 18.67

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 410,000 m3/d Contract awarded 2004

Equity investor Shanghai Industrial Holdings

Capital Huainan Water Co

Huainan Anhui Divestiture Total investment (USDm) 12.30

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2004 December

Equity investor Beijing Capital Company 88.00%

Chi Zhou Water

Chi Zhou Anhui Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2005 April

Equity investor Shenzhen Tonge Group

Investment vehicle Shenzhen water investment Company

Equity investor Shanghai Environmental Protection Group

Fuyang Wastewater

Fuyang Anhui TOT Total investment (USDm) 22.60

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 100,000 m3/d Announced 2004 September

Unknown Equity investor Opportunity!! Hefei Water

Hefei Anhui 25 -year BOT Total investment (USDm) 24.10

Sector 1 Water Sector 2 No data The city is planning to transfer 20 per cent of the capital of the Water Supply Group Co., Ltd to a foreign investor. The Chinese party

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 188 Water Market Asia - China

will still hold 80 per cent of the equity. A JV would be formed 25 years. Legal representative: Dou Qinghuai, Contact telephone: 4421090

Capacity Timeline

Production 875,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!! Hexian Water

Hexian Anhui 20 -year BOT Total investment (USDm) 7.30

Sector 1 Water Sector 2 No data

Anglian sold this project in 2004

Capacity Timeline

Production 100,000 m3/d Contract awarded 2000

Equity investor Unknown

Ma’anshan Water

Ma’anshan Anhui Concession Total investment (USDm) 28.00

Sector 1 Water Sector 2 No data The project involves the operation of three existing plants on the Yangtze River and the construction of a fourth plant. The total planned capacity of the four plants is 450,000 m3/day. The project cost corresponds primarily to the 4th plant construction (240,000 m3/d).

Capacity Timeline

Distribution n/a pop Contract awarded 2003

Production 450,000 m3/d

Equity investor Beijing Capital Company 60.00%

Wangxiaoying Wastewater

Hefei Anhui 23 -year TOT Total investment (USDm) 58.00

Sector 1 Wastewater Sector 2 No data The plant is intended to play a leading role in improving water quality in Lake Chaohu and the Nanfei River, the only two water sources available to Hefei and its population of more than four million. On November 24th, 2004, the contracts for the project “Take-over and Operation of the Wastewater Treatment Plant Wang Xiao Ying” in the Chinese province capital Hefei were signed with the “Hefei Construction Commission” (Amount of the contract: RMB480m or US$58m). The project in the province Anhui was based on an international tender, which has been won by Berlinwasser International AG jointly with its Chinese partner, the East China Engineering Science & Technology Co. Ltd. (ECEC), a Chinese engineering consultant. The company took over the Wastewater Treatment Plant - together with an exclusive concession - for the period of 23 years. The municipal Wastewater Treatment Plant with a daily capacity of 310.000 m³ was fi nished in 2001 and is also used as a training centre for Chinese sewage experts. The technical details of this biggest plant in the province Anhui are as follows: activated sludge facitity (denitrifi cation) with simultaneous biological phosphorus elimination and mechanical sludge processing. The plant was built in two stages of extension, whereby the fi rst step is in use since 1998 and the second step since 2002. Since start of operations the plant runs in regular operation and disposes the sewage of about one million people. For the implementation of project, a project company, Hefei Wang Xiao Ying Sewage Treatment Co., Ltd. was established.

Capacity Timeline

Production 300,000 m3/d Contract awarded 2004

Equity investor Huadong Engineering Technology Holdings Company

Equity investor Berlinwasser International AG

Wuhu Water

Wuhu Anhui 30 -year BOT Total investment (USDm) 27.00

189 Water Market Asia - China

Sector 1 Water Sector 2 No data Towngas is continuing to expand in China’s Water market. It has set up a second joint venture water project in China, which will require a total investment of RMB700m. Towngas is taking a 75 pct stake in the joint venture (Wuhu Hong Kong and China Water Co Ltd) which holds a 30-year exclusive franchise to supply water to the Wuhu administrative zone in China’s Anhui province. Earlier this year, Towngas established a water project in Wujiang, Jiangsu province. Wuhu consumed 85Mm3 of water in 2004 and the ﬁ gure is expected to exceed 86Mm3 this year.

Capacity Timeline

Production n/a m3/d Contract awarded 2005 June

Equity investor Hong Kong and China Gas (Towngas)

Zhu Zhuanqiao Wastewater 1st phase

Hefei Anhui 23 -year BOT Total investment (USDm) 14.46

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 55,000 m3/d Contract awarded 2001

Equity investor Anhui Guozhen Environmental 100.00% Beijing

Bei Yuan Wastewater

Bei Yuan Beijing 20 -year BOT Total investment (USDm) 25.00

Sector 1 Wastewater Sector 2 No data

The project is part of Beijing 2008.

Capacity Timeline

Production 40,000 m3/d Contract awarded 2004

Equity investor Veolia Water 100.00%

Beijing Economic and Technical Development Zone Wastewater

Beijing Beijing 20 -year BOT Total investment (USDm) 3.80

Sector 1 Wastewater Sector 2 No data American Jinzhou Group and Beijing Jiangong Jinyuan Environmental Group were responsible for fi nance mobilization, and the BETDZ provided land as shares and participated in profi t allocation. The investors will recover their investments by charging for wastewater treatment service. 20 years later, fi xed assets and management rights of the WWTP will be transferred to the BETDZ without any payment. Contract price: RMB1.1/m3 wastewater. Phase I: 20,000m3/d, Phase II: +50,000m3/d.

Capacity Timeline

Production 20,000 m3/d Contract awarded 2000

Equity investor Beijing Jiangong Jinyuan Environmental Group

Equity investor Beijing Economic and Technical Investment Development

Beijing No. 10 (Dingfuzhuang)

Beijing Beijing 23 -year BOT Total investment (USDm) 200.00

Sector 1 Water Sector 2 No data The water tariff determined through bidding was lower than the forecast tariff of the government before tendering of RMB2.6/m3. The contract price is RMB1.4/m3. The project does not have a take-or-pay off-take agreement. The project is on hold after several attempts to reach ﬁ nancial close.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 190 Water Market Asia - China

Capacity Timeline

Production 525,000 m3/d Contract awarded 2002

Equity investor Mitsubishi On hold 2003

Equity investor Anglian Water International

Beijing Wastewater Dingfuzhuang

Beijing Beijing BOT Total investment (USDm) 11.87

Sector 1 Wastewater Sector 2 No data http://www.china.org.cn/market/EP/398937.htm, Contact Qi jingjun (Tel:010-66026617), Beijing City Planning Committee Drain Department.

Capacity Timeline

Production 40,000 ton/d Announced 2004 September Opportunity!! Equity investor Unknown

Beijing Wastewater Nat’l Environmental Protection Industrial Zone

Beijing Beijing BOT Total investment (USDm) 5.39

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 30,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!! Beixiaohe Wastewater

Beijing Beijing Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 100,000 m3/d Contract awarded 2003

Equity investor Beijing Capital Company

Gao Bei Dian Wastewater 1st Phase

Beijing Beijing Total investment (USDm) 120.00

Sector 1 Wastewater Sector 2 No data

The asset was transferred to the Beijing Water Company in the ﬁ rst half of 2003

Capacity Timeline

Production 500,000 m3/d Contract awarded 2001

Equity investor Beijing Capital Company

Jincheng Water Co

Beijing Beijing Total investment (USDm) 228.92

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 500,000 m3/d Contract awarded 2001

191 Water Market Asia - China

Equity investor Beijing Capital Company

Jiuxianqiao Wastewater

Beijing Beijing Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2001

Equity investor Beijing Capital Company

Jufuyuan National Industrial Area

Jufuyuan Beijing 50 -year BOT Total investment (USDm) 2.41

Sector 1 Water Sector 2 Wastewater The project will serve the Beijing Jufuyuan Nationality Industrial Area, which is located at Yujiawu Hui Nationality Township, in the Tongzhou District of Beijing. Shenfei Dayen will purchase the existing water treatment plant. This plant has a current capacity to produce 2,500 m3/day of drinking-quality water. It will provide water services to the entire industrial area and can be expanded to 10,000 m3/day capacity. During the operational term, Shenfei Dayen will be paid a fee per cubic meter of water supplied according to a fee schedule set by the Beijing Government on industrial users. The current water usage fee for industrial customers is RMB3.2 per cubic meter. Shenfei Dayen will also be required to pay to the local government a water resources fee of RMB0.6 per cubic meter. After 50 years of operation, the plant will be transferred to the local government at no cost. Shenfei Dayen will also design and construct a wastewater treatment plant at the Jufuyuan Nationality Industrial Area. The plant will have a treatment capacity of 10,000 m3/day and will take approximately one year to build. Typical wastewater treatment fees for industrial users in Beijing are currently about RMB1.2 per cubic meter. Wastewater treatment fees will be on a cubic meter basis and in accordance with prevailing fees for industrial users set by the Beijing Government

Capacity Timeline

Production 10,000 m3/d Contract awarded 2003

Equity investor SAC General Products 49.00%

Equity investor Dayen Environmental 51.00%

Investment vehicle Shenfei Dayen Environmental 100.00%

Lugouqiao Wastewater

Beijing Beijing 20 -year BOT Total investment (USDm) 53.00

Sector 1 Wastewater Sector 2 No data The World Bank provided the US$42m debt package. The project is part of Beijing 2008. The Lugouqiao Sewage Disposal Plant started operations in October 2004. The Chinese investors in Lugouqiao Sewage Disposal Plant (Beijing Municipal Drainage and Beijing Government) have 58% of the project equity. A joint venture of Veolia Water and Kerry from Malaysia controls 42% equity operates the plant with Beijing Municipal Drainage. The project is meant to treat the wastewater for a 55.8 km2 area.

Capacity Timeline

Distribution 364,000 pop Contract awarded 2003

Production 100,000 ton/d

Equity investor Veolia Water 15.00%

Equity investor Hong Kong Kerry 28.00%

Qinghe Wastewater 2nd Phase

Beijing Beijing Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 192 Water Market Asia - China

Production 200,000 m3/d Contract awarded 2003

Equity investor Beijing Capital Company

Sinopec Veolia JV

Yanshan Beijing 25 -year BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 Water re-use Under this agreement, Veolia Water and Sinopec Corp. Beijing Yanshan PetroChemicals (BYP) will set up an equally-owned joint venture to operate facilities to collect, treat and recycle industrial wastewater at BYP’s site at Yanshan, located 50 kilometers to the south west of Beijing. Under the 25-year agreement between Veolia Water and Sinopec, the joint venture will be managed by Veolia Water and will generate estimated revenue of €580 million over the period. The treatment facilities consist of four wastewater treatment plants with a total capacity of 129,000 m3/d and two recycling units that will re-inject water into the manufacturing cycle with a total capacity of 40,000 m3/d. They will treat water from the reﬁ nery and the six petrochemical units that make up the Yanshan industrial complex, as well as the domestic wastewater from the site.

Capacity Timeline

Production 40,000 m3/d Contract awarded 2006 January

Treatment 129,000 ton/d

Equity investor Veolia Water 50.00%

Xiao Jiahe Wastewater

Beijing Beijing 25 -year BOT Total investment (USDm) 7.23

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 100,000 m3/d Contract awarded 2000

Equity investor Beijing Sound Group 100.00%

Xiaohongmen Wastewater

Beijing Beijing Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 600,000 m3/d Contract awarded 2003

Equity investor Beijing Capital Company Chongqing

Chongqing Lijatuo Wastewater

Chongqing Chongqing Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data Guoxin Tendering Co., Ltd. entrusted by Chongqing Water Holding (Group) Co., Ltd. invites national competitive bidding from eligible bidder for the Construction of Chongqing Lijiatuo Sewage Treatment Factory. Financing: Domestic government fund and self-ﬁ nancing of enterprise. Construction scale: Daily sewage treatment capacity is forty thousand tons. 5/F Zhongbei Building, Honghuang Road, Jiangbei District, Chongqing, China Contact: Pan Hongbo, Tel: 86-23-67502458

Capacity Timeline

Treatment 40,000 ton/d Announced 2005 April

Equity investor Unknown Opportunity!!

Chongqing Wastewater 6 plants and Interceptors

193 Water Market Asia - China

Chongqing Chongqing O&M Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data The Chongqing Urban Environment Project is funded by the WB, the ADB and JBIC. Construction and operation will be delegated to the private sector.

Capacity Timeline

Production m3/d Announced 2004 September

Equity investor Unknown Opportunity!! Chongqing Water

Chongqing Chongqing Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2004

Equity investor Shanghai Industrial Holdings

Chongqing Water Services (Liangtuo, Jiangbei and Lianglu)

Chongqing Chongqing 50 -year Concession Total investment (USDm) 148.19

Sector 1 Water Sector 2 No data Sino-French originally tried to start the Chongqing Zhongfa Water Supply Company Ltd in 1995, under a 30 year-BOT contract. The US$24 million deal was never closed. The current project covers the Jiangbei District, Lianglu Town of Yubei District and the New Economic Zone (North) which includes Ford Motors. Future Capex will be ﬁ nanced with a local currency loan guaranteed by Sino-French Holdings. Water demand in Chongqing grows by 14 per cent per year. Debt recovery ratio: 98.9% - Revenue collection rate: 95%. Eric Chan, Gal Manager of JV. Returns are below 8% according to the investor. In November 2005, Sino-French signed a new JV with Chongqing Industrial Holdings to develop more projects in the area, including in the wastewater sector.

Capacity Timeline

Distribution 460,000 pop Contract awarded 2002

Production 345,000 m3/d

Equity investor SUEZ (Ondeo) 30.00%

Equity investor New World Infrastructure 30.00%

Investment vehicle Sino-French Holdings 60.00%

Ligiatuo Wastewater

Chongqing Chongqing BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 50,000 m3/d Contract awarded 2002

Equity investor Berlinwasser International AG

Qiezixi Wastewater

Chongqing Chongqing BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 194 Water Market Asia - China

Production 50,000 m3/d Contract awarded 2002

Equity investor Berlinwasser International AG Fujian

Chihu Water

Chihu, Zhangpu Fujian 50 -year Concession Total investment (USDm) 3.61

Sector 1 Water Sector 2 No data DKLS Ventures Sdn Bhd, parent to ZJWW, will undertake a rights issue exercise to ﬁ nance the project. DKLS said it plans to take up the full allocation of the rights issue. The ﬁ nancing is divided into two equal parts, one for the plant construction and one for the pipe network. ZJWW was set up in PRC with a registered capital of US$1.1m.

Capacity Timeline

Distribution n/a pop Contract awarded 2003

Production 30,000 m3/d

Equity investor PJR Holding Bhd 60.00%

Equity investor DKLS Indutries Bhd 40.00%

Investment vehicle DKLS Ventures Sdn Bhd 100.00%

Fuzhou Water

Fuzhou Fujian 30 -year Concession Total investment (USDm) 20.00

Sector 1 Water Sector 2 No data Fuzhou CWC Water Company Limited (Fuzhou CWC) obtained the right to acquire the water supply assets of Fuzhou Economic & Technological Development Zone (FETDZ) Water Supply Company as well as the water supply concession for a term of 30 years in 2004. Fuzhou CWC and FETDZ signed the Asset Transfer Contract on the 23 December 2004 following a public tender lead by the Property Right Transaction Institution of Fujian Province (Transaction Institution). The Transaction Institution acted as the authenticating party to the Contract. Fuzhou CWC was established in early 2004 and is a sino-foreign cooperative joint venture between The China Water Company Limited (CWC) and FETDZ Baimei Water Supply Company Limited (Baimei Company). The registered capital of Fuzhou CWC is RMB230m, of which RMB165.6m was contributed by CWC (by injecting an equivalent US dollar amount). The value of the acquisition for the water supply assets is RMB150m, which have a daily capacity of 125,000 tonnes. The transfer of assets commenced on the same day as the Contract was signed by Fuzhou CWC. It was completed on 27 December 2004, after that operation of the plant was successfully handed over to Fuzhou CWC.

Capacity Timeline

Production 125,000 m3/d Contract awarded 2004 December

Equity investor Sime Darby

Equity investor RWE Thames Water

Equity investor Kadoorie Family Company

Investment vehicle China Water Company 71.00%

Xiamen Desalination

Xiamen Fujian BOT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data Xiamen Resources Group is wholly owned by the Xiamen municipal government. In 2003, Sinomem was awarded a S$1.3 million R&D SDRC grant to develop desalination technology.

Capacity Timeline

Production 5,000 m3/d Contract awarded 2003

Equity investor Sinomem Technology 51.00%

195 Water Market Asia - China

Xiamen Wastewater Tong’an

Xiamen Fujian TOT Total investment (USDm) 8.70

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 50,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!!

Xiamen Water and Wastewater

Xiamen Fujian Divestiture Total investment (USDm) 56.00

Sector 1 Water Sector 2 Wastewater Investors have a 45% stake in the wastewater part of the project and 55% stake in the water part. The project comprises 5 water and 6 wastewater plants. Xiamen Water Services Group was formed by integrating a total of 14 organisations including Xiamen Waterworks, Xiamen Water Treatment Investment Development, and Xiamen Environmental Technology Development Company. Its total asset value is RMB4.5 billion

Capacity Timeline

Treatment 560,000 ton/d Contract awarded 2004 December

Distribution 1,370,000 pop Announced 2004 September

Production 1,000,000 m3/d

Investment vehicle General Water China 50.00%

Equity investor Shanghai Industrial Holdings 25.00%

Equity investor China Energy Investment Corp 25.00%

Gansu

Lanzhou Water

Lanzhou Gansu Concession Total investment (USDm) n/a

Sector 1 Water Sector 2 No data Lanzhou State-owned Assets Supervision and Administration Commission of the State Council (SASAC) reached an agreement on January 20, 2006 with Lanzhou Development and Reform Commission, Lanzhou Construction Committee, Lanzhou Finance Bureau, Lanzhou Price Bureau etc. regarding the part-divestiture of state-owned Lanzhou Water Supply Group Company in Gansu province to international investors. Lanzhou Water Supply Group Company has total assets worth RMB514m. Veolia is tipped as a likely winner of the competition.

Capacity Timeline

Production n/a m3/d Announced 2006 January

Equity investor Unknown Opportunity!! Guangdong

Dong Chen Water

Dongguan Guangdong Total investment (USDm) n/a

Sector 1 Water Sector 2 No data Guangdong investment supplies 2bn ton water to Shenzhen, Dongguan and HK. Operating proﬁ t 2004 of US$108m

Capacity Timeline

Production n/a m3/d Contract awarded n/a

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 196 Water Market Asia - China

Equity investor Guangdong Investment

Foshan Hua Zhi Yuan Domestic Wastewater Plant

Foshan Guangdong 20 -year BOT Total investment (USDm) 30.40

Sector 1 Wastewater Sector 2 No data

The project received loans from KfW (Germany’s ECA) and local Chinese banks.

Capacity Timeline

Production 100,000 m3/d Contract awarded 2002

Equity investor Inframan GmbH 45.00%

Investment vehicle Aquamundo 45.00%

Guangzhou Xi Lang Wastewater

Guangzhou Guangdong 20 -year BOT Total investment (USDm) 120.00

Sector 1 Wastewater Sector 2 No data

Earth Tech bough the project from Lemna in 2001. US-based Lemna had started the plant in 1998.

Capacity Timeline

Production 400,000 m3/d Contract awarded 2001

Equity investor EarthTech 67.00%

Jiangmen Water

Jiangmen Guangdong 20 -year ROT Total investment (USDm) 60.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 1997

Equity investor Cathay International Water

Jiangmen Xiejang Water

Jiangmen Guangdong 18 -year ROT Total investment (USDm) 25.00

Sector 1 Water Sector 2 No data

Sold in 2001

Capacity Timeline

Production 240,000 m3/d Contract awarded 1997

Early termination 2001 Termination! Equity investor Cheung Kong Infrastructure Holdings Ltd 48.00%

Jiangmen Xiejang Water

Jiangmen Guangdong 18 -year ROT Total investment (USDm) 25.00

Sector 1 Water Sector 2 No data

Sold in 2001

Capacity Timeline

197 Water Market Asia - China

Production 240,000 m3/d Contract awarded 1997

Early termination 2001 Termination! Equity investor Cheung Kong Infrastructure Holdings Ltd 48.00%

Kaiping Wastewater Jingtou

Kaiping Guangdong BOT Total investment (USDm) 14.00

Sector 1 Wastewater Sector 2 No data

13 registered bidders

Capacity Timeline

Production 75,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!!

Kaiping Water

Kaiping Guangdong 25 -year Concession Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2004 October

Equity investor Shenzhen Tonge Group

Equity investor Shenzhen Water Group

Investment vehicle Shenzhen water investment Company

Lianjiang Chengxi Sewage Disposal Plant

Liangjiang Guangdong BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data Construction Site: north of Liangjiang River, south of Pozicun, and west of the Gaotian Road. The construction of the sewage disposal plant is divided into two phases, the construction scale of the ﬁ rst phase is the daily disposal of sewage of 20,000 tons, and the phase two construction will expand the daily disposal scale to 40,000 tons. This bidding is for the ﬁ rst phase of 20,000 tons disposal. Operation period: no more than 30 years. Contact: Chen Yin Tel: 86-759-6602608

Capacity Timeline

Treatment 40,000 ton/d Announced 2005 December

Equity investor Unknown Opportunity!!

Lianjiang Water

Lianjiang Guangdong 30 -year BOT Total investment (USDm) 16.70

Sector 1 Water Sector 2 No data Lianjang is considered a failed project by Sino-French. The full investment has been made but the project is stalled in renegotiation with the municipality. The city is expected to grow dramatically, as an industrial zone, set up in 1992, starts to expand. The area is already home to sugar reﬁ ning, beverage production, cement, porcelain and textiles industries. Bulk Tariff: RMB1.25/m3

Capacity Timeline

Production 100,000 m3/d Contract awarded 1997

Early termination 1997 Termination!

Equity investor SUEZ (Ondeo) 30.00%

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 198 Water Market Asia - China

Equity investor New World Infrastructure 30.00%

Investment vehicle Sino-French Holdings 60.00%

Longtian Wastewater

Shenzhen Guangdong 15 -year BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production m3/d Contract awarded 2001

Equity investor Anhui Guozhen Environmental

Nanhai Water

Nanhai Guangdong 20 -year BOT Total investment (USDm) 16.00

Sector 1 Water Sector 2 No data Q4 2004, Bill & Melinda Gates Foundation bought 500,000 shares in the company. Nanhai Water proﬁ t RMB71.5m in 2004; turnover RMB272m.

Capacity Timeline

Production 850,000 m3/d Contract awarded 1996

Contract awarded 2002

Equity investor Nanhai Development

Equity investor Giantmost Ltd.

Shatian Wastewater

Shenzhen Guangdong 15 -year BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production n/a ton/d Contract awarded 2001

Equity investor Anhui Guozhen Environmental

Shenzhen Wastewater

Shenzhen Guangdong BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

The project was constructed with money provided by the U.S. EPA

Capacity Timeline

Production n/a ton/d Contract awarded 2002

Equity investor ThermoEnergy Corporation

Equity investor Shenzhen Fuhaoheng Investment Co., Ltd

Shenzhen Wastewater Guxu

Shenzhen Guangdong BOT Total investment (USDm) 37.20

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

199 Water Market Asia - China

Production 240,000 m3/d Announced 2004 September

Equity investor Unknown

Shenzhen Wastewater Longhua Opportunity!!

Shenzhen Guangdong BOT Total investment (USDm) 23.30

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 150,000 m3/d Announced 2004 September

Equity investor Unknown

Shenzhen Water Services Opportunity!!

Shenzhen Guangdong 50 -year Concession Total investment (USDm) 400.00

Sector 1 Water Sector 2 Wastewater The city aims to be treating 80 per cent of its wastewater by 2005 and 90 percent by 2009; it aims at providing directly drinkable tap water by 2010. According to the agreement, Veolia owns ﬁ ve per cent of Shenzhen Water Supply’s shares directly, while the other 40 percent will be held by Veolia’s JV with the Beijing Capital. Veolia is investing US$125 million. Shenzhen Water began inviting tenders for the equity deal from in early 2003, with a total of 19 potential investors submitting bids, including France-based Suez Group and UK-based Thames Water. Beijing Capital VW Investments is 49 per cent owned by Veolia Water, with the remaining stake in the hands of the Beijing Capital Company. Beijing Capital reports an estimated IRR for the project of 12.90 per cent and an estimated IRR for invested capital of 15.30 per cent.

Capacity Timeline

Treatment 1,080,000 ton/d Contract awarded 2003

Distribution n/a pop

Production 1,670,000 m3/d

Equity investor Veolia Water 25.00%

Equity investor Beijing Capital Company 20.00%

Investment vehicle Beijing Capital Veolia Water Investments 45.00%

Xin Yi Wastewater

Xin Yi Guangdong Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Brite-Tech is considering investing directly in Guangdong Xin or through a joint venture.

Capacity Timeline

Production 30,000 ton/d Contract awarded 2003

Equity investor EcoWater Asia Systems, Inc.

Equity investor Brite-Tech Bhd

Xinhui Longquan Wastewater

Jiangmen Guangdong 18 -year BOT Total investment (USDm) 5.14

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 160,000 m3/d Contract awarded 2002

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 200 Water Market Asia - China

Equity investor Anhui Guozhen Environmental 100.00%

Zhongshan Dafeng Water

Zhongshan Guangdong 22 -year ROT Total investment (USDm) 29.90

Sector 1 Water Sector 2 No data Bulk Tariff: RMB0.77/m3 (2002) During the ﬁ rst half of 2003, daily water supply increased by 9.24 per cent over the previous year. Capacity by the end of the contract should reach 800,000m3/d. Between 1994 and 2001, NRW dropped from 33.4 to 13.8 per cent. Customer base was extended from 30,000 to 100,000 people.

Capacity Timeline

Production 280,000 m3/d Contract awarded 1998

Equity investor SUEZ (Ondeo) 33.06%

Equity investor New World Infrastructure 33.06%

Investment vehicle Sino-French Holdings 66.11%

Zhongshan Water

Zhongshan Guangdong 22 -year ROT Total investment (USDm) 26.60

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 500,000 m3/d Contract awarded 1998

Equity investor SUEZ (Ondeo) 33.06%

Equity investor New World Infrastructure 33.06%

Investment vehicle Sino-French Holdings 66.11%

Zhuhai Wastewater

Zuhai Guangdong 30 -year ROT Total investment (USDm) 26.20

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 130,000 m3/d Contract awarded 2002

Equity investor Veolia Water 100.00%

Equity investor Hong Kong Investors Guangxi

Wuzhou Wastewater Plant No. 1

Wuzhou Guangxi Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production n/a m3/d Announced 2004 September

Equity investor Unknown Opportunity!!

201 Water Market Asia - China Guiyang

Guiyang Wastewater

Guyiang Guiyang 25 -year TOT Total investment (USDm) 13.25

Sector 1 Wastewater Sector 2 No data Rate of Return: 8%, Tariff: RMB0.875/m3 (2002) Long Li Group initially had a 30 per cent stake in the project but sold it to Tianjin Capital in 2004.

Capacity Timeline

Production 80,000 m3/d Contract awarded 2004

Equity investor Tianjin Capital Environmental Protection Company 70.00%

Guiyang Water (Beijiao & Zhongcao Plants)

Guiyang Guiyang BROT Total investment (USDm) 25.00

Sector 1 Water Sector 2 No data

Sold in 2001

Capacity Timeline

Production 250,000 m3/d Contract awarded 1998

Early termination 2001 Termination!

Equity investor Sime Darby 16.50%

Equity investor RWE Thames Water 24.25%

Equity investor Kadoorie Family Company

Investment vehicle China Water Company 50.00% Guizhou

Zunyi Water (Nanjiao and Beijiao plants)

Zunyi Guizhou 35 -year ROT Total investment (USDm) 18.30

Sector 1 Water Sector 2 No data The project is expected to produce a 15 per cent ROR, according to CITIC. Expansion of the project is planned. It is estimated that basic water treatment fees will be about RMB33 million in the ﬁ rst year of operation, rising to about RMB46 million by the ﬁ fth year. The annual cap for fees payable for the operation of the facilities is RMB51 million.

Capacity Timeline

Production 200,000 m3/d Contract awarded 2004

Equity investor Veolia Water 25.00%

Equity investor CITIC Paciﬁ c Ltd 75.00% Hainan

Dong Fan Wastewater Ba Suo

Dong Fan Hainan Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production n/a m3/d Announced 2004 September Opportunity!!

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 202 Water Market Asia - China

Equity investor Unknown

Sanya Wastewater Hong Sha phase II

Sanya Hainan Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production n/a m3/d Announced 2004 September Opportunity!! Equity investor Unknown

Sanya Water Services

Sanya Hainan Dao 30 -year Concession Total investment (USDm) 31.50

Sector 1 Water Sector 2 No data Sanya is China’s ﬁ rst tourist destination. The contract took 3 years to be negotiated due to the necessary restructuring of the local utility’s debt. The project company is debt free. The contract provides for the production, plant operation and maintenance, distribution of water throughout the city of Sanya, as well as customer services for the municipality. Water demand in Sanya grows by 8 to 10 per cent a year.

Capacity Timeline

Distribution 200,000 pop Contract awarded 2001

Production 235,000 m3/d

Equity investor SUEZ (Ondeo) 25.00%

Equity investor New World Infrastructure 25.00%

Investment vehicle Sino-French Holdings 50.00% Hebei

Baoding Water

Baoding Hebei 20 -year ROT Total investment (USDm) 27.95

Sector 1 Water Sector 2 No data

In 2002, the company sold RMB443 million worth of treated water. Bulk Water Tariff: RNB 0.61/m3

Capacity Timeline

Production 260,000 m3/d Contract awarded 2000

Equity investor SUEZ (Ondeo) 45.00%

Equity investor New World Infrastructure 45.00%

Investment vehicle Sino-French Holdings 90.00%

Bazhou Wastewater Langfang

Bazhou Hebei BOT Total investment (USDm) 10.00

Sector 1 Wastewater Sector 2 No data

The Chinese side is looking for a foreign partner to invest in 20% of the project in cash.

Capacity Timeline

Production 80,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!!

203 Water Market Asia - China

Changli County Water

Changli County Hebei 30 -year Concession Total investment (USDm) 14.00

Sector 1 Water Sector 2 Wastewater

Capacity Timeline

Distribution 150,000 pop Contract awarded 2002

Production 60,000 m3/d

Equity investor EarthTech 80.00%

Changli County Water

Changli County Hebei 30 -year Concession Total investment (USDm) 14.00

Sector 1 Water Sector 2 Wastewater

Capacity Timeline

Distribution 150,000 pop Contract awarded 2002

Production 60,000 m3/d

Equity investor EarthTech 80.00%

Evergreen Hangdan Wastewater

Hangdan Hebei 22 -year BOT Total investment (USDm) 3.00

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 90,000 ton/d Contract awarded 2005 January

Equity investor Unknown

Fengrum Water

Fengrum Hebei BOT Total investment (USDm) 2.30

Sector 1 Water Sector 2 No data Fengrum county expects the private investor to take up 70% of the investment. Estimated annual output value is RMB6,57m with annual proﬁ ts of RMB2,48m.

Capacity Timeline

Production 20,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!! Handan Water

Handin Heibei 25 -year BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data The city has a population of 800,000. Cumulated earning from the projects are projected at Eur62m.

Capacity Timeline

Treatment 100,000 ton/d Contract awarded 2005 September

Equity investor Veolia Water

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 204 Water Market Asia - China

Hangdan Wastewater

Hangdan Hebei 22 -year ROT Total investment (USDm) 3.00

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 90,000 m3/d Contract awarded 2005 January

Equity investor China Evergreen Asset Group

Liangchen Water Desalination

Liangchen Hebei Total investment (USDm) n/a

Sector 1 Water Sector 2 Desalination

Capacity Timeline

Production 5,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!! Yanjiao Water

Yanjiao Hebei Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 50,000 m3/d Contract awarded 2000

Equity investor Sime Darby 16.50%

Equity investor RWE Thames Water 24.25%

Equity investor Kadoorie Family Company

Investment vehicle China Water Company 50.00%

Zhouzhou Wasetwater

Zhouzhou Hebei 25 -year BOT Total investment (USDm) 15.00

Sector 1 Wastewater Sector 2 No data Interchina Holdings built two wastewater treatment plans in Zhouzhou City, Hebei province, through its subsidiary Interchina Water Treatment Ltd. The company will invest US$15m in the 25-year BOT project.

Capacity Timeline

Treatment 40,000 ton/d Contract awarded 2005 June

Equity investor InterChina Holdings Co Ltd Heilongjiang

Harbin Water

Harbin Heilongjiang 30 -year BOT Total investment (USDm) 30.00

Sector 1 Water Sector 2 No data Domestic tariff: RMB1/m3 (2002), Raw Water: RMB0.63/m3 (2002) - Harbin Saur Water Supply Co. Ltd, N°2, Zi Xing Street, Nan Gang District, 150081 Harbin, (86) 451 668 59 27

Capacity Timeline

205 Water Market Asia - China

Production 225,000 m3/d Contract awarded 1994

Equity investor SAUR International

Qitaihe Water

Qitaihe Heilongjiang BROT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 120,000 m3/d Contract awarded 2001

Equity investor Sime Darby 16.50%

Equity investor RWE Thames Water 24.25%

Equity investor Kadoorie Family Company

Investment vehicle China Water Company 50.00% Henan

Evergreen Henan Wastewater

Henan 22 -year BOT Total investment (USDm) 7.70

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 130,000 ton/d Contract awarded 2005 January

Equity investor China Evergreen Asset Group

Jiao Zuo Water

Jiao Zuo Henan Total investment (USDm) n/a

Sector 1 Water Sector 2 No data The project with Jiaozuo Water Co, in which Shenzhen Water Group acquired a 70% stake, recorded nearly RMB9.7m (US$1.18m) proﬁ t in 2004, which is estimated to have risen to RMB10.1m (US$1.22m) in 2005.

Capacity Timeline

Production n/a m3/d Contract awarded 2004 October

Equity investor Shenzhen Tonge Group

Equity investor Shenzhen Water Group

Investment vehicle Shenzhen water investment Company 70.00%

Xiangcheng Wastewater

Xiangcheng Henan 30 -year BOT Total investment (USDm) 5.50

Sector 1 Wastewater Sector 2 No data

Cancelled in February 2004 following the feasibility study. An MoU had been signed in 2003.

Capacity Timeline

Production n/a m3/d Direct negotiations 2003 Termination! Cancelled 2004

Equity investor Gadang Bhd

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 206 Water Market Asia - China

Zhengzhou Raw Water

Zhengzhou Henan 30 -year ROT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 400,000 m3/d Contract awarded 2000

Equity investor SUEZ (Ondeo) 25.00%

Equity investor New World Infrastructure 25.00%

Investment vehicle Sino-French Holdings 50.00%

Zhengzhou Wastewater Wulongkou

Zhengzhou Henan BOT Total investment (USDm) 42.90

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 220,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!! Zhengzhou Water

Zhengzhou Henan 30 -year ROT Total investment (USDm) 37.80

Sector 1 Water Sector 2 No data In March 005, the Zhengzhou municipal government increased water tariffs by 42%. Domestic tariffs increased by 25%.

Capacity Timeline

Production 360,000 m3/d Contract awarded 2000

Equity investor SUEZ (Ondeo) 25.00%

Equity investor New World Infrastructure 25.00%

Investment vehicle Sino-French Holdings 50.00%

Zhengzhou Water Wastewater

Zhengzhou Henan BOT Total investment (USDm) 11.90

Sector 1 Water Sector 2 Wastewater

Construction and operation of facilities of 3-stage water treatment and water supply

Capacity Timeline

Production n/a m3/d Announced 2004 September

Equity investor Unknown Opportunity!!

Zhoukou Wastewater

Zhoukou Henan BOT Total investment (USDm) 16.32

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 50,000 m3/d Announced 2004 September Opportunity!!

207 Water Market Asia - China Hubei

Hanxi Water

Hanxi Hubei BOT Total investment (USDm) 23.20

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2005 April

Equity investor Asia Water Technology

Huanggang Wastewater Yi Ai Lake

Huanggang Hubei BOT Total investment (USDm) 6.00

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 60,000 m3/d Announced 2004 October

Equity investor Unknown Opportunity!!

Tianmen Water

Tianmen Hubei Total investment (USDm) 13.50

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2005 March

Investment vehicle Wuhan Kaidi Water (China)

Equity investor Asia Water Technology

Wuhan International Airport Wastewater

Wuhan Hubei 25 -year BOT Total investment (USDm) 19.19

Sector 1 Wastewater Sector 2 No data The plant is projected to generate proﬁ ts of over £6.5 million a year for the 25-year life of the contract. This is in addition to proﬁ ts of over £3.5 million on the construction project.

Capacity Timeline

Production 400,000 m3/d Contract awarded 2004

Equity investor London Asia Capital PLC

Equity investor Capitalink Pte Ltd

Investment vehicle Asia Water Company 100.00%

Wuhan Wastewater

Wuhan Hubei BOT Total investment (USDm) 56.00

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Treatment n/a ton/d Contract awarded 2004 July

Equity investor Asia Water Technology

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 208 Water Market Asia - China

Investment vehicle Wuhan Holding

Wuhan Water

Wuhan Hubei Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2001

Equity investor Wuhan Holding

Xia Jiawan Wastewater

Jingmen Hubei 25 -year BOT Total investment (USDm) 13.25

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 100,000 m3/d Contract awarded 2002

Equity investor Beijing Sound Group 100.00%

Xiaogan Water

Xiaogan Hubei BOT Total investment (USDm) 27.50

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 220,000 m3/d Announced 2004 December

Equity investor Unknown Opportunity!! Yingcheng Water

Yingcheng Hubei BOT Total investment (USDm) 4.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 100,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!! Hunan

Changsha Wastewater Yuelu

Changsha Hunan BOT Total investment (USDm) 95.00

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Treatment 150,000 ton/d Announced 2005 February

Contract awarded 2005 June

Equity investor Guangdong Liantai Guilin Drainage Company

Xiangtan Water

Xiangtan Hunan Total investment (USDm) 16.87

209 Water Market Asia - China

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 425,000 m3/d Contract awarded 2004

Equity investor Shanghai Industrial Holdings

Yueyang Kai Water

Yueyang Hunan 18 -year ROT Total investment (USDm) 18.00

Sector 1 Water Sector 2 No data

Sold in 2003

Capacity Timeline

Production 400,000 m3/d Contract awarded 1998

Early termination 2003 Termination! Equity investor Cheung Kong Infrastructure Holdings Ltd 49.00% Inner Mongolia

Hoh Hot Water

Hoh Hot Inner Mongolia 30 -year ROT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data The French water company will rehabilitate and operate for 30 years a drinking water production site, including a treatment plant and wellﬁ eld, with a capacity of 515,000m3/d, for the capital city of Inner Mongolia.

Capacity Timeline

Distribution 2,500,000 pop Contract awarded 2004 September

Production 515,000 m3/d

Operator Veolia Water Systems

Equity investor Veolia Water Jiangsu

Capital Xuzhou Water

Xuzhou Jiangsu Divestiture Total investment (USDm) 17.40

Sector 1 Water Sector 2 No data

December 9, 2004 Beijing Capital invested RMB144m (US$17.4m) to set up a water treatment joint venture with Xuzhou Running Water Co in the eastern province of Jiangsu. The venture has registered capital of RMB180m, with BC taking an 80% stake. Xuzhou Running Water contributed RMB36m worth of assets for the remaining 20%. The project will have a daily water supply capacity of 550,000 tons. After its development, the venture should acquire Xuzhou Running Water’s remaining assets, and an additional water plant which is being built, for RMB120m in cash.

Capacity Timeline

Production 550,000 m3/d Contract awarded 2004 December

Equity investor Beijing Capital Company 80.00%

Chang Zhou Water

Chang Zhou Jiangsu Total investment (USDm) n/a

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 210 Water Market Asia - China

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2005 April

Equity investor Shenzhen Tonge Group

Equity investor Shenzhen Water Group

Investment vehicle Shenzhen water investment Company

Chang Zhou Water II

Changzhou Jiangsu 30 -year Divestiture Total investment (USDm) 78.00

Sector 1 Water Sector 2 No data Veolia Water and the Hong Kong-based Citic Pacifi c will acquire a 49% stake in the ChangZhou Tap Water Group following an international tender. The city of ChangZhou will retain the remaining 51%. Veolia Water will be responsible for managing the company’s 850 employees, fi ve WTPs with a combined capacity of 790,000m3/d and a 1,750km distribution network. Total revenues under the 30-year contract are in excess of $950m. Changzhou Municipal Tap Water operates fi ve water treatment plants and associated pumping stations and piping networks in Changzhou, which has a population of 1.2 million, and has an aggregate daily treatment capacity of 790,000 cubic metres of tap water.

Capacity Timeline

Production 790,000 m3/d Contract awarded 2005 October

Distribution 1,200,000 pop

Equity investor CITIC Paciﬁ c Ltd

Equity investor Veolia Water 49.00%

Chengbei Wastewater

Nanjing Jiangsu 25 -year TOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 300,000 m3/d Contract awarded 2004

Equity investor Shanghai Industrial Holdings

Chengdong Wastewater

Taicang Jiangsu Concession Total investment (USDm) 3.92

Sector 1 Wastewater Sector 2 No data

A second phase is scheduled.

Capacity Timeline

Production 20,000 m3/d Contract awarded 2002

Equity investor Beijing Jiangong Jinyuan Environmental Group 100.00%

Chengnan Wastewater

Yancheng Jiangsu BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 50,000 m3/d Contract awarded 2003

211 Water Market Asia - China

Equity investor Beijing Jiangong Jinyuan Environmental Group 100.00%

Danyang Water

Danyang Jiangsu BOT Total investment (USDm) 22.50

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 30,000 m3/d Announced 2004 October

Equity investor Unknown Opportunity!! Jiangdu Wastewater

Jiangdu Jiangsu 30 -year BOT Total investment (USDm) 21.50

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 100,000 m3/d Contract awarded 2005 April

Equity investor World Eagle/New Efﬁ cient (China) 65.00%

Equity investor Bio-Treat 33.79%

Jurong Wastewater Jurong No. 2

Jurong Jiangsu BOT Total investment (USDm) 6.00

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 50,000 m3/d Announced 2005 January

Equity investor Unknown Opportunity!!

Liangyungang Wastewater Biotreat

Liangyungang Jiangsu 25 -year BOT Total investment (USDm) 12.70

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Treatment 80,000 ton/d Contract awarded 2005 March

Equity investor Biotreat 95.00%

Liangyungang Wastewater Biotreat II

Liangyungang Jiangsu 25 -year TOT Total investment (USDm) 16.85

Sector 1 Wastewater Sector 2 No data This is a separate project from the Liangyungang Wastewater BOT.

Capacity Timeline

Treatment 100,000 ton/d Contract awarded 2005 March

Equity investor Biotreat 95.00%

Lianyungang Wastewater Dapu

Lianyungang Jiangsu TOT Total investment (USDm) n/a

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 212 Water Market Asia - China

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 250,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!! Lianyungang Wastewater Xugou

Lianyungang Jiangsu BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 160,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!!

Nanjing & Wuxi Water

Nanjing Jiangsu Total investment (USDm) 162.00

Sector 1 Water Sector 2 No data

Cancelled in 2001

Capacity Timeline

Production 1,000,000 m3/d Contract awarded 1996

Equity investor CITIC Paciﬁ c Ltd

Nanjing Chemical Park Wastewater

Nanjing Jiangsu BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 12,500 m3/d Contract awarded 2003

Equity investor Singapore Utilities International 20.00%

Equity investor Sembcorp Utilities 55.00%

Nanjing Chemical Park Wastewater II

Nanjing Jiangsu BOO Total investment (USDm) 1.40

Sector 1 Wastewater Sector 2 No data SembCorp Utilities, a wholly-owned subsidiary of SembCorp Industries, formed a joint venture fi rm with NCIP Development Co Ltd for the exclusive provision of integrated utilities services such as steam and water within Nanjing Chemical Industry Park. SembCorp Utilities will own 34.5% of the joint venture fi rm with the balance held by NCIP Development. The joint venture, named NCIP SembCorp Utilities Co Ltd, will also enjoy right of fi rst refusal for the investment, construction and operation of future infrastructure projects including service corridors, jetty services and tank farm. SembCorp Utilities said the investment cost was US$1.4m which will be funded using internal cash. SembCorp Utilities had earlier invested in two other facilities within the park - a 12,500 tonnes per day wastewater treatment facility and a 100,000 tonnes per day industrial water plant with exclusive rights to supply industrial water to the Park.

Capacity Timeline

Treatment n/a ton/d Contract awarded 2006 January

Equity investor Sembcorp Utilities 34.50%

Nanjing Hi-tech Zone Wastewater

213 Water Market Asia - China

Nanjing Jiangsu BROT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data Jiangsu International Tendering Co., entrusted by the purchaser, invites national competitive bidding for the Nanjing Hi-tech Zone Sewage Disposal Plant BOT Project. The successful bidder will set up a project company, which will be responsible for the ﬁ nancing, the design, construction, operation, maintaining of the sewage disposal plant in the provided special permitted operation period. After the completion of the special permitted operation period, the project cooperation will handover the assets of the sewage disposal plant to the Nanjing Hi-tech Zone Management Committee or the appointed units. Project information: The sewage disposal plant is in the south of Pusi Road, Pukou District and west of Yongjin Road, southeast of Zhujiashan River Turning, and the total project scale is daily disposal of sewage of 30,000 tons. The construction scale of the ﬁ rst phase is meant to achieve the daily treatment of sewage of 15,000 tons.The Nanjing Hi-tech Zone is located in Pukou District, Nanjing. The service area of the sewage disposal plant is 4.88 km2 of the Nanjing Hi-tech Zone completed area, 4.36 km2 of the industrial zone phase III, and 5.37 km2 of the surrounding universities, or 14.61 km2 in total.

Capacity Timeline

Treatment 30,000 ton/d Announced 2006 January

Equity investor Unknown Opportunity!!

Nanjing Wastewater Biotreat

Nanjing Jiangsu 25 -year BOT Total investment (USDm) 10.00

Sector 1 Wastewater Sector 2 No data

A second 40,000 ton/d phase is to be tendered soon

Capacity Timeline

Treatment 40,000 ton/d Contract awarded 2005 August

Equity investor Bio-Treat 100.00%

Nanjing water

Nanjing Jiangsu BROT Total investment (USDm) 120.00

Sector 1 Water Sector 2 No data Transfer of 40 per cent of the water company’s shares. Seven Companies, including Veolia, Sino-French Water Development, Hong Kong & China Gas Co. Ltd. and Beijing Capital, have expressed interest and registered.

Capacity Timeline

Production 1,900,000 m3/d Announced 2004 November

Equity investor Unknown Preferred Bidder 2006 Opportunity!! Nantong North-West District Water

Rugao Jiangsu 25 -year BOT Total investment (USDm) 47.95

Sector 1 Water Sector 2 No data Phase 2 & 3 are scheduled to increase capacity to 400,000m3/d. Asia Environment has a right of ﬁ rst refusal to go ahead with the expansion. The project loan comes from Industrial and Commercial Bank of China (Jiangsu Branch). Asia Environment will, through its other Chinese subsidiaries, be the principal supplier of the equipment, engineering services and design services for the BOT Contract. Zhejiang Buoao is an investment holdings company with registered capital of RMB300 million. The registered capital of Nantong Penyao is RMB100 million, of which Asia Environment will provide 25 per cent (RMB25 million) through its internal resources, and the remaining 75 per cent will be contributed by Zhejiang Buoao. The balance of RMB298 million of the project investment will be funded through loans from PRC banks.

Capacity Timeline

Production 200,000 m3/d Contract awarded 2004

Equity investor Asia Environment 25.00%

Investment vehicle Nantong Water Holdings Private Limited 100.00%

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 214 Water Market Asia - China

Nantong water Tongzhou

Nantong Jiangsu BOT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Transfer of an undisclosed share of the company’s capital.

Capacity Timeline

Production n/a m3/d Announced 2004 September

Unknown Equity investor Opportunity!! Pizhou Water

Pizhou Jiangsu BOT Total investment (USDm) 10.00

Sector 1 Water Sector 2 No data The Project involves the construction of a water supply facility with a capacity to supply up to 100,000 m3/day of treated water to the Pizhou City. There are two phases of the Project. Phase 1 of the Project involves the completion of the facility to supply 50,000 m3/day of treated water to Pizhou city. A special purpose company in the PRC, Pizhou Penyao Water Supply Company (“Pizhou Penyao”), has been established to undertake the Project. Pizhou Penyao is a 100% owned subsidiary of Nantong Water. The total investment cost of the Project is estimated to be RMB82m, of which the investment cost for Phase 1 is estimated to be RMB43m. Under the BOT Contract, the Company’s subsidiary, Jiangsu Penyao Environmental Engineering Contract Co., Ltd (“JSPY Contract”) is appointed as the main contractor to provide turnkey services to the Project. The turnkey services to be provided will involve design, production, procurement, construction, engineering, installation, commissioning and after sales service. The construction of the water supply facility is expected to commence in the fourth quarter of 2005 and Phase 1 of the Project is expected to be completed within 10 months from the commencement of the construction. Following delays and problems, Dayen Enironmental was invited to enter the capital of the SPV. Since October 2005, Dayen holds a 50% stake in Pizhou Penyao, with Lionguard Investment Ltd and Asia Environment each having 25% stakes.

Capacity Timeline

Production 100,000 m3/d Contract awarded 2005 September

Equity investor Asia Environment 25.00%

Equity investor Dayen Environmental 50.00%

Suqian Water & Wastewater

Suqian Jiangsu 30 -year BOT Total investment (USDm) 21.50

Sector 1 Wastewater Sector 2 Water

Capacity Timeline

Treatment 60,000 ton/d Contract awarded 2005 March

Production 80,000 m3/d

Equity investor Bio-Treat 95.00%

Suzhou Wastewater

Suzhou Jiangsu 27 -year BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data In January 2006, Bio-Treat secured a BOT deal for a waste water treatment project in the Chinese city of Suzhou worth more than RMB500m (cumulated revnues), its largest BOT venture to date. This is the ﬁ rst phase of a project that the Suzhou municipal government is planning. The company believes that it is well positioned to bid for the remaining phases. This BOT contract involves the construction of a wastewater treatment facility that is capable of treating up to 150,000 m3/day for the city of Suzhou, and the construction of the drainage piping system for the Project. The total treatment capacity of the entire BOT project, when completed, is expected to be approximately 450,000 m3/day. Additionally, the Company has entered into a joint-venture partnership agreement with Shenzhen Hanyang Investment Holding Co. Ltd., a company based in Shenzhen, for this Project. The Company will hold a 95% stake in the Project while this jointventure partner will hold the remaining 5% stake in the Project.

215 Water Market Asia - China

Capacity Timeline

Treatment 150,000 ton/d Contract awarded 2006 January

EPC contractor Biotreat

Equity investor Biotreat

Taizhou Water

Taizhou Jiangsu 20 -year BROT Total investment (USDm) 12.05

Sector 1 Water Sector 2 Wastewater

Anglian sold this project in 2004

Capacity Timeline

Production n/a m3/d Contract awarded 2002

Equity investor Unknown

Wujiang Water

Jiangsu Total investment (USDm) 118.00

Sector 1 Water Sector 2 No data Towngas made a joint venture with Wujiang Water Investment co for the development of the water supply in Wujiang. The project was under a 30-year concession. Cost was estimated to be around US$117m.

Capacity Timeline

Production n/a m3/d Contract awarded 2004

Equity investor Hong Kong and China Gas (Towngas)

Xuzhou Wastewater

Xuzhou Jiangsu 30 -year TOT Total investment (USDm) 19.28

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production m3/d Contract awarded 1997

Contract awarded 2003

Equity investor Cathay International Water

Equity investor Anhui Guozhen Environmental 100.00%

Xuzhou Wastewater

Xuzhou Jiangsu 30 -year TOT Total investment (USDm) 19.28

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production m3/d Contract awarded 1997

Contract awarded 2003

Equity investor Cathay International Water

Equity investor Anhui Guozhen Environmental

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 216 Water Market Asia - China

Yang Zhou Water

Yang Zhou Jiangsu Divestiture Total investment (USDm) 70.00

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 400,000 m3/d Contract awarded 2004 December

Equity investor Shenzhen Tonge Group

Equity investor Shenzhen Water Group

Investment vehicle Shenzhen water investment Company 70.00%

Zhangjiagang Wastewater

Zhangjiagang Jiangsu BROT Total investment (USDm) 24.00

Sector 1 Wastewater Sector 2 No data This is SembUtilities’ third signiﬁ cant investment in major chemical hubs in China, following its previous successful investments in Shanghai and Nanjing chemical industrial park. It is also SembUtilities’ second integrated wastewater treatment facility in China. The joint venture has exclusive rights to provide third party wastewater treatment services in the free trade zone under a Concession Agreement with the ZhangJiaGang Free Trade Zone Administrative Committee. Under the joint venture agreement, SembUtilities will hold a majority 80 per cent stake in ZhangJiaGang SembCorp Water Company Ltd. The remaining will be held by ZhangBao, the investment arm of the ZhangJiaGang local government. The joint venture will have a registered capital of US$10m, of which SembUtilities’ share of US$8m will be funded through internal sources.

Capacity Timeline

Treatment 20,000 ton/d Contract awarded 2005 June

Equity investor Sembcorp Utilities 80.00%

Zhenjiang Wastewater Dantu EDZ

Zhenjiang Jiangsu BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline Opportunity!! Production 40,000 m3/d Announced 2004 September

Equity investor Unknown

Zhenjiang Water Services

Zhenjiang Jiangsu BROT Total investment (USDm) 30.00

Sector 1 Water Sector 2 Wastewater The project includes a 100,000m3/d waterworks BOT project, a 60,000m3/d sewage treatment plant TOT and a drainage network BT (Build-Transfer) project for water supply and sewage collection in the Zhenjiang New Area.

Capacity Timeline

Treatment 60,000 ton/d Contract awarded 2003

Production 100,000 m3/d

Equity investor Shanghai Industrial Holdings 50.00%

Equity investor China Energy Investment Corp 50.00%

Investment vehicle China Water & Sewage Treatment Company Ltd 100.00%

217 Water Market Asia - China

Zhong Xin Suzhou Industrial Park

Xuzhou Jiangsu BOO Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 400,000 m3/d Contract awarded 2006 January

Equity investor Hong Kong and China Gas (Towngas) Jiangxi

BioteQ Jiangxi Wastewater

Dexinq Jiangxi BOO Total investment (USDm) 2.00

Sector 1 Wastewater Sector 2 No data Vancouver-based BioteQ, which operates and manages water treatment plants, announced this month that it had entered a joint venture agreement with China’s largest copper producer Jiangxi Copper Corporation to build a water treatment plant at the Dexing copper mine in Jiangxi province. Construction of the less-than-$2-million U.S. plant is expected to be completed by the end of this year, and the plant is expected to yield up to 4.5 million pounds of copper per year if all acidic water from mine drainage is treated.

Capacity Timeline

Treatment n/a ton/d Contract awarded 2006 January

Equity investor BioteQ (Canada)

Nanchang Wastewater

Nanchang Jiangxi 28 -year BROT Total investment (USDm) 20.00

Sector 1 Wastewater Sector 2 No data SIIC Investment Shanghai Co Ltd bought a 49% stake in the Nanchang project for RMB28.5m in October 2005. SIIC is a wholly owned subsidiary of Shanghai Industrial Investment Holdings Co Ltd (SIIH). Asia Environment saw its interest in the project will be diluted to 12.78% from 25% as a result of the transaction. The Nanchang wastewater treatment plant in Jiangxi province has a total investment of RMB171m and a daily capacity of 200,000 metric tons of wastewater. It is expected to start operations in 2006.

Capacity Timeline

Treatment 200,000 m3/d Contract awarded 2004

Equity investor Asia Environment 12.50%

Equity investor Shanghai Industrial Holdings 12.50%

Nanchang Wastewater

Nanchang Jiangxi 20 -year ROT Total investment (USDm) 36.00

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 330,000 m3/d Contract awarded 2002

Equity investor Shanghai Environmental Protection Group

Equity investor Berlinwasser International AG

Nanchang Water

Nanchang Jiangxi 20 -year BOT Total investment (USDm) 21.69

Sector 1 Wastewater Sector 2 No data On the 1st May 2003, Nanchang increased both water tariffs and sewerage treatment charges by 22%. Bulk Water Tariff: RMB1.05/

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 218 Water Market Asia - China

m3 (2002)

Capacity Timeline

Production 200,000 m3/d Contract awarded 1995

Contract awarded 2004

Equity investor SUEZ (Ondeo) 25.00%

Equity investor New World Infrastructure 25.00%

Investment vehicle Sino-French Holdings 50.00%

Nanchang Water Niuhang and Changbei

Nanchang Jiangxi Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 400,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!!

Nanchang Water North and South of Changnan

Nanchang Jiangxi Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 600,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!!

Nanchang Water Qingyun

Nanchang Jiangxi BOT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 600,000 m3/d Announced 2004 September Opportunity!! Equity investor Unknown

Xianghu Wastewater

Nanchang Jiangxi Total investment (USDm) 22.30

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 200,000 m3/d Contract awarded 2003

Equity investor SDIC Resources Development Co., Ltd 90.00%

Equity investor Beijing Sound Group 10.00%

Yi Chun Water

Yi Chun Jiangxi 29 -year BOT Total investment (USDm) 9.15

Sector 1 Water Sector 2 No data

219 Water Market Asia - China

Yi Chun City is a developing area located in Jiangxi province, west of Shanghai. It has a population of slightly over 250,000. Water supply has been listed as a priority in the city’s overall development programme by the local authorities. Phase one of the Yuan He Water Treatment Plant was commissioned in June 2005 to supply 50,000 m3/d. The second phase is projected to commence in 2008 to supply a further 50,000 m3/d.

Capacity Timeline

Production 50,000 m3/d Contract awarded 2003

Equity investor YLI Holdings Bhd 37.00%

Equity investor PBA Holdings Bhd 26.00%

Equity investor KWI Far East Sdn Bhd 37.00%

Investment vehicle Pinang Water Ltd (PWL) 100.00% Jilin

Changchun Wastewater

Changchun Jilin BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 390,000 m3/d Contract awarded 2000 0

Equity investor Sime Darby 16.50%

Equity investor RWE Thames Water 24.25%

Equity investor Kadoorie Family Company

Investment vehicle China Water Company 50.00%

Changchun Wastewater Treatment

Changchun Jilin BOO Total investment (USDm) 420.00

Sector 1 Wastewater Sector 2 No data Hyﬂ ux has signed a memorandum of understanding for the development of a water treatment plant project in Changchun City. Total estimated cost is Rmb3.5bn.

Capacity Timeline

Treatment n/a ton/d Contract awarded 2005 July

Equity investor Hyﬂ ux

Siping Water

Siping Jilin 30 -year BROT Total investment (USDm) 8.90

Sector 1 Water Sector 2 No data

Bulk Tariff: RMB0.84/m3 (2002)

Capacity Timeline

Production 118,000 m3/d Contract awarded 2000

Equity investor SUEZ (Ondeo) 25.00%

Equity investor New World Infrastructure 25.00%

Investment vehicle Sino-French Holdings 50.00%

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 220 Water Market Asia - China Liaoning

Changtu Water

Changtu Liaoning 30 -year BOT Total investment (USDm) 14.90

Sector 1 Water Sector 2 No data In 2003, revenues from water sales had increased by 68% since the project was taken over by Sino-French. Bulk Water Tariff: RMB 1.1/m3

Capacity Timeline

Production 100,000 m3/d Contract awarded 1999

Equity investor SUEZ (Ondeo) 35.00%

Equity investor New World Infrastructure 35.00%

Investment vehicle Sino-French Holdings 70.00%

Dalian water desalination

Dalian Liaoning Total investment (USDm) 116.30

Sector 1 Water Sector 2 Desalination

Capacity Timeline

Production 100,000 m3/d Announced 2004 September

Equity investor China National Nuclear Corporation Opportunity!!

Equity investor Beida Jade Bird New Energy Scientiﬁ c Co

Dandong water Mashi

Dandong Liaoning Total investment (USDm) 30.12

Sector 1 Water Sector 2 No data

Dandong is planning to raise US$20m in debt from multilaterals for this project.

Capacity Timeline

Production 200,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!!

Diao Bing Shan Wastewater

Diao Bing Shan Liaoning 23 -year BOT Total investment (USDm) 8.46

Sector 1 Wastewater Sector 2 No data During the 23-year operation, the local government of Diao Bing Shan City has agreed to pay Shenfei Dayen a fee based on the volume of Wastewater treated. The project started making its ﬁ rst payments in 2004, with Shenfei Dayen receiving US$1.2 million.

Capacity Timeline

Production 30,000 m3/d Contract awarded 2003

Equity investor SAC General Products 49.00%

Equity investor Dayen Environmental 51.00%

Investment vehicle Shenfei Dayen Environmental 100.00%

Fushun Water (Jiangjun, Yongan and Donggongyun Plants)

221 Water Market Asia - China

Fushun Liaoning 18 -year ROT Total investment (USDm) 36.14

Sector 1 Water Sector 2 No data

Sold back in 2001

Capacity Timeline

Production 370,000 m3/d Contract awarded 1997

Early termination 2002 Termination!

Equity investor Cheung Kong Infrastructure Holdings Ltd 69.00 Fushun Water (Jiangjun, Yongan and Donggongyun Plants)

Fushun Liaoning 18 -year ROT Total investment (USDm) 36.14

Sector 1 Water Sector 2 No data

Sold back in 2001

Capacity Timeline

Production 370,000 m3/d Contract awarded 1997 Termination! Early termination 2002

Equity investor Cheung Kong Infrastructure Holdings Ltd 69.00%

Huludao Desalination

Huludao Liaoning 30 -year BOO Total investment (USDm) 48.50

Sector 1 Water Sector 2 Desalination In September 2004, Hyﬂ ux signed a shareholder agreement for the joint venture company, Newspring (Huludao) Co., Ltd., formed to undertake the 50,000 m3 per day seawater desalination plant in Huludao. Shareholders of the JV are Liaoning Zhengye Group Real Estate Development Co., Ltd. (49%), Hyﬂ ux Utility Ltd (49%) and Ashcraft Holdings Pte Ltd (2%).

Capacity Timeline

Production 50,000 m3/d Contract awarded 2004 December

Equity investor Ashcraft Holdings Pte 2.00%

Equity investor Liaoning Zhengye Group Real Estate 49.00%

Equity investor Hyﬂ ux 49.00%

Panjin Water

Panjin Liaoning 30 -year ROT Total investment (USDm) 27.50

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 110,000 m3/d Contract awarded 2001

Equity investor SUEZ (Ondeo) 30.00%

Equity investor New World Infrastructure 30.00%

Investment vehicle Sino-French Holdings 60.00%

PetroChina Dalian Water

Dalian Liaoning Total investment (USDm) 6.00

Sector 1 Water Sector 2 No data

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 222 Water Market Asia - China

Capacity Timeline

Production 20,000 m3/d Contract awarded 2003

Equity investor American CNC Technology Corporation 100.00%

Shenyang (Shifosi)

Shenyang Liaoning 20 -year ROT Total investment (USDm) 23.50

Sector 1 Water Sector 2 No data The project was sold to Shenyang Water for HK$43.7 million in 1999, in the context of Shenyang Water going public on the Shanghai Stock Exchange.

Capacity Timeline

Production 400,000 m3/d Contract awarded 1997

Early termination 1999

Equity investor Cheung Kong Infrastructure Holdings Ltd 50.00% Termination!

Shenyang No. 1 to No. 8

Shenyang Liaoning 30 -year O&M Total investment (USDm) 0.00

Sector 1 Water Sector 2 No data Following the buy-out of the initial JV by Shenyang Water, Sino-French was granted a management contract for 8 water plants in the city. The O&M contract was terminated in 2002 following a dispute regarding capex expenditures with the local partner

Capacity Timeline

Production 1,500,000 m3/d Contract awarded 2000

Early termination 2002

Equity investor SUEZ (Ondeo) 4.90%

Equity investor New World Infrastructure 4.90%

Investment vehicle Sino-French Holdings 9.90%

Shenyang No. 8

Shenyang Liaoning 30 -year BROT Total investment (USDm) 29.90

Sector 1 Water Sector 2 No data Bulk Tariff: RMB1.09/m3 (2002). Suez and New World were also both shareholders in Shenyang Public Utility, a bulk water, energy and public transport multi-utility ﬂ oated on the Hong Kong stock exchange, which held long-term concessions for bulk water supply, bus transport and electricity generation for the city of Shenyang: however, in 2002 it sold the bulk water interest because costs had risen, due to drought, and demand had fallen due to the water authority’s demand-saving measures and their inability to pay the contracted price.

Capacity Timeline

Production 450,000 m3/d Contract awarded 1995

Early termination 2002

Equity investor SUEZ (Ondeo) 25.00% Termination!

Equity investor New World Infrastructure 25.00%

Investment vehicle Sino-French Holdings 50.00%

Xinmin Water (Liu River)

Xinmin Liaoning BOT Total investment (USDm) n/a

223 Water Market Asia - China

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2000

Equity investor Sime Darby 16.50%

Equity investor RWE Thames Water 24.25%

Equity investor Kadoorie Family Company

Investment vehicle China Water Company 50.00%

Zaija (Shenyang No. 9)

Shenyang Liaoning 20 -year BOT Total investment (USDm) 25.00

Sector 1 Water Sector 2 No data The project was initially granted guaranteed returns of expected to yield returns of 18.5 per cent for the second to fourth year, 21 percent for the ﬁ fth to 14th year and 11 percent for the 15th to 20th year.

Capacity Timeline

Production 150,000 m3/d Contract awarded 1996

Equity investor Sime Darby 16.50%

Equity investor RWE Thames Water 24.25%

Equity investor Kadoorie Family Company

Investment vehicle China Water Company 50.00%

Zhengye Desalination

Liaoning 30 -year BOT Total investment (USDm) 50.00

Sector 1 Water Sector 2 Desalination

Capacity Timeline

Production 50,000 m3/d Contract awarded 2004 October

Equity investor Hyﬂ ux

Guo Zhen Water

Liaoyang Liaoning Divestiture Total investment (USDm) 1.60

Sector 1 Water Sector 2 No data United Envirotech Ltd acquired a 25% stake in United Guo Zhen Water Treatment (Liaoyang) Co Ltd (UG), a water utility company, for 13.5 mil Chinese yuan (2.697 mil Singapore dollars/$1.633 mil US). Concurrently, UE through its wholly-owned subsidiary NOVO Envirotech (Guangzhou) Co Ltd, raised its interest to 96% from 25%, by acquiring a further 71% interest, in UG.

Capacity Timeline

Production n/a m3/d Contract awarded 2004 December

Equity investor United Envirotech 25.00% Shaanxi

Baoji Water

Baoji Shaanxi 25 -year ROT Total investment (USDm) 40.00

Sector 1 Water Sector 2 No data

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 224 Water Market Asia - China

The project will increase the capacity of the existing plant to 230,000 m3/day.

Capacity Timeline

Production 162,000 m3/d Contract awarded 2002

Equity investor Veolia Water 25.00%

Equity investor Beijing Capital Company 25.00%

Investment vehicle Beijing Capital Veolia Water Investments 50.00%

Weinan Water

Shaanxi 22 -year No data Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Distribution 300,000 pop Contract awarded 2005 September

Operator Veolia Water

Equity investor Veolia Water

Xian South Water

Xi’an Shaanxi 22 -year BOT Total investment (USDm) 30.00

Sector 1 Water Sector 2 No data Xian Water Company has applied for tariff increases up to RMB3.89/m3 for industries and RMB2.06/m3 for residents to come into effect by 2007. Water expenditure should then represent about 1% of individual disposable income (RMB6,704/ capita in 2003 and RMB9. The Xian Water contract in China, which was held by Berlinwasser was ended in 2002.

Capacity Timeline

Production 500,000 m3/d Contract awarded 1997

Early termination 2002 Termination!

Equity investor HK partner

Equity investor Berlinwasser International AG

Xianyang Wastewater

Xianyang Shaanxi 25 -year BOT Total investment (USDm) 34.70

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Treatment 200,000 ton/d Contract awarded 2004 October

Equity investor Bio-Treat

Xianyang Water

Xianyang Shaanxi 30 -year BOT Total investment (USDm) 24.16

Sector 1 Water Sector 2 No data Xianyang city government has committed to taking 60-80 per cent of the plant’s projected water capacity for the ﬁ rst three years immediately after operations commence. InterChina has incorporated a project company with RMB60 million of registered capital.

Capacity Timeline

Production 300,000 m3/d Contract awarded 2003

225 Water Market Asia - China

Equity investor InterChina Holdings Co Ltd 100.00%

Shandong

Binzhou Cathay Water Plant

Binzhou Shandong 20 -year ROT Total investment (USDm) 6.60

Sector 1 Water Sector 2 No data

The project used to have a guaranteed ROR of 16.5%. It was cancelled by a 2002 State Council ruling.

Capacity Timeline

Production 50,000 m3/d Contract awarded 1998

Equity investor Cathay International Water

Binzhou Dongiao Water

Binzhou Shandong 20 -year ROT Total investment (USDm) 9.90

Sector 1 Water Sector 2 No data

The project used to have a guaranteed ROR of 16.5%. It was cancelled by a 2002 State Council ruling.

Capacity Timeline

Production 40,000 m3/d Contract awarded 1998

Equity investor Cathay International Water

Changle County Water

Changle County Shandong 50 -year Concession Total investment (USDm) 10.50

Sector 1 Water Sector 2 No data Recent economic development in China has resulted in the growth of manufacturing and industrial activities in Changle County. Currently, water demand growth in Changle County is about 20% and is expected to increase 30% to 40% over Salcon can also collect service fees from the Changle Government on bulk-sale basis, with a starting rate of RMB0.80/m3. In addition, the Changle Government undertakes to purchase from Salcon a minimum guaranteed quantity of 20,000 m3/day currently, and 32,000 m3/day after the completion of the extended plant. The agreement was signed on April 22 between Salcon deputy chairman Datuk Patrick Teoh and Mayor Wang Li Sheng of Changle County.

Capacity Timeline

Distribution 600,000 pop Direct negotiations 2002

Production 40,000 m3/d Contract awarded 2005 April

Equity investor Salcon Water (HK) Ltd 75.00%

Hai Yang Wastewater

Hai Yang Shandong 22 -year ROT Total investment (USDm) 3.60

Sector 1 Water Sector 2 Water

Capacity Timeline

Treatment 20,000 ton/d Contract awarded 2005 June

Equity investor China Evergreen Asset Group

Jinan Wastewater

Jinan Shandong BOT Total investment (USDm) 79.00

Sector 1 Wastewater Sector 2 No data

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 226 Water Market Asia - China

The foreign party is expected to cover 80% of the investment cost. The pay-off period is supposed to be 8 years.

Capacity Timeline

Production 450,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!! Jinan Water

Jinan Shandong Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2003

Equity investor Berlinwasser International AG

Jinan Water II

Jinan Shandong BOT Total investment (USDm) n/a

Sector 1 Water Sector 2 Wastewater Shanghai Industrial Holdings, the Hong Kong-listed investment arm of the Shanghai municipal government, entered the water supply and sewage treatment business in Jinan, capital of Shandong province, with a total investment of up to HK$1bn. Shanghai Industrial conducted at least three investments including one water supply and two sewage treatment projects through a 50-50 joint venture with state-controlled China Energy Conservation Investment Corp. The joint venture, General Water China, formed another joint venture with Jinan Water Supply, the city’s monopoly water company, to invest in water supply projects in Changqing University Park, among others.

Capacity Timeline

Treatment n/a ton/d Contract awarded 2005 August

Production n/a m3/d

Investment vehicle General Water China

Equity investor Shanghai Industrial Holdings 50.00%

Jinan Water (Dongjiao, Nanjiao, Xijiao & Dayang Plants)

Jinan Shandong 26 -year BOT Total investment (USDm) 120.00

Sector 1 Water Sector 2 No data

The project used to have a guaranteed ROR of 14.85%, which was cancelled by a 2002 State Council ruling.

Capacity Timeline

Production 1,300,000 m3/d Contract awarded 1998

Equity investor Cathay International Water

Jinan Water Jinan Hi-Tech Zone

Jinan Shandong BOT Total investment (USDm) 4.82

Sector 1 Water Sector 2 No data The Chinese party will commit land-use rights as equity and the foreign party will cover the investment cost. The pay-off period is supposed to be ﬁ ve years.

Capacity Timeline

Production 15,000 m3/d Announced 2004 September Opportunity!!

227 Water Market Asia - China

Equity investor Unknown

Linqu County Water

Linqu County Shandong 50 -year BOT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data Water consumption in Linqu County currently stands at 15 million litres per day. Demand is expected to grow steadily with the growth of new economic zones in the county and the steady shift by consumers which previously used underground self-supply wells.

Capacity Timeline

Production n/a m3/d Contract awarded 2004

Equity investor Salcon Water (HK) Ltd

Linyi Water (Lanshan, Hedong and Luozhuang districts)

Linyi Shandong 30 -year Concession Total investment (USDm) n/a

Sector 1 Water Sector 2 No data The supply areas are Lan Shan, Luo Zhuang, He Dong, the High-Tech Development Zone and the Economic Development Zone. Linyi is the largest (at 17,000 km2) and most populous municipality in Shandong Province with a population of 10 million.

Capacity Timeline

Production 200,000 m3/d Contract awarded 2004

Equity investor Salcon Water (HK) Ltd

Linyi Water Services

Linyi Shandong 30 -year Concession Total investment (USDm) 72.29

Sector 1 Water Sector 2 No data Details of the project will be fi nalized and implemented after a technical and fi nancial due diligence study is undertaken and a defi nitive agreement signed. The fi nal agreement was signed on 15 October 2005.

Capacity Timeline

Production 300,000 m3/d Direct negotiations 2004

Contract awarded 2005 October

Equity investor Salcon Water (HK) Ltd 40.00%

Equity investor Jin Ying Group 50.00%

Qingdao Capital Riuhai Water

Qingdao Shandong Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2004 November

Equity investor Beijing Capital Company

Qingdao Desalination

Qingdao Shandong BOT Total investment (USDm) 5.00

Sector 1 Water Sector 2 No data

The desalinator can produce one ton of fresh water at a cost of less than RMB5.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 228 Water Market Asia - China

Capacity Timeline

Production 3,000 m3/d Contract awarded 2002

Equity investor Qingdao Hua’ou Group

Qingdao Wastewater

Qingdao Shandong 25 -year BROT Total investment (USDm) 126.00

Sector 1 Wastewater Sector 2 No data

Lender to Everbright: Agricultural Bank of China. Veolia is investing E13.5m.

Capacity Timeline

Production 140,000 m3/d Contract awarded 2003

Equity investor Veolia Water

Equity investor China Everbright International

Qingdao Water (Baishahe and Xianjiazhai Plants)

Qingdao Shandong 25 -year ROT Total investment (USDm) 27.11

Sector 1 Water Sector 2 No data The project company will provide 90 per cent of water used in the city center. Qingdao is the venue of the 2008 Olympic nautical games. Qingdao is also a key tourist destination and a famous beer producing center in China. The project will have a 200,000 m3/d extension entirely ﬁ nanced on the local debt market.

Capacity Timeline

Production 543,000 m3/d Contract awarded 2002

Equity investor SUEZ (Ondeo) 25.00%

Equity investor New World Infrastructure 25.00%

Investment vehicle Sino-French Holdings 50.00%

Qingdao Water Services

Qingdao Shandong BROT Total investment (USDm) n/a

Sector 1 Water Sector 2 Wastewater Salcon entered into a Head of Agreement on water supply development with the Management Committee of the Qingdao Economic and Technical Development Zone in the Shandong Province in June 2004. Qingdao is one of China’s major trading ports and industrial centre where there is a huge demand for municipal infrastructure works especially water supply in both cities in recent years due to rapid economic growth.

Capacity Timeline

Production n/a m3/d Contract awarded 2004

Equity investor Salcon Water (HK) Ltd

Roncheng Desalination

Shindao Town, Shandong BOT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Reverse osmosis desalination plant.

Capacity Timeline

Production 5,000 m3/d Contract awarded 2003

229 Water Market Asia - China

Equity investor Shidao Aquatic supply and Marketing Group General

Rushan Wastewater

Rushan Shandong BOT Total investment (USDm) 25.00

Sector 1 Wastewater Sector 2 No data In November 2005, United Envirotech signed a memorandum of understanding to build and operate industrial wastewater and municipal sewage treatment plants for Rushan City, Shandong. The plants will have a total treatment capacity of 70,000 metric tons per day. The company also has the option to acquire two of the existing plants in the city. The total treatment capacity for these two existing plants is 40,000 metric tons per day. Under the agreement, United Envirotech will conduct a feasibility study on the viability of the two projects. Upon a favorable review, the company will provide the technology and the expertise to build and operate the two plants. The total investment for these two plants is approximately US$ 25 million.

Capacity Timeline

Production 70,000 m3/d Contract awarded 2005 November

Equity investor United Envirotech

Weifang Industrial Park

Weifang Shandong 50 -year Concession Total investment (USDm) 7.50

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2005 May

Equity investor JAKS Resources Bhd 75.00%

Weifang Wastewater

Weifang Shandong 30 -year ROT Total investment (USDm) 2.20

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 40,000 m3/d Contract awarded 2005 April

Equity investor Salcon Water (HK) Ltd

Weifang Water

Weifang Shandong Divestiture Total investment (USDm) 10.20

Sector 1 Water Sector 2 No data Sime Darby’s wholly-owned subsidiary, Sime Overseas Sdn. Bhd. (SOSB), signed a joint venture agreement with Weifang Yintong Guoji Investment Co. Ltd. (WYGI), a Weifang City People’s Government-linked company (Weifang GLC) on 18 November 2005. The joint venture company, known as Weifang Sime Darby Investment and Management Co. Ltd. (WSDIM), will be mainly involved in investment holding and provision of management services. SOSB will be the majority shareholder of WSDIM with 51 per cent equity interest and the remaining 49 per cent equity interest in WSDIM will be held by WYGI. The JV aims to further enhance the cooperation between Weifang City People’s Government and Sime Darby. SOSB on the same day signed an agreement with WYGI, for the acquisition of an 80 per cent stake in Weifang Sime Darby Water Co. Ltd. for a total consideration of US$10m. Weifang Water’s principal activity is the treatment and supply of treated water to industrial customers. The current registered capital of Weifang Water is RMB15.5m. The remaining 20 per cent equity interest in Weifang Water will be held by WYGI.

Capacity Timeline

Production n/a m3/d Contract awarded 2005 November

Equity investor Sime Darby 80.00%

Weihai Water Desalination

Weihai Shandong BOO Total investment (USDm) 115.00

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 230 Water Market Asia - China

Sector 1 Water Sector 2 Desalination Approved by the government. Construction may start in 2006 and completion is expected in 2008.

Capacity Timeline

Production 100,000 m3/d Announced 2004 September

Contract awarded 2005 May

Equity investor Unknown

Xintai Wastewater

Xintai Shandong 30 -year BOT Total investment (USDm) 8.40

Sector 1 Wastewater Sector 2 No data United Envirotech signed a contract to build a RMB70 million wastewater treatment facility in Xintai City in Shandong province. Under the deal, United Envirotech will operate the facility for 30 years and supply at least 30,000m3/d of water to Xintai City initially, with the supply volumes rising to 80,000m3/d after ﬁ ve years. The Xintai facility was originally designed to treat wastewater for discharge into nearby rivers but United Envirotech said it will use its membrane ﬁ ltration technology to recycle wastewater to potable standards.

Capacity Timeline

Treatment 80,000 m3/d Contract awarded 2005 October

Equity investor United Envirotech

Yantai Desalination

Yantai Shandong Total investment (USDm) 193.00

Sector 1 Water Sector 2 Desalination The project is a desalination plant using a 200MW nuclear-powered reactor. Feasibility studies are underway. Production costs are expected to drop to RMB3.7 (45 US cents) per ton, near to the current tap water price in the city.

Capacity Timeline

Production 160,000 m3/d Contract awarded 2003

Equity investor Beijing Haoxing Investment

Yantai Water

Yantai Shandong BOT Total investment (USDm) 100.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Announced 2005 February

Equity investor Unknown Opportunity!!

Zhonggong Wastewater

Shandong BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production n/a m3/d Direct negotiations 2004 November

Equity investor Unknown

Zibo Wastewater

Zibo Shandong 25 -year BOT Total investment (USDm) 28.00

231 Water Market Asia - China

Sector 1 Wastewater Sector 2 No data China Everbright International agreed to pay US$28 million for a contract to operate wastewater treatment plants and provide wastewater treatment services in Zibo City. Everbright has signed a 25-year contract with the municipality.

Capacity Timeline

Production n/a m3/d Contract awarded 2005 December

Equity investor China Everbright International Shanghai

Jingshan Sewerage

Shanghai Shanghai 25 -year BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 1,700,000 m3/d Contract awarded 2002

Equity investor Beijing Sound Group

Michelin Production Site

Shanghai Shanghai 50 -year BOT Total investment (USDm) 245.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2002

Equity investor Veolia Water 100.00%

Shanghai Da Chang

Shanghai Shanghai 20 -year BOT Total investment (USDm) 73.00

Sector 1 Water Sector 2 No data The project returned to Shanghai Municipal Waterworks North Co. In 2004 after the project’s guaranteed returns of 15 per cent were cancelled.

Capacity Timeline

Production 400,000 m3/d Contract awarded 1996

Early termination 2004 Termination!

Equity investor RWE Thames Water 50.00%

Equity investor Bovis Lend Lease 50.00%

Shanghai Fengxian Water

Shanghai Shanghai 28 -year O&M Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Shangai Fengxian Saur Water Supply Co. Ltd, WuQiaoZhen Economic Zone, Fengxian - Shangai, (86) 21 37 44 00 70

Capacity Timeline

Production 100,000 m3/d Contract awarded 2001

Equity investor SAUR International

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 232 Water Market Asia - China

Shanghai Pudong Water Services

Shanghai Shanghai 50 -year Concession Total investment (USDm) 240.00

Sector 1 Water Sector 2 No data The government has appointed an independent director to the board of directors of the new joint venture, to ensure representation of the governments’ interests. The service area covered by the contract includes commercial buildings and residential complexes, as well as the new Shanghai international airport, and numerous business parks. General Manager: Rémi Paul.

Capacity Timeline

Distribution 1,720,000 pop Contract awarded 2002

Production 1,200,000 m3/d

Equity investor Veolia Water

Shanghai SCIP

Shanghai Shanghai 50 -year BOT Total investment (USDm) 60.00

Sector 1 Water Sector 2 Wastewater SCIP is home to some of the world’s largest chemical groups including BP, BASF, Bayer, Huntsman as well as major Chinese industrials such as GAO QIAO. SECCO became a customer of the JV for both water and wastewater treatment in 2004.

Capacity Timeline

Treatment 50,000 ton/d Contract awarded 2002

Production 200,000 m3/d

Equity investor SUEZ (Ondeo) 25.00%

Equity investor New World Infrastructure 25.00%

Investment vehicle Sino-French Holdings 50.00%

Shanghai SPARK

Shanghai Shanghai 30 -year Concession Total investment (USDm) 180.00

Sector 1 Water Sector 2 Wastewater Shanghai Spark is located to the south of Shanghai alongside Hangzhou Bay and is home to pharmaceutical, chemical, textile, manufacturing and paper industries. By 2005, it is predicted that the arrival of new industries in this zone will boost its water demand threefold. In September 2002, the commodity price bureau of Shanghai adjusted the Spark Development Zone tariff structure: the price of domestic water increased from RMB0.68/m3 to RMB0.90/m3, while non-domestic water was priced at RMB1.1/m3 up from RMB0.9/m3.

Capacity Timeline

Treatment 100,000 ton/d Contract awarded 2001

Distribution

Production 100,000 m3/d

Equity investor SUEZ (Ondeo) 25.00%

Equity investor New World Infrastructure 25.00%

Investment vehicle Sino-French Holdings 50.00%

Shanghai Wastewater

Shanghai Shanghai BOT Total investment (USDm) 200.00

Sector 1 Wastewater Sector 2 No data

A WB loan is lined up to ﬁ nance this project

233 Water Market Asia - China

Capacity Timeline

Production 1,300,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!!

Shanghai Wastewater Zhuyuan

Shanghai Shanghai BOT Total investment (USDm) 60.50

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 500,000 m3/d Announced 2004 September Opportunity!! Equity investor Unknown

Zhuyuan No. 1 Sewage Treatment Factory

Shanghai Shanghai 20 -year BOT Total investment (USDm) 105.00

Sector 1 Wastewater Sector 2 No data

May 2005 Interchina Holdings has bought the Youlian Group, which possesses the Shanghai Zhuyuan 1st WwTP, for RMB150 million in cash including Youlian’s liabilities. Interchina is said to want to keep the Zhuyuan 1st plant only and will sell all other Youlian assets, mainly real estate.

Capacity Timeline

Production 1,700,000 m3/d Contract awarded 2002

Equity investor InterChina Holdings Co Ltd 85.00%

Zhuyuan No. 2 Sewage Treatment Factory

Shanghai Shanghai BOT Total investment (USDm) 12.50

Sector 1 Wastewater Sector 2 No data

Amount of investment RMB100m;Contact: Geng Yuhong; Tel: 86-21-62791919-157/161

Capacity Timeline

Treatment 500,000 ton/d Announced 2005 April Opportunity!! Equity investor Unknown Shanxi

Yingxian Urban Sewage Treatment

Yingxian Shanxi BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data Bidding agency: Shanxi Huaan Construction Project Management Co., Ltd. Address: 11/F, Taihangyuandong Commercial Tower, No. 94, Qinxianbei Street, Taiyuan City, Shanxi Province, China Tel: 86-351-7536032/7536582(3)-8003/8007, Fax: 86-351-7536581, Contact: Li Qiang

Capacity Timeline

Treatment n/a ton/d Announced 2005 April Opportunity!! Equity investor Unknown

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 234 Water Market Asia - China Sichuan

Chengdu No. 6

Chengdu Sichuan 18 -year BOT Total investment (USDm) 106.50

Sector 1 Water Sector 2 No data Bulk Water: RMB0.98/m3 (2002), Domestic Water Tariff: RNB0.65/m3 (2002) - Lin Jian Guo, general manager of local partner; Michael Smart, GM of JV Co during construction, Jean François Papet GM of JV after construction. Chengdu was the ﬁ rst ofﬁ cial BOT in the sector.

Capacity Timeline

Production 460,000 m3/d Contract awarded 1999

Equity investor Veolia Water 60.00%

Equity investor Marubeni Corp 40.00%

Zigong Wastewater

Zigong Sichuan 19 -year BOT Total investment (USDm) 5.66

Sector 1 Wastewater Sector 2 No data Phase I: 50,000m3/d, phase II: +50,000m3/d was completed in 2004. Contract price: RMB 0.72/m3 wastewater. Lender: Bank of China Sichuan Branch

Capacity Timeline

Production 100,000 m3/d Contract awarded 2002

Equity investor Beijing Zhonglianhuan Engineering Stock Co. Ltd Tianjin

Beicang Wastewater

Tianjin Tianjin BOT Total investment (USDm) 50.14

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 100,000 m3/d Contract awarded 2001

Equity investor Tianjin Capital Environmental Protection Company 100.00%

Hangu Yingcheng Wastewater

Tianjin Tianjin BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data To Design, Build and Operate the Hangu Yingcheng Wastewater Treatment Plant. Contact: No.90 Xi San Huan Zhong Lu 100055, E- mail: [email protected] Tel: 86-10-63348571 Fax: 86-10-63373576 Contact: Mr. Ji Guang.

Capacity Timeline

Treatment n/a ton/d Announced 2006 January

Equity investor Unknown Opportunity!!

Jie Yuan Water

Tianjin Tianjin 20 -year BROT Total investment (USDm) 46.00

Sector 1 Water Sector 2 No data

235 Water Market Asia - China

Capacity Timeline

Production 500,000 m3/d Contract awarded 2002

Equity investor EarthTech 52.00%

TEDA Desalination

Tianjin Tianjin Total investment (USDm) 19.00

Sector 1 Water Sector 2 No data The Plant uses nuclear power. Construction is to start in October 2004 and production in 2006. The 4th feasibility study report has been completed and has passed the experts examination.

Capacity Timeline

Production 20,000 m3/d Contract awarded 2004

Equity investor New Water Source Technology Development Co., Ltd.

Tianjin Dagu Industrial Wastewater

Tianjin Tianjin Total investment (USDm) 17.00

Sector 1 Wastewater Sector 2 Water re-use

Capacity Timeline

Production 18,000 m3/d Contract awarded 2006 January

Treatment 40,000 ton/d

Equity investor Salcon Water (HK) Ltd

Tianjin Tanggu

Tianjin Tianjin 35 -year Concession Total investment (USDm) 75.00

Sector 1 Water Sector 2 No data

All project debts are guaranteed by Sino-French Holdings. No Shareholder loans.

Capacity Timeline

Distribution 850,000 pop Contract awarded 2004

Production 310,000 m3/d

Equity investor SUEZ (Ondeo) 25.00%

Equity investor New World Infrastructure 25.00%

Investment vehicle Sino-French Holdings 50.00%

Tianjin Tanggu Desalination

Tianjin Tianjin BOT Total investment (USDm) 36.20

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 20,000 m3/d Contract awarded 2004

Equity investor Tianjin Capital Environmental Protection Company

Equity investor Tianjin Bohai Chemical Industry

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 236 Water Market Asia - China

Tianjin Wastewater

Tianjin Tianjin 30 -year TOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Tariff: RMB1.93/ton. Revenues from contruction RMB1170 million.

Capacity Timeline

Production 660,000 m3/d Contract awarded 2000

Equity investor Tianjin Capital Environmental Protection Company 100.00%

Tianjin Water (Lingzhuang Plant)

Tianjin Tianjin 20 -year ROT Total investment (USDm) 29.50

Sector 1 Water Sector 2 No data

Raw Water: RNB 1.2/m3 (2002)

Capacity Timeline

Production 500,000 m3/d Contract awarded 1997

Equity investor Veolia Water 55.00%

Tianjin Water Desalination Alkali

Tianjin Tianjin Total investment (USDm) n/a

Sector 1 Water Sector 2 Desalination

Capacity Timeline

Production 2,500 m3/d Announced 2004 September Opportunity!!

Equity investor Unknown

Tianjing Dagang Desalination

Tianjin Tianjin 30 -year BOO Total investment (USDm) 90.36

Sector 1 Water Sector 2 No data This membrane-based plant will be one of the biggest desalination facilities in China supplying industrial and city grade water to the district of Dagang in Tianjin. The project is to be expanded to 150,000m3/d by 2008. In May 2005, Hyﬂ ux signed the Cooperative Agreement with The People’s Government of the District of Dagang, Tianjin Municipality in connection with the seawater desalination plant to be built in Tianjin, for the supply of potable water.

Capacity Timeline

Production 100,000 m3/d Direct negotiations 2004 June

Contract awarded 2005 May

Equity investor Hyﬂ ux 100.00%

Xian Yanglu Wastewater

Tianjin Tianjin BOT Total investment (USDm) 144.54

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 450,000 m3/d Contract awarded 2001

Equity investor Tianjin Capital Environmental Protection Company 100.00%

237 Water Market Asia - China Xinjiang

Urumqi Wastewater (Hedong Plant)

Urumqi Xinjiang 23 -year ROT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data On the 21st of June 2004, an agreement between Veolia Water and the Urumqi City Water Company was signed to redevelop the city’s wastewater assets. Under the agreement, at the end of the contractual period, the project’s assets will be transferred to the municipality with no charge. Starting capacity was 200,000 ton/d and will be upgraded to 400,000 ton/d.

Capacity Timeline

Production 400,000 m3/d Announced 2004

Contract awarded 2005 September

EPC contractor Veolia Water Systems

Equity investor Veolia Water

Equity investor Beijing Capital Company Yunnan

Cheng Gong County Water

Kunming Yunnan 30 -year BROT Total investment (USDm) 36.25

Sector 1 Water Sector 2 No data In August 2005, Salcon Bhd’s Hong Kong subsidiary, Salcon Yunnan, was awarded a 30-year concession to manage and operate the water supply system in Chenggong County in Yunnan Province. The project was secured through Salcon’s joint venture with Chenggong County Water Supply Co, Chenggong Salcon Water Co Ltd (CSW). Under the agreement, CSW will undertake the construction of a water treatment plant with an initial capacity of 20,000 m3/d with an option to expand to 60,000. The design of the water treatment plant is awaiting approval from the relevant Chinese authorities and construction is expected to begin by the end of the year. CSW is 60% owned by Salcon Yunnan, and 40% by Chenggong County Water Supply Co.

Capacity Timeline

Distribution Direct negotiations 2004

Production 20,000 m3/d Contract awarded 2005 August

Preferred bidder 2005 March

Equity investor Salcon Water (HK) Ltd

Kunming Water

Kunming Yunnan 30 -year Divestiture Total investment (USDm) n/a

Sector 1 Water Sector 2 No data Veolia bought a 49% stake in the Kunming Water Company with a Hong Kong JV partner for RMB1 billion (US$124 million). The remaining 51% will stay in the hands of the municipality, but Veolia will take control of management. The utility has a production capacity of 1.6 million m3/d from nine treatment plants. Under the 30-year contract, water will be supplied to 2.5 million people. The deal is Veolia’s third biggest in China and the ﬁ rst water supply project with foreign investment in Yunnan province.

Capacity Timeline

Distribution 2,500,000 pop Contract awarded 2005 December

Production 1,600,000 m3/d

Equity investor Veolia Water

Qujing Water & Wastewater

Qujing Yunnan Divestiture Total investment (USDm) 36.00

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 238 Water Market Asia - China

Sector 1 Water Sector 2 Wastewater In January 2006, Tianjin Capital Environmental Protection Co Ltd (TCEPO) announced that its unit Qujing Capital Water Treatment Co Ltd has agreed to buy sewage water treatment and water supply plants in Qujing, Southwest China for 290.08 million yuan (US$35.96 million). TCEPO chairman Ma Baiya said the assets include water supply plants I to III at Qujing City’s Qi Lin district and a sewage water treatment plant, also in the same district. The group is principally engaged in several businesses, including the design, management and operations of sewage water treatment plants and their related infrastructure facilities, as well as the development and operation of environmental protection technology and products.

Capacity Timeline

Production n/a m3/d Contract awarded 2006 January

Equity investor Tianjin Capital Environmental Protection Company

Zhejiang

Deqing County Water

Deqing County Zhejiang 15 -year BOT Total investment (USDm) 2.40

Sector 1 Water Sector 2 No data Delays in obtaining approvals from the Chinese authorities, including the ministry of fi nance, have slowed progress for securing fi nance for the project. This also resulted in delays in securing insurance coverage. In 2003, Darco started working on securing insurance. In August 2005, the investor announced that it had solved the dispute. Darco would return to complete the Deqing project within six months after all requisite permits and licenses are in place. At the time, Darco had completed over 85% of work on the plant. The plant is expected to start selling water by the fi rst quarter of 2006.

Capacity Timeline

Production 60,000 m3/d Contract awarded 2002

Equity investor Globe Environemental Co 17.50%

Equity investor Darco Water Tech (Darco Environmental ) 52.50%

Investment vehicle Globe Environmental (HK) Pte Ltd 70.00%

Fuyang Water

Fuyang Zhejiang 20 -year BOT Total investment (USDm) 17.40

Sector 1 Water Sector 2 No data

Local equity investment of US$8 million.

Capacity Timeline

Production n/a m3/d Contract awarded 1997

Equity investor Continental Mariner Investments 36.00%

Hangzhou Chi Shanbu Water Supply

Hangzhou Zhejiang 30 -year BOT Total investment (USDm) 18.07

Sector 1 Water Sector 2 No data

Capacity Timeline

Distribution 250,000 pop Contract awarded 2000

Production 150,000 m3/d

Equity investor Qiantianjiang Water 100.00%

Hangzhou Wastewater

239 Water Market Asia - China

Hangzhou Zhejiang Divestiture Total investment (USDm) 94.00

Sector 1 Wastewater Sector 2 No data Tianjin Capital has entered into a new JV with a 70% stake in a RMB858.15 million sewage treatment project in Hangzhou, Zhejiang province. It will contribute RMB180 million to the JV company alongside its publicly-owned partner Hangzhou City Construction Company. The consortium intends to raise some RMB600 million on the debt market.

Capacity Timeline

Production n/a m3/d Contract awarded 2005 November

Equity investor Tianjin Capital Environmental Protection Company

Hangzhou Water

Hangzhou Zhejiang Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production m3/d Contract awarded 2002

Equity investor Qiantianjiang Water

Huzhou Wastewater Dongbuxinqu

Huzhou Zhejiang BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production m3/d Announced 2004 September

Equity investor Unknown Opportunity!!

Huzhou Water

Huzhou Zhejiang Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2004

Equity investor Shanghai Industrial Holdings

Ningbo Wastewater ETDZ

Ningbo Zhejiang BOT Total investment (USDm) n/a

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 24,000 m3/d Announced 2004 September Opportunity!! Equity investor Unknown

Taizhou Wastewater

Taizhou Zhejiang BOT Total investment (USDm) 23.80

Sector 1 Wastewater Sector 2 No data

The project will serve the Taizhou Economic Zone. The contract period should be 15 years.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 240 Water Market Asia - China

Capacity Timeline

Production 160,000 m3/d Announced 2004 September

Equity investor Unknown Opportunity!!

Wenzhou Wastewater

Wenzhou Zhejiang BOT Total investment (USDm) 10.00

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Production 90,000 m3/d Announced 2004 September Opportunity!! Equity investor Unknown

Xiao Shun Jiang Water

Shaoxing Zhejiang BOT Total investment (USDm) 26.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 100,000 m3/d Contract awarded 2001

Equity investor Sime Darby 16.50%

Equity investor RWE Thames Water 24.25%

Equity investor Kadoorie Family Company

Investment vehicle China Water Company 50.00%

Xinchang Water

Xinchang Zhejiang 30 -year ROT Total investment (USDm) 25.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 100,000 m3/d Contract awarded 2001

Equity investor SUEZ (Ondeo) 25.00%

Equity investor New World Infrastructure 25.00%

Investment vehicle Sino-French Holdings 50.00%

Zhoushan Water

Zhoushan Zhejiang Concession Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2002

Equity investor Zhoushan Water(Group)Co.,Ltd.

Equity investor Qiantianjiang Water 86.12%

241 Water Market Asia - China

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 242 Water Market Asia - India

India

The India Water Vision (2000) study estimated investment requirement of about Rs68.8bn (US$1.6bn) a year for the next 25 years for full water supply coverage and about Rs34.4bn (US$0.8bn) a year for household sanitation. This is not, however, an indication of the size of the market. Rather, it is one of the size of the problem that faces the Indian water and wastewater sector. With very political tariffs, powerful unions and a shortage of fi nance, developing Indian water projects can be diffi cult and they should be picked extremely carefully. Those who have tried to operate in India tell stories of slow-moving bureaucratic systems and strong public resistance. Many projects have been on the cards for years but have barely moved forward. It is clear that municipalities are not willing to consider handing over either the whole service area or the whole range of activities to a private company. In the near future, PSP will be limited to operations and management contracts covering one or a few zones in the utility’s service area. The risks of projects in key centres has been amply demonstrated in Delhi where a water and wastewater O&M project supported by the World Bank was postponed after the pre-qualifi cation stage because of public opposition. The project is now being restructured without the involvement of the World Bank and is unlikely to go ahead before the end of 2006. Delhi’s only other PSP, the Sonia Vihar water treatment BOT, has foundered on inadequate raw water supply.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Non-existent until recently PSP has taken 15 years to come to fruition and Future Opportunities Numerous is only really starting to happen. Some investors want to take the plunge but they remain a Local competition Negligible minority.

Equipment Markets Comments Future Opportunities Numerous The Indian construction sector is booming and Local competition Significant for low tech and competition betwen contractors can be fierce. construction Public Utilities Comments Track record Bad One of the most serious problems in the sector Sustainability Poor is very low maintenance and replacement expenditure. Reliance on ODA Very high Government Comments Commitment to deliver service No India has established a national water and Fiscal Resources Limited sanitation policy but implementation is in the hands of the State governments and has been minimal.

Economy & Finance Comments Recovery since Asian crisis 1997 Above average Fast growing but very imbalanced economy Local capital market Basic towards sophistisacted

243 Water Market Asia - India

I. General Information to about 20% in 2001. If it is to reach 53% at the end of the 12th Plan to meet the MDG target, India may be somewhat behind. Meeting the India’s population reached 1.08bn in 2004 and is predicted to reach MDG target in rural areas would require investment of about Rs370bn 1.4bn by 2025. Its 3 largest cities, Delhi, Mumbai and Kolkata, each and Rs330bn (US$8.7bn and US$7.8bn) for the 11th and 12th Plans, have a population of more than 10m people and 32 other cities have a and recurrent expenditures again of the same order of magnitude of population of more than 1 million. Despite increasing rates of urbani- about Rs305bn and Rs355bn (US$7.2bn and US$8.4bn). sation, the country remains largely rural, with only 30% living in cities. A quarter of the population lives on less that US1 a day (2000). These estimates from the India Planning Commission do not indiciate exactly how much will be spent on water and sanitation however, for In India’s urban areas access to drinking water considered safe by targets set in this context are rarely met. But they give an idea of the the Government’s standards rose from about 82% of the population magnitude of the effort that India, as an economy, will have to make in 1991 to 95% in 2001. This fi gure, which includes access to non- to reach levels of water and wastewater treatment that are compatible piped water, could rapidly reach 100%, consistent with the aim of the with long term growth. Ministry of Urban Development to achieve 100% coverage in 2007 (end of the 10th Plan). But in an urban environment non-piped water I.1 Macroeconomic Situation may not be considered a safe source. Thus progress toward Target India is a two-tier economy, with a cutting-edge and globally competi- 10 of the Millennium Development Goals (MDGs) of halving, by 2015, tive service sector and a large, low productivity agricultural sector that the proportion of people without sustainable access to safe drinking employs the majority of the population. After decades of slow growth, water and basic sanitation would need to be measured on the basis many observers now sense that India has moved onto a higher growth of access to piped water. This indicator, which rose from 68.5% in path. 1990 to 74% in 2001, would need to improve to 86.5% by the end of the 12th fi ve-year Plan (2017) if India is to meet the MDG target. The The economy is weighed down by a large fi scal defi cit (chart 1.6) but record of progress indicates that development of the piped water sup- infl ation is under control at 4-5% (chart 1.7). Interest rates have been ply infrastructure may be slightly behind schedule, suggesting a need falling steadily and reached their lowest levels since 1973 in 2005. to accelerate investment. India’s has a large trade defi cit, but the capital account has been improving due to a surge in foreign portfolio investment and a slow but The urban population share with access to basic sanitation, which steady rise in foreign direct investment (chart 1.4). rose from 43% in 1990 to 58% in 2001, is likely to improve to 81.5% at the end of the 12th Plan, thus exceeding the theoretical MDG target of Since the early 1990s, governments have slowly been dismantling the 71.5%. Here India appears to be on track. Based on preliminary esti- complex structure of controls on the economy but much remains to mates, meeting the MDG target in urban areas would require invest- be done. Rigidity in the labour market is widely seen as holding back ments of about Rs425bn and Rs500bn (US$10bn and US$11.8bn) economic growth but it has so far proved impossible to reform. Macro for the 11th and 12th Plans, and recurrent expenditures of the same reforms to reduce subsidies and raise revenues, cut public sector em- order of magnitude of about Rs390bn and Rs505bn (US$9.2bn and ployment and restructure loss-making public enterprises are also op- US$11.9bn). posed by infl uential interest groups. In rural areas access to drinking water increased from about 65% of In 2004, just before the elections, the previous government sold sub- the population in 1990 to about 90% in 2001. Thus it appears likely that stantial blocks of stocks in major public-sector corporations, but the if India sustains investment at a level similar to that of the past decade, current government has back-tracked to retain the support of the it could achieve 100% coverage of water supply infrastructure if not by Communist Party. 2007, as targeted by the Rajiv Gandhi National Drinking Water Mis- India is also the World Bank’s largest borrower. sion, then probably by 2012. The rural population share with access to basic sanitation, which may have been as low as 5% in 1990, rose

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 10.00 2006 874,426 8.00 2005 773,112 6.00 4.00 2004 664,205 2.00 0.00 0 200,000 400,000 600,000 800,000 1,000,000 -2.00 1998 1999 2000 2001 2002 2003 2004 2005 2006

India Dev eloping Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean) 12.00 10.00 8.00 Chart 1.3: 2004 Sector Share of GDP 6.00 Agricult. 4.00 1.12 1.03 1.00 0.90 21% 2.00 0.64 0.49 0.78 0.00 1998 1999 2000 2001 2002 2003 2004 Serv ices 51% India Dev eloping Asia (mean) Industry High Income Asia (mean) 28%

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 244 Water Market Asia - India

Table 1.1: Sovereign Risk Indicators India Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 110.00 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 59.40 59.60 50.84 Short Term Debt / Total Debt 2004 (%) 4.17 10.49 n/a Fitch Sovereign Rating (2004) BB+

Table 1.2: Legal Risk Indicators 2004 India Developing Asia High Income Asia Time to enforce a contract (days) 425.00 392.62 103.67 Time to register property (days) 67.00 62.82 16.50 Time to resolve insolvency (years) 10.00 4.45 1.15 Time to start a business (days) 89.00 67.08 14.33 Legal rights of borrowers and lenders (0=low) 4.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) India Developing Asia High Income Asia Political Rights 2.00 4.23 2.43 Civil Rights 3.00 4.69 2.14 Corruption Perception 2.80 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 India Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 26.21 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 71.03 185.54 1,281.59 Roads, paved (% of total roads) 57.35 44.75 75.32 Electric power consumption (kwh per capita) 379.78 717.46 7,505.93 Water supply failures (days) n/a 10.00 n/a

Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%)

8 0.00 2002 2003 2004 2005 2006 6 -2.00

4 -4.00 -4.10 -4.50 -4.40 -4.30 2 -6.00 -5.90 0 -0.20 -8.00 2003 2004 2005 2006 -2 -0.60 -1.30 -1.70 -4 India Dev eloping Asia (mean) High Income Asia (mean)

India Dev eloping Asia (mean) High Income Asia (mean) Chart 1.8: Real Interest Rate 2000-2003 (%)

Chart 1.7: Inflation Rate 1999-2004 (%) 9.00 8.19 8.17 8.00 16.00 7.51 7.00 14.00 6.00 12.00 5.00 10.00 4.00 8.00 3.00 6.00 4.67 4.01 2.00 4.00 3.77 3.68 4.39 3.81 1.00 2.00 0.00 0.00 2000 2002 2003 -2.00 1999 2000 2001 2002 2003 2004

India India Dev eloping Asia (mean) Dev eloping Asia (mean) High Income Asia (mean) High Income Asia (mean)

245 Water Market Asia - India

II.2 Political & Investment Environment Main Cities of India (2001) Population Mn In 2004, Manmohan Singh became Prime Minister, leading the United Mumbai 16.40 Progressive Front, a coalition dominated by the Congress party. The Kolkata 13.20 government is currently being supported by the Left Front, a group of Delhi 12.80 left-wing parties dominated by the Communist Party. The Communists Chennai 6.40 strongly oppose the deregulation of the labour market and privatisa- Bangalore 5.70 tion, but have at times been more pragmatic on other policy issues such as foreign investment. Hyderabad 5.50 Singh is well respected across the political spectrum and has man- scarcity value of the resource to the users and to foster the motivation aged so far to hold together an unwieldy coalition, gradually imple- for economy in water-use.” However, the policy is diffi cult to implementing a programme of economic reform. To make progress, how- ment and took time to be accepted by all the States given that water ever, he has to overcome the opposition of staunch non-reformists is a State subject, and the possibility of inter-state water disputes is within the government. considerable. As a result, the policy was criticised for the lack of bold policy guidelines in the document, especially regarding private sector India’s 28 states vary greatly in size, population and natural resourc- participation. es. The federal government controls major revenue sources which are then shared out between the states by the planning commission, Various central ministries are involved in the sector: but the states are pushing for more control over their fi nances. Some - The Ministry of Water Resources is concerned with resource devel- states, such as Andhra Pradesh, Karnataka and Maharashtra, have opment shown considerable initiative in raising additional fi nance, including issuing bonds and encouraging private investment in irrigation, roads, - The Ministry of Environment and Forest deals with water quality bridges, software development and agricultural and horticultural proj- standards and pollution control ects. However, most states have made little progress. - The Ministry of Urban Development is concerned with drinking water Outside Kashmir, there are few threats to security in India, beyond supply and sanitation occasional low-scale bomb attacks. The most serious recent incident - The Planning Commission proposes fi nancial resource allocation for was the attack by militants on the Indian Parliament in 2001. Clashes the sector between religious groups can also be severe as during the riots in the Western state of Gujarat in 2002. Overall, centrally sponsored special schemes are one of the important sources of funding for the water supply and sanitation sectors both The poor condition of India’s infrastructure is a major hindrance to for rural and urban areas. Since 2000, the aggregated grant transfers growth. Although the government has recognised the need to gener- represent 50% of the budget to the sector. Most of the funds are con- ate investment in major infrastructure projects, real progress has only centrated in a few schemes. An analysis conducted by the Water and been made in communications and IT, and recently in roads. Power Sanitation Program (WSP) highlights the fragmentation of the process and water supply shortages are frequent in cities. with many overlapping schemes as well as various institutional mech- Foreign and private participation in infrastructure and utilities is sub- anisms. This makes it diffi cult to assess clearly the impact of these ject to extensive regulations and restrictions. The failure of some high- schemes as well as to determine clearly the amount of funding fl owing profi le foreign-invested projects, notably the Dabhol power project, to the water and sanitation sectors. has also had a lingering impact on investor enthusiasm. The govern- There are three main institutional patterns for the supply of water and ment has taken some steps to encourage private investment, allowing sanitation. automatic approval for road and electricity projects (up to US$300m), but an attractive regulatory environment for infrastructure investment In the fi rst one, management of the distribution network, operation, is still a long way off. The poor fi nancial position of off-takers (urban maintenance and revenue collection is under the responsibility of municipal corporations in the water sector, state electricity boards in the urban local body (ULB), while source development and capital the power sector) is a further hindrance to private involvement and pri- investment remain with a State Department or a parastatal agency. vatisation plans for the domestic telecoms company, Bharat Sanchar In the second institutional arrangement, more common in large cit- Nigam Ltd. (BSNL), and of the national and international airlines has ies, the Municipal Corporation is able to take charge entirely of sector stalled. development, including capital investment. The third arrangement is a single parastatal agency at the State level or at the city level for a large II. Water metropolis. In many metropolitan cities, water supply and sewerage Offi cial fi gures for water and sanitation show coverage with water sup- boards develop and manage water supply and sewerage services. ply to be 94% in rural areas and 90% in urban areas, and sanitation Recently the Central government has attempted to strengthen its own 24% in rural and 62% in urban areas. These numbers are probably infl uence, especially in policy design, in order to accelerate the pace a better indication of the infrastructure that has been built than the of reforms both for rural and urban areas. For urban areas, the Nation- services that are actually provided because the quality of service is so al Urban Renewal Mission (NURM) established by the Prime Minister poor. WHO fi gures are lower (table 3.1 & 4.1). aims at providing incentive-based funds for cities willing to engage II.1 Sector Policy & Structure in water reforms. The NURM is a strong attempt at policy change. Instead of favouring a multiplication of schemes, the NURM has con- Water is constitutionally a State subject. The role of the Central gov- solidated programmes in a single fund that can be accessed by cities ernment is limited to defi ning norms and providing guidelines and committed to a set of reforms. Some of these reforms are mandatory technical assistance to the States. It also intervenes through some and a particular focus is put on reforms of the service delivery mecha- centrally funded special programmes. nism. The NURM is also a tool to accompany the decentralisation At the Central level, the revised National Water Policy of 2002 estab- process as the NURM will directly support ULBs. lishes drinking water as a priority and highlights the need for private II.2 Financing sector involvement and community participation. The policy asserts the requirement for “an integrated and multidisciplinary approach to All evaluation of required investments for the sector point towards the planning, formulation, clearance and implementation of project” considerable long term needs. The India Water Vision (2000) study (p.7). It orders water allocation priorities as follows: drinking water, ir- estimated a requirement of about Rs68.8bn (US$1.6bn) a year for rigation, hydro-power, navigation, industrial and other uses. The focus the next 25 years for full water supply coverage and about Rs34.4bn on drinking water was already posited in the previous national water (US$0.8bn) a year for household sanitation. A working group led by policy. Rakesh Mohan in the National Council for Applied and Economic Re- search computed that water supply and sanitation will require invest- The national water policy covers issues relating to water rates, comments of Rs210bn and Rs228bn for the periods 2001-2011 and 2011- munity participation and private sector participation. On water rates, 2021 respectively (US$5.2bn and US$5.7bn). Faced with this level of the policy states that “water rates should be such as to convey the required investment, one major concern is the availability of fi nance

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 246 Water Market Asia - India

Table 2.1: Income Level India Developing Asia High Income Asia GDP per capita 2004 (US$) 615.00 1,104.30 23,628.57 Population on less than US$1/day 2004 (%) 35.00 18.23 0.00 Unemployment 2004 (%) 10.10 6.73 4.89

Table 2.2: Area & Population India Developing Asia High Income Asia Population Growth 2003 (%) 1.50 1.67 0.64 Urban Population Growth 2003 (%) 2.29 3.48 1.18 Population Density 2002 (pop/km2) 319.30 231.45 2,335.17 Area (thousands Ha) 328,726.00

Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban 2000-2003 (cst 2000 US$) (millions) Population (%) 28.31 1,100.00 1,080 28.40 315 311.20 1,080.00 1,065 28.20 28.09 1,050 310 304.51 1,060.00 28.00 27.87 1,034 305 1,040.00 1,019 27.80 27.66 300 293.03 295 1,020.00 27.60 290 1,000.00 27.40 285 980.00 27.20 280 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002

Chart 2.4: Consumer Exp. on Water 1999-2004 (US$m) Chart 2.5: Consumer Exp. on Water Growth Forecast 2005-2009 (%)

1,400 1,219.11 5.00 1,103.41 4.62 1,200 954.39 4.00 1,000 855.04 827.80 3.06 744.46 3.41 800 3.00 600 2.00 400 2.09 1.31 200 1.00 0 0.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 despite increased planned public funding for UWSS. In the 1990s, India Dev eloping Asia (mean) 60% of the annual investment for urban infrastructure came from the States and another 23% of the available funds from domestic lending High Income Asia (mean) institutions. The main cause for worry is really the weak internal resources of ULBs, which are insuffi cient to bridge the gap and to incur expenditure related to operation and maintenance. The recourse to schemes in Rajasthan and mostly in Karnataka where they support a borrowing on local markets, through municipal bonds, is identifi ed as number of cities (but not Bangalore) for promotion of PPP and reforms one means to mitigate fi nancial risks and increase fi nancing of the sec- in the urban sector. A loan was approved in 2005 to support the cities tor. Some cities have started issuing municipal bonds (Ahmedabad, in the north of Karnataka with PSP. Bangalore among others). In the Indian case, the domestic fi nancial The World Bank has been involved in the water sector in India for 50 market is buoyant enough to fund infrastructure projects if ULBs can years and has lent about US$14bn for water projects. In facts, this design credible projects. In this environment, funding should not be a accounts for between 6-10% of spending in the water sector in India, hard constraint, at least for large cities. In small and medium towns, and a much higher proportion of new investment (World Bank Re- the improvement of funds channelling is necessary and requires an view). The World Bank has been, and continues to be, by far the big- improvement in the governance structure. gest external donor, accounting for 72% of donor lending and grants Domestic fi nancial institutions constitute an important actual and po- for water, although the total going to the water sector has declined tential source of funds. The Housing and Urban Development Corpo- signifi cantly in the last 5 years. There were sharp reductions in lend- ration (HUDCO) channels its own funds to urban projects and acts as ing for more controversial issues irrigation, urban water supply and executing agency for donor funds. Infrastructure Leasing and Finan- stand-alone water resources project, with the only increases being in cial Services (IL&FS) provides funds for infrastructure projects. It has rural water supply. This is set to be reversed. In the lending framework been involved in the Tirupur development project. agreed between India and the World Bank in 2004 for the 2004-8 period, overall water lending is expected to rise from US$700m over the Most donor agencies have supported the water sector. Today, the previous four years to US$3.2bn. Asian Development Bank is especially active in the sector, with

247 Water Market Asia - India

II.3 Private Sector Participation Regulating the sector is one of the main issues in the ongoing debate on the reform of the sector. Currently, there is virtually no effective At the beginning of the 1990s, many potential projects were discussed regulation either for resource abstraction, pollution control or service and initiated. However, even when applications for tenders were is- provision, despite the existence of groundwater laws and state-level sued (Pune, Tirupur), the projects could not follow the time schedule pollution control boards. Indian cities perform badly on a large num- plan or simply had to be abandoned. Among the main reasons for the ber of indicators (technical, economical and even social) compared to breakdowns of projects involving international private operators are: other Asian cities. All these elements call for a stronger regulation over - The absence of credible and consistent political commitment. the sector that can tackle the range of existing problems. The format of an economic regulator at the State level is being discussed for the - The lack of a structured debate at the different levels of government UWSS. The Maharastra government has very recently created the - The “weakness” of consultants who replicate a supply-driven ap- fi rst regulatory commission for water resources. One of the arguments proach that leads to proposals for very large and capital-intensive in favour of regulatory commissions is the role they can play in sepa- WSS projects rating policy defi nitions, tariff fi xing and operational control. However, other ways to regulate the sector, that could be less costly, need to - The resistance of local stakeholders, among them local entrepre- be explored. neurs and contractors II.6 Performance - The lack of precise information on network performance and on the value of the assets increases the risks to private operators. One of the reasons for discussing the implementation of regulatory agencies is the absence of clearly established targets as well as of - Low tariffs make concession-type contracts fi nancially unsustainable any benchmarking exercise, either at the State or at the Central level. for private investors without some form of subsidy. Water utilities and water departments perform badly. These public pro- The failures of the 1990s, except for a few BOTs for water and waste- viders function like an administration with a non integrated information water treatment plants, has led to a rethink of what the role of a private system, very poor delegation of power to lower ranked engineers and operator could be. Recent developments indicate that the trend is to a very technical approach favouring end of the pipe technologies. promote management contracts for a reasonable duration of time (5 Overall, the failure of the public sector to provide adequate services to 10 years) with incentive mechanisms to improve the system. This has been often simply described as a result of public monopoly, organ- approach is promoted with the PSP guidelines recently issued by the isational ineffi ciency (lack of accountability, bureaucratic procedures, Ministry of Urban Development. low tariffs), technical fl aws (high unaccounted for water [Zérah (2000) Along these lines, the Delhi Jal Board, with a support from the World calculated that more than 50% of the water produced by the then Delhi Bank, has considered a management contract for two zones of the Water Supply and Sewage Disposal Undertaking (now the Delhi Water city, where the objective would be to raise the level of service and pro- Board) was unaccounted for. The Asian Development Bank provided vide 24-hour supply. Several fi rms expressed interest for this project, both in 1993 and 1997 fi gures of unaccounted for water ranging from including Ondeo and Veolia as well as Filipino-company Manila Water. 18% in Mumbai to 50% in Kolkata. Mac Kenzie and Ray (2004) quote However, the project was postponed in December 2005 as a result of the same level of fi gure for Hyderabad and Bangalore (above 30%)], political opposition. no preventive maintenance and high percentage of leakage, old piping system) as well as overstaffi ng and lack of autonomy towards the Mumbai is reviving the project of a management contract in one ward political sphere. The gap with other Asian cities can be objectively of one million population, which was abandoned in 2001. The Karna- assessed. To give one example, in the Asia Pacifi c region, large cities taka government has issued an Urban Water Policy, where private provide water for 19 hours (round the clock water supply for Beijing sector participation could be introduced gradually. and Singapore) while supply is below 10 hours per day for Kolkata, Given India’s size, it is diffi cult to give precise and complete data re- Mumbai, Chennai, Delhi Bangalore and Hyderabad. garding all the schemes that have involved some form of private sec- One of the most serious problems in the sector is very low mainte- tor participation. We only highlight the major schemes or the most nance and replacement expenditure. “Much of what is built is not be- interesting ones (see project list at the end of this profi le and Box 2 ing maintained, and that which does still function, delivers services of & 3.) a low quality.” (World Bank 2005) As a result, assets function poorly II.4 Tariffs and ineffi ciently. The investment budget ends up being redirected towards patching up existing infrastructure assets in a cycle of “Build- The State government is in charge of fi xing the tariff structure. It pro- Neglect-Rebuild” (Nirmal Mohanty quoted in World Bank 2005) vides rules for minimum tariff according to the type of urban local bodies. Municipalities, with the State approval, can set tariff above the Pressure for reform is increasing: India’s largest business associa- prescribed minimum. tions, FICCI and CII are becoming active on water issues. Water tariffs in all Indian cities are low. Tariffs do not cover opera- III. Wastewater tion and maintenance costs. For most cities the average water tariff is III.1 Sector Policy & Structure equivalent to one tenth of the operation and maintenance cost. India has established a national sanitation policy but implementation is Cross subsidies are numerous and complex with distortionary conse- in the hands of the State governments and has been minimal. In 1986 quences. Firstly, industrial users are charged at a much higher rate to a Technology Advisory Group recommended one standard design for compensate for lower domestic tariffs and to subsidize domestic con- rural and urban on-site sanitation, the double vault pour fl ush latrine. sumption. Secondly, when domestic consumption is unmetered, in- The centrally-sponsored Rural Sanitation Programme provided 100% built subsidies favour those with a higher consumption level. Thirdly, subsidy for this latrine for Scheduled Castes, Scheduled Tribes and these subsidies, as demonstrated in many studies, barely reach the landless labourers. poorer sections of the population who are either not connected to the network or face regressive inbuilt tariff subsidies. However, achievements in coverage and use were low. In 1992, the Government launched a new strategy. Subsidies for households be- Finally, free water provided by public fountains and public taps located low the poverty line were reduced to 80% and the policy stressed mostly in low income areas is the most effective solution to target sub- participation of householders in the choice of four latrine options with sidies towards the poor. However, they only represent 5 to 10% of the different cost levels. overall subsidies that are channelled to the sector. In addition to the ineffi cient pricing policies for usage, the high cost of connection acts This changed in the policy guidelines of 2001 when the programme as an entry barrier to gain access to the network. moved to a ‘Total Sanitation Campaign’ with an emphasis on inform- ing and educating rural households without sanitation about the im- According to the World Bank study (2005), full recovery of operation portance of having and using sanitary latrines. Interested households and maintenance costs from user charges by the end of the 11th Plan can apply for a fl at subsidy of Rs. 500-600, depending on the type of (2012) is probably feasible for both urban and rural service. latrine. The implementing agencies can set up outlets where house- II.5 Regulation holds can buy the required materials. The Total Sanitation Campaign

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 248 Water Market Asia - India

Table 3.1: Water Service Coverage Indicators 2002 (%) India Developing Asia High Income Asia Population with Access to Improved Water 86.00 76.85 100.00 Households Connected 24.00 22.27 98.00 Urban Population with Access 96.00 86.17 100.00 Urban Households Connected 51.00 48.27 99.33 Rural Population with Access 82.00 71.42 100.00 Rural Households Connected 13.00 14.58 95.50

Table 3.2: Water Resources India Precipitation Volume 2002 (bn m3/yr) 3 560 Precipitation Depth 2002 (mm/yr) 1,083.00 Groundwater: produced internally 1998-2002 (bn m3/yr) 418.50 Surface water: produced internally 1998-2002 (bn m3/yr) 1,222.00 Overlap: surface and groundwater 1998-2002 (bn m3/yr) 380.00 Water resources: total internal renewable 1998-2002 (bn m3/yr) 1 261 Water resources: total external 1998-2002 (bn m3/yr) 636.10 Water resources: total renewable 1998-2002 (bn m3/yr) 1,897.00 Agricultural water withdrawal 1998-2002 (bn m3/yr) 558.40 Domestic water withdrawal 1998-2002 (bn m3/yr) 52.24 Industrial water withdrawal 1998-2002 (bn m3/yr) 35.21 Total water withdrawal 1998-2002 (bn m3/yr) 645.80

Table 3.3: Water Resources II India Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 1,201.00 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 1,807.00 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 615.40 507.25 544.73 Dependency ratio 1998-2002 (%) 33.93 33.33 1.39 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 29.44 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 34.05 16.19 13.19

Chart 3.1: Water Uses 2002 (%) Chart 3.2: Fresh Water per Capita 1999-2004 (m3/head) 1,950 1,905 1,880 Indus. 1,900 1,860 1,847 1,821 1,813 5% 1,850 1,800 1,750 Dom. 1999 2000 2001 2002 2003 2004 8% Agricult.

87% ed a sewerage component, which planned to expand the percentage of the people connected to the sewerage. The Tirupur project (see box 2) has a strong waste water component as pollution is a major issue in this city. is part of the Sector Reforms Project introduced in April 1999 to make III.3 Tariffs rural water supply and sanitation more sustainable. Pilots are being Pricing for sewerage either comes from the sewerage tax or is in- conducted in 200 districts. In urban areas, access to sanitation is one cluded in the tariff for water as a proportion of the water charges. of the reform areas of many cities with implementation of schemes in- The cost of connections is high, acting as an entry barrier for poorer volving community participation. This is the case for instance in Mum- households but also as a deterrent for more wealthy users. It is clear bai with the World Bank funded Slum and Sanitation Program. that capital investment (at least a share of it) will have to be funded through ﬁ nancial transfers while payment for O& M could be gradually However, one of the other important challenges is to ensure adequate introduced in water bills. and economically reasonable technologies to reduce the level of pollution as well as to ensure treatment of waste water. Discussions have Regarding other types of sanitation facilities provided in lower income covered the possibility of using wetlands, lagooning and conservation areas, provision of free toilets (often collective ones) has been the projects to rejuvenate lakes in major cities and these options are being trend. However, low construction standards, absence of maintenance promoted by a number of actors, among them large NGOs and civil and a supply approach has mostly resulted in these toilets being aban- society movements. doned after a few years. This leads to recurring investments made without any transformation of service delivery mechanisms. III.2 Private Sector Participation Most of the projects that were considered for PSP in water had includ- III.4 Regulation

249 Water Market Asia - India

The regulation in place is the same as for water. In addition, there are or 200m3 per capita, compared to 2,500m3/cap in China or 500m3/cap pollution norms and the State Pollution Control Boards have a role in South Africa. in checking industrial water pollution. They also have supported and India’s annual replenishable groundwater is about 430 bn m3, com- issued guidelines regarding the implementation of Common Effl uent pared to net withdrawals amount to about 160 bn m3 per year. How- Treatment Plants. However, the success of CETP is questioned by a ever, the pattern of water resource availability is varied: some areas or number of professionals as well as academics. In many cases, they ‘blocks’ are under severe groundwater stress. 60% of blocks in Punjab have not been built. In the case where CETP have been fi nanced and and 40% of blocks in Haryana and Tamil Nadu are overdrawn or criti- constructed, the variation in the level of pollution and the differences cal, compared to 14% across the country. This is expected to rise to in the pollutant contents make it diffi cult to operate them effi ciently. 60% by 2030 (World Bank 2005). Overall, the State Polllution Control Board is also not very effi cient in controlling water pollution by industries. In the long-term, global warming is expected to reduce available water resources substantially. In the coming decades, however, available III.5 Performance water resources will rise as a result of deglaciation in the Himalayas. For waste water and sanitation, the situation is much worse than for Many parts of India are likely to experience severe water shortages as water. Sanitary conditions are abysmally low in the urban areas of a result of unsustainable abstraction of groundwater. Since the 1960s, some states where more than 45% of the population has no access to groundwater irrigation has grown extremely rapidly. High rates of ab- any type of latrine. Sewerage is virtually non existent in Bihar, Madhya straction are themselves the result of a combination of policies: insuf- Pradesh, Orissa and Assam. It is on the higher side in Punjab, Maha- fi cient and unreliable water supplies for irrigation from public canal rahstra, Gujarat and Tamil Nadu, but still remains below 50% and the systems and for commercial and household use from public networks national average is only 22.5%. prompted users to seek alternative sources. This resulted in a large In most cases, the sewerage systems of urban centres cover only part scale shift to groundwater sources for irrigation, commercial use and of the population and the treatment facilities at best provide primary household consumption. Today, groundwater supplies water to about treatment. Even in metropolitan cities, the percentage of wastewater 70% of irrigated land and about 80% of domestic water supplies. treated before disposal is low and treatment facilities do not exist in Heavily subsidized electricity rates ensure that the costs of extrac- rural areas. tion to the end-user are minimal. But as groundwater supplies are Only 25% of larger (Class I) cities have some wastewater collection, depleted and the water table falls, the costs of the electricity subsidies treatment and disposal facilities, less than 10% of the 241 smaller rise, amounting to Rs. 240bn (US$5.6bn) (World Bank estimate 2005) towns have wastewater collection systems. which is putting great pressure on state budgets. The World Bank estimates that electricity subsidies to At the same time, groundwater About 75% f the wastewater produced is from the domestic sector. users have little incentive to manage demand or to improve the ef- IV. Environment and Legal Aspects fi ciency of use. IV.1 Water and Wastewater Fundamentals In its recent report on the India water sector, the World Bank pre- dicts an imminent crisis caused by over-abstraction of groundwater Water Resources resources. India has an extremely concentrated pattern of rainfall, with 50% of Community-based “rainwater harvesting” projects have multiplied in precipitation falling in just 15 days and over 90% of river fl ows oc- the last few years. These involve rehabilitating and building small curring in just four months. This generates a huge requirement for check dams and tanks, and household groundwater recharge struc- storage capacity which has not yet been developed in India. Today tures. US $150m/year is now spent on these projects. India has a capacity to store about 200 billion cubic meters of water,

Box 1: Wastewater situation in Delhi A large portion of the 5600 kilometers of sewers are silted or settled, with only an estimated 15% of the 130 kilometers of trunk sewers in order. And the seventeen sewage treatment plants have a capacity to treat only about half of the sewage produced, which in turn covers only about 60% of the population of Delhi. Second are the problems of operation – only about 60% of the capacity of the existing treatment plants is actually used. The end result is that less than 20% of the pollution load into the river is actually treated. Since the BOD load on the river has more than doubled in the last ten years, it is no surprise that conditions in the 22 kilometer stretch of the Yamuna around Delhi have gone from terrible to appalling. The river is dead (there is no dissolved oxygen in the water) and there are more than 10 million fecal coliforms per 100 ml, a level over 10,000 times what is considered a threshold for “bathable water”. Third, there are questions about the implementability of the rulings of the Supreme Court. In 1985 the court ordered the construction of Common Efﬂ uent Treatment Plants to treat 190 mld of industrial sewage; twenty years later only 53 mld can be treated. In 2001 the Supreme Court ordered the government to ensure a level of dissolved oxygen of 4 parts per million within two years; today the level of dissolved oxygen is zero. In 1992 the Supreme Court heard a plea to ensure that all of the waters of the Yamuna could not be diverted before it reached Delhi – the ‘minimum ﬂ ow case’ “is still on”. The case is ongoing.

Table 3.5: Annual Flow for Urban infrastructure. 1992-1996. Source Estimated Annual Funds (Rs. m) % Plan Funds - Central- Water Supply and Sanitation Urban Development 489 3.04 - Central-Urban Development 771 4.8 - State-Water Supply and Sanitation 9914 61.65 Institutional - LIC 888 5.52 - HUDC 2797 17.4 External - World Bank 1114 6.93 - ODA-UK 107 0.66 Total 16080 100 Source: NIUA, 1997

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 250 Water Market Asia - India

Table 3.6: Comparison of metered prices for the first 50 KL (in 2003-2004) KL per month Hyderabad Bangalore Chennai Delhi 10 90 90 50 30 20 120 130 150 30 30 180 230 350 42.8 40 280 350 600 87.8 50 380 470 850 132.8 Source : MacKenzie and Ray (2004)

Table 3.7: Tariffs in Key Indian Cities Delhi Mumbai Kokotta Chennai Hyderabad Bangalore Average tariff 1.6 2.7 0.5 11.4 7 (Rs/m3)

Domestic water tariff Up to 10KL per Rs1.75 per KL Mostly through Up to 10 KL 6 Rs/ KL up to Up to 25 KL month @Rs0.35 for slums, Rs3 property tax @2.5 30 KL @ 3.5 +50% per 1000 per KL for non collection 10 to 15 KL @10 10 Rs/ KL from From 25 to 50 litres. Above slums, for un- 15 to 25KL @15 30 to 200 KL @ 7 KL/and up to metered Above 25 @ 25 25 Rs/ KL From 50 to 75 20 KL per month connections above 200 KL @19 @Rs1.00 +50% @65% of the From 75 to per 1000 litres. rateable value 100 @26 Above 20,000 litres for water Above 100 @ and up to 30,000 33 litres per month. Flat rate for @Rs1.50 +50% un-metered per 1000 Litres. connection Above 30,000 litres Rs50 @Rs3.00 +50% per 1000 litres. Minimum charges. @Rs20.00 +50% Per month per water Connection

Cost of a water Rs195 per square Rs2000 1250 Rs. If area connection meter not covered by sewerage 2500 Rs. if area covered by seweragage up to 200 sq. m plot area otherwise can vary from 5 500 Rs. till 24 000 Rs. Domestic sewerage Included with water 60% of the Mostly through Sewerage Rs15 flat rate tariff water tariff property tax cess@35% of up to 25 KL, collection the water supply then @15% of charges water charges up to 50 KL, then @20% of water charges Cost of a sewerage Rs160.00 along Rs3500 Around Rs1500 connection with rebate of 50% and 45% for plot size up to 100 Sq.m. and plot size above 100 Sq.m. respectively subject to payment in lump-sum up to 31.03.2006 +12% penal interest in rate every subsequent year w.e.f. 01.04.2006

251 Water Market Asia - India

Table 3.8: Comparative data on the six largest Indian cities Number Capacity of litres per Percentage Unaccounted Staff per Connected Number of Operating of w-wtr hours person of metered for water 1000 to sanit. connections Ratio treatment of per day bills (%) connection etwork (mld) supply Delhi 4 203 73% 26-40 1.48 21.4 Mumbai 5 240 300 000 67% 18 1.08 33.3 45% Kolkata 10 250 171 000 Below 5% 50 5.25 17.1 50% Chennai 2.5 30 216 000 Below 5% 20 0.94 25.9 268 Hyderabad 1.5 90-110 472 000 90% 33 8 140 64% Bangalore 3.5 90 100% 34-44 13

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) India Developing Asia High Income Asia Population with Access to Improved Sanitation 30.00 54.64 100.00 Households Connected 7.00 7.22 97.50 Urban Population with Access 58.00 77.09 100.00 Urban Households Connected 18.00 18.11 98.33 Rural Population with Access 18.00 48.08 100.00 Rural Households Connected 2.00 2.57 90.00

Table 4.2: Water Pollution 2001 (% of total BOD Emissions) India Developing Asia High Income Asia Water pollution, chemical industry 9.29 9.94 8.81 Water pollution, clay and glass industry 0.21 0.46 0.15 Water pollution, food industry 52.98 43.27 42.73 Water pollution, metal industry 12.57 7.62 4.84 Water pollution, other industry 4.43 6.08 13.17 Water pollution, paper and pulp industry 7.52 9.38 26.14 Water pollution, textile industry 13.00 21.17 8.17 Water pollution, wood industry 0.00 2.67 2.17 effi cient use, and quality maintenance. Table 4.3: Wastewater Performance Indicators Indicator Performance The bulk water entitlements will be defi ned and implemented within Cities with sewerage systems 300 a basin and sub-basin framework. While the MWRRA will allocate Cities with treatment capacity 70 bulk rights, the basin organizations and user organizations at lower Large cities with some sewerage and 25% level will have responsibility in the day-to-day monitoring and enforce- treatment capacity ment. Adequate provisions are also made for resolving confl icts and Towns with some sewerage and <10% grievances both at the local and regional levels.” (Maria Saleth, 2005, treatment capacity World Bank Report Background Paper) Wastewater treated in metropolitan cities 30% Wastewater treated in Class 1 cities <20% Not a single river basin authority has been established under the 1956 Wastewater treated in Class 2 towns 2% River Boards Act. Water Resources Policy Confl icts between states over water are frequent and long-running. Disputes are settled by tribunals but there is no single doctrine or set Confl icts between user groups are becoming more acute. So far, little of guidelines that govern their decisions. attention has been paid to the use of water in sustaining the environment. There is no framework of allocation of water entitlements and There is no implementation mechanism and decisions may be inter- thus no way to adjudicate between multiple competing claims on wa- preted differently by the states involved and have often been com- ter resources. pletely ignored. The central government has not intervened to resolve these confl icts in spite of its constitutional power to do so. The fi rst step towards a water rights regime was taken in 2005 by the Maharashtra State Government, which introduced the Water Re- The lack of clear, fi xed allocations means that states use their own sources Regulatory Authority Act. “The creation of water entitlements water consumption as a bargaining chip and have no incentive to con- system is at heart of the MWRRA Bill. The bill clarifi es the legal issues sume effi ciently when this would weaken their hand in the negotiations and contemplates the establishment of the institutional arrangements over water allocations. This situation makes it impossible to coordi- needed for the distribution, enforcement, and monitoring of the entitle- nate water-related infrastructure investment, notably dams, or to put ments. in place arrangements for inter-basic transfer. While establishment of individual and transferable water entitlements In contrast to its internal arrangements for sharing water resources, is the long terms strategy, the Bill adopts a politically and administra- India’s water sharing arrangements with its neighbours are stable and tively pragmatic intermediate strategy of establishing bulk water enti- respected. Agreements include the 1960 Indus Treaty with Pakistan tlements for entities such as water user organizations, urban and rural and the Ganga Water Treaty (1986) with Bangladesh. India also has water supply agencies, and industries. Notably, water entitlements are an agreement with Bhutan to develop the state’s hydroelectric capac- not ownership rights but only usufructory rights defi ned in volumetric ity. sense. Such entitlements cover both surface and sub-surface water The Indian government invests heavily in irrigation and fl ood control sources. The water quota implied in the water entitlements can be (US$10bn and US$1bn respectively under the 10th Plan). However, transferred, sold, and bartered either in part or in full. Water entitle- this infrastructure is aging and no plan exists to cover maintenance ments also carry with them the correlated duties including payments,

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 252 Water Market Asia - India

Box 2: Tirupur Area Development Project The Tirupur project has been in the limelight in the sector in India for more than 10 years. It has been delayed and experienced diffi culties in reaching fi nancial closure, but it is now one of the rare examples of an operational PSP project in India. Water Supply: Distribution, Source Development, Treatment, Transmission Sewerage: Collection, Treatment Financial Sources: Bonds, Central Government, IL&FS, Own Sources, Operator Finance, State Government, World Bank, USAID Means of Private Sector Participation: BOT Project Status: Financial Closure Contract Length: 30 years Project description Background: Tirupur is located in the Southern state of Tamil Nadu state and has a population of around 240,000. Tirupur is India’s largest producer of cotton knitwear, accounting for over three-quarters of the country’s knitwear exports. The city lacks adequate water supply and so the industries have turned to groundwater and private tankers for assured water supplies. The municipal area also does not have a sewage collection and treatment system or an organised drainage system and slum areas lack adequate sanitation facilities. In 1990, in response to these acute urban infrastructure problems, the people of Tirupur and the Tirupur Exporters Association (TEA) asked the Government to improve the basic infrastructure of the area. In 1991, the Tamil Nadu government announced the launch of the Tirupur Area De- velopment Project to address all infrastructural requirements including water supply, sewerage, roads, telecommunications and power. USAID and the World Bank have also committed long term support for the project. A special purpose vehicle (SPV), New Tirupur Area Development Corporation Limited (NTADCL) was created in 1995 to implement the project with the participation of the State Government (through the Tamil Nadu Industrial Infrastructure Development Corporation - TACID), TEA and IL&FS. Project Components: Once operational the water project will supply Tirupur with 185 mld and service nearly 1000 textile units and over 1.6 million residents in Tirupur and its surrounding areas. The detailed project components are:(a) a treated piped water supply of 60 mld to Tirupur municipality and 21 adjoining towns and village panchayats; (b) a treated water supply of 100 mld to over 700 dyeing and bleaching industries within the Tirupur Planning Area; (c) a sewerage system for Tirupur; and (d) onsite sanitation facilities for 88 designated slum areas within Tirupur municipality. Implementation Arrangements: The three partners, TACID, TEA and IL&FS, together designed the Tirupur Area Development Project (TADP) as a public-private partnership, with technical assistance from the FIRE (D) Project. The NTADCL staged a competitive tender to contract out the construction and maintenance of the systems to a Build, Operate and Transfer (BOT) consortium. The winner was the Mahindra Consortium (Mahindra & Mahindra, United International, Northwest Water (as operator), and Bechtel (as EPC)). USAID has provided long term (30 years) loan guarantees for US$ 25 million with IL&FS to help fi nance this project. Financing Plan: The estimated cost of the project is Rs. 12bn (US$280m). In the fi nancing plan for the project, equity (including grants) will be Rs. 3.9bn (US$90m). This will be contributed by the central government, IL&FS, TIIDC, TEA and the Mahindra-led consortium. The project has a debt component of Rs. 6.98 billion. There is also a subordinate debt of Rs. 750 million. While the return on equity amounts to 21 per cent, the average cost of debt is 17 per cent. Investments in the water supply and sewerage systems are proposed to be recovered through a composite water charge. The pricing of water supply to industry has been determined on the basis of its opportunity cost, considered to be the rates paid to private tankers. Therefore, the price for industry will be fi ve to six times the amount charged to domestic users. Bulk water supply rate? Current Status: The project development process took more than fi ve years. The project achieved fi nancial close in the fi rst quarter of 2002. The foundation stone for the project was laid on June 20, 2002 by the Chief Minister of Tamil Nadu. The water and sewerage components of the project are slated for completion within three and six years respectively. This is the fi rst public-private partnership project to access commercial funds for the water sector in India. The Tirupur experiment is going to be the benchmark for private initiatives in the sector and it will build a strong case for private fi nancing of water projects in India in the future. Total Project Cost: Rs 12,500m Partner Institutions - Tirupur Municipality - Tirupur Exporters Association (TEA) - Infrastructure Leasing and Financial Services, Ltd. (IL&FS) - The Tamil Nadu Corporation for Industrial Infrastructure Development, Ltd. (TACID) - New Tirupur Area Development Corporation (NTADCL) - Indo-US Financial Institutions Reform and Expansion (FIRE) Project Contact Details Managing Director New Tirupur Area Development Corporation Ltd. (NTADCL) 85 Santhome High Road, Chennai, 600 028, Tamil Nadu Phone: +91 44 493 3354/493 3342 Fax: +91 44 491 6269 Email:[email protected]

253 Water Market Asia - India

Box 3: Other examples of PSP in India JUSCO: Veolia and the Tata JV Tata Steel and Veolia Water India have signed a joint development agreement to develop water services in India. Jamshedpur Utilities & Servic- es Company (JUSCO) is a wholly owned subsidiary of Tata Steel, while Veolia Water India, is a wholly owned subsidiary of Veolia Water Africa, part of the Veolia Group. JUSCO and Veolia Water India have been working together on a management contract basis in the city of Jamshedpur (State of Jharkhand) since 2003. JUSCO is managing all city utilities while Veolia Water India provides expertise for reducing operating costs, increasing revenue, bringing management effi ciency and monitoring performance through benchmarking practices. There is a twinning arrangement between Veolia and Metro water board of Chennai. However, there is no investment on the part of Veolia, which acts as a consultant to review the policy of the water board. TISCO in Jamshedpur has operated water supply for many years. Both Tirupur and Jamshedpur are an example of towns where an industry has such a dominant presence that it has taken over responsibility for providing water supply services to households. In these cases service quality has improved substantially. Other Examples of BOT - Bangalore 25 years BOT / 500 MLD / Company : Biwater - Other BOTs in Delhi, Chennai and Hyderabad - One BOT in Delhi: the Sonia Vihar treatment plant of a 635 MLD capacity (Rs 1.8bn/US$ 42m) is being fi nalized despite strong opposition. Delhi Jal Board is responsible for ensuring the bulk water supply for the plant, and pays a fi ne of Rs 50,000 a day if the bulk supply is not provided. This has led to the DJB making unusually energetic efforts to ensure provision of bulk water supply for the plant. Chennai Water Trading The city of Chennai suffers from chronic and severe water shortages. In the past it has meant that major industries (fertilizer and chemical factories) have closed for months because of water shortages. And it has meant, and means, that people in this city have learned to live with small amounts of water for a few hours a day. The standard coping strategy – sinking household tubewells – became ineffective as water tables dropped and as salt water from the sea intruded into the aquifer under the city. There were a number of different proposals for augmenting the meager supplies of water to the city (in addition to strenuous efforts to repair leaks and more generally improve the quality of the utility – Me- trowater -- and its infrastructure). In 1996 Metrowater and the World Bank did an assessment of the feasible alternatives for supplying additional bulk water to the city. The major sources being considered by the city were the Veeranum Tank (which required construction of a 250 kilometer pipeline) and desalination, both of which were very expensive, especially relative to the domestic tariff of Rs 2 per cubic meter. But what was striking was that, while the city suffered from water shortages, there were large areas growing paddy just north of the city, using water from the AK aquifer. A detailed prior hydrogeological study indicated that the sustainable yield of the aquifer was very large, and back-of-the-envelope calculations showed that the water would cost the city just a small fraction of the cost of water from any other sources. Metrowater now buys water from farmers in the surrounding areas and in 2003 70 per cent of the raw water for the city came from buying water from farmers. How- ever, no system has been put in place to ensure that water extraction from the aquifer is sustainable.

Table 5.1: Institutional aspects Date of Institution/Law/Policy Website Description passage/creation National Water Development Agency Ministry of Water Resources (http://wrmin.nic.in) Central Water Commission www.indiawater.com India Water Policy 1987 Reform diluted resulting in small changes on paper and no change in sector structure or operation India Water Policy 2002 Reform diluted resulting in small changes on paper and no change in sector structure or operation National Commission on Water 1999 Assessed the overall availability of water, the likely demands, and the implied “water available for future use India Water Vision 2000 Estimated that government would need to invest about Rs 80 billion a year for irrigation every year for the next twenty years

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 254 Water Market Asia - India and replacement of assets. urban infrastructure combined with fast-rising demand for residential housing have contributed to a boom in the sector in recent years. IV.2 Laws and Institutions The demand for water and wastewater testing and analysis equip- Many state-level reform bills have been passed but not implemented. ment is primarily driven by regulatory enforcement. The growth in this For example, states have not been able to introduce metering for elec- market segment has been relatively low in the last three decades. tricity costs of irrigation pumping; Maharashtra has not been able to However, the recent enforcement strengthening trend may create new implement its law safeguarding drinking water wells from groundwa- opportunities. Many state pollution control boards have undertaken ter overdraft by irrigation wells and the Land, Water and Trees Act in major programs to enhance in-house monitoring and analysis capa- Andhra Pradesh. Chennai’s groundwater law, on the other hand, is bilities. being enforced. Other legislation has been discussed extensively but never passed, as with the central government’s Groundwater Regula- Moreover, large and medium-sized industrial facilities are also impor- tion. tant buyers of state-of-the-art monitoring and analysis equipment and services, since they are now required to regularly monitor their own V. Construction & Equipment Markets discharges. Construction accounts for around 5% of GDP, employing an estimated 3.5m people full-time and a further 6.5m seasonally. VI. Sources EIU, ADB, World Bank, Interviews The construction industry contributes more incremental value added per unit of investment than any other sector, and has been a focus VII. Useful contacts of government investment in an effort to kick-start other industries, See table 5.2 particularly steel and cement. Construction accounts for around 40% of public-sector plan outlays, and more than 1m workers are engaged in public-sector construction projects. Large-scale public-sector projects like the Golden Quadrilat- eral (GQ) project that aims to link the cities of Delhi, Kolkata, Mumbai and Chennai via national highways, the need for fast development of

Chart 4.1: Daily organic water pollutant emissions 1999- 2004 (kg)

1,640,000 1,625,997 1,611,961 1,620,000 1,594,750 1,600,000 1,589,017 1,578,8111,582,285 1,580,000 1,560,000 1,540,000 1999 2000 2001 2002 2003 2004

Chart 4.2: Daily organic water pollutant emissions / 1000 people 1999-2004 (kg) 10.00

8.00

6.00

4.00 1.59 1.57 1.59 1.55 1.51 1.48 2.00

0.00 1999 2000 2001 2002 2003 2004

India Dev eloping Asia (mean) High Income Asia (mean)

255 Water Market Asia - India

Table 5.2: Contacts

MUMBAI / MAHARASHTRA (code + 22)

Contact Name Municipal Commissioner : Officer on Special Duty : Metropolitan Commissioner : Johnny Joseph T.V. Shah Dr. T Chandra Shekhar Ministry/Agency Bombay Municipal Corp Bombay Municipal Corp Mumbai Maharashtra Regional Development Authority Address Bandra - Kurla Complex, East, Mumbai - 400 051 India. Telephone No. Off. 22620251 (ext. 3109) Off. 26150350 Off. 22 26590001 -8 or 22620525 Mob. 9820702591 Res. 23517171 Fax 22 26591264 Email [email protected] [email protected] Note M. Shah is in charge of the project looking at private sector participation in one of the Mumbai ward

Contact Name Secretary Urban Secretary Special Projects : Development : M. Nana M. Sanjay Ubale Saheb Patil Ministry/Agency Government of Maharashtra Government of Maharashtra Ministry of Urban Ministry of Urban Development Development Telephone No. Off: 22021444 Off: 22027151 Note Sanjay Ubale is in charge of the implementation of Vision Mumbai and all projects related to Mumbai go through him

Hyderabad / Andhra Pradesh (code + 40)

Contact Name Managing Director : K.S. Executive Director : V. Raja Jawahar Reddy Reddy Ministry/Agency Hyderabad WSSB Hyderabad WSSB Telephone No. Off : 23442844 Off: 23442822 Res. 55512000

Contact Name Municipal Commissioner : Secretary, Municipal Affairs Principal Secretary Finance : Sanjay Jaju and Urban Developement : Krishna Rao Smt. Veena Ish Ministry/Agency Municipal Corporation of Government of Andhra Government of Andhra Hyderabad Pradesh Pradesh Telephone No. Off 23225267 Off 23454965 Off. 23451641 Res. 27762649 Fax 23450085

DELHI (code +11)

Contact Name Chief Executive Officer: Mr. Principal Secretary Urban Municipal Commissioner: Rakesh Mohan, IAS Development: Shri. O.P. Shri. Rakesh Mehta Kelkar Ministry/Agency Delhi / Delhi Water Board Government of Delhi Municipal Corporation of Delhi Telephone No. Off: 23544795, 23511658 Off. 23392253 Off. 23961012 / 23967315 Res: 23070441 Res 23958888 Res 24676586 Fax 23516182

Bangalore / Karnataka (code +80)

Contact Name Chairman: Ashok Kumar Principal Secretary, Urban Municipal Commissioner: K. Manoli Development: Smt M Jyothiramalingam Shamim Banu Ministry/Agency BWSSB Government of Andhra Bangalore Municipal Pradesh Corporation Telephone No. Off : 22945100 Off : 22253958 Off: 22237455 Res : 26536699

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 256 Water Market Asia - India

Chennai / Tamil Nadu (code +44)

Contact Name Managing Director: V. Executive Director : S. Secretary Municipal Affairs Thangavelu Ranganathan and Water Supply: Sheela Priya Ministry/Agency Chennai WSSB Chennai WSSB Government of Tamil Nadu

Telephone No. Off. Phone: 28529165 Off. Phone: 28543001 Off. Phone:25670491

Contact Name Municipal Commissioner: M.P.Vijayakumar Ministry/Agency Chennai Municipal Corporation Telephone No. Off: 25381330

257 Water Market Asia - India

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 258 Water Market Asia - India

Known and Future PSP Projects in India

Andhra Pradesh

Vishakhapatnam Water Supply

Vishakhapatnam Andhra Pradesh BOO Total investment (USDm) n/a

Sector 1 Water Sector 2 Water In November 2005, SBI Capital, the investment-banking arm of State Bank of India, has won ﬁ nancial advisory, debt syndication and equity advisory mandates for the Industrial Water Supply Project at Vishakhapatnam.

Capacity Timeline

Production n/a m3/d Contract awarded 2004 November

Equity investor Larsen & Toubro

Delhi

Sonia Vihar Water

New Delhi Delhi 10 -year DBO Total investment (USDm) 50.00

Sector 1 Water Sector 2 No data The Sonia Vihar water treatment plant, with a capacity of 635,000m3/d, was built by Degrémont under a DBO contract. The plant was supposed to treat water from the controversial Tehri Dam in Uttaranchal. This water was ﬁ rst expected to relieve the city from its traditional summer crisis by the year 2004, but due to problems in a transmission tunnel at the Tehri Dam level, the plant could not receive the raw water, and has not been operated since its completion.

Capacity Timeline

Production 650,000 m3/d Contract awarded 2001 January

EPC contractor SUEZ (Ondeo)

Operator SUEZ (Ondeo)

Delhi Water

Delhi 0 -year O&M Total investment (USDm) n/a

Sector 1 Water Sector 2 No data The city government decided not to proceed with a loan offered by the World Bank to support private sector management contracts in two of the 21 zones in the city aimed at achieving 24x7 supply. Instead the Delhi Jal Board is looking at ways of addressing its problems internally. The Jal Board’s main problem is that it charges $0.03/m3 for its water. This scarcely covers the cost of pumping the water, let alone any maintenance, and because the network does not cover the poorest neighbourhoods, the low prices do not beneﬁ t those who need them most.

Capacity Timeline

Production n/a m3/d Pre bid 2004 August

On hold 2005 December

Equity investor Unknown

259 Water Market Asia - India

Bihar

Jamshedpur Water

Jamshedpur Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Distribution 500,000 pop Contract awarded 2002

Equity investor Tata Steel

Technical Advisor Veolia Water (2 year contract, 2003-05)

Karnataka

Bangalore Water

Bangalore Karnataka BOT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data Bangalore cancelled a planned contract with Biwater for a bulk water supply scheme from the Cauvery river for Bangalore after investiga- tion of ﬁ nancial irregularities. Suez and Anglian tried to pick up the project but to no avail.

Capacity Timeline

Production 500,000 m3/d Contract awarded 2000

Early termination 2001 October Termination!

Equity investor Biwater

Bangalore UfW Pilot

Bangalore Karnatika O&M Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2003

Operator Larson & Toubro

Operator RWE Thames Water

Bangalore IFC

Bangalore O&M Total investment (USDm) n/a

Sector 1 Water Sector 2 Wastewater The state-owned Bangalore Water Supply & Sewerage Board (BWSSB) has retained IFC to assist in structuring and implementing a management contract with one or more private sector companies to operate and manage water distribution and wastewater collection systems. PSP could be expanded to include the entire Bangalore city area under a concession contract. The systems could go to market for bid to private operators by early spring of 2006.

Capacity Timeline

Production n/a m3/d Announced 2005 December

Equity investor Unknown Opportunity!!

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 260 Water Market Asia - India

Tamil Nadu

Chennai Ennore

Chennai Tamil Nadu BOT Total investment (USDm) 20.00

Sector 1 Water Sector 2 Desalination The plant is a 27,000m3/d SWRO. The client is Chennai Petroleum Corporation Ltd. (CPCL) Contact: Mr Anand, project director at CPCL + 91 44 243 49519. The EPC contract has been awarded to Ion Exchange (India).

Capacity Timeline

Production 27,000 m3/d Contract awarded 2004

Equity investor Unknown

Chennai Minjur Desalination

Chennai Tamil Nadu BOO Total investment (USDm) n/a

Sector 1 Water Sector 2 Desalination The best indication that India is opening up to private water is the ﬁ nancing of the Chennai Metropolitan Water Supply and Sewerage Board’s Minjur desalination plant. This project looks set to achieve ﬁ nancial close in Dec 2005/Jan 2006 without the need for public subsidy. This is a remarkable achievement given that Chennai Metro will be buying the water from the plant from the IVRCL and Befesa consortium for $1.07/m3.

Capacity Timeline

Production 300,000 m3/d Pre bid 2004 August

In tender 2004 November

Contract awarded 2005 December

Equity investor IVRCL

Equity investor Befesa

Chennai South

Chennai Tamil Nadu 20 -year BOT Total investment (USDm) 100.00

Sector 1 Water Sector 2 Desalination A second plant serving the south of the city has been mooted by Chennai Metro, and a project report commissioned

Capacity Timeline

Production 100,000 m3/d Announced 2005 November

Equity investor Unknown Opportunity!!

Tirupur Water

Tirupur Tamil Nadu 30 -year BOT Total investment (USDm) 60.00

Sector 1 Wastewater Sector 2 No data The plant is meant to be a 60,000m3/d industrial wastewater RO system in 10 separate units. The clients are 350 local dyeing businesses. Dyers in the Tirupur area have been ordered to introduce zero liquid discharge systems. The Tamilnadu Water Investment Company is taking the lead and proposed 10 RO based ZLD units. The project has been split into three parts, pre-treatment, RO and evaporator. A technical advisor for the pre-treatment process is to be appointed shortly. The prequaliﬁ cation process supplying each of the three stages should begin in early 2006. Contact: S Prakash +91 44 2499 7912

Capacity Timeline

Production 60,000 m3/d Contract awarded 2000 October

Lender Infrastructure Leasing & Financial Services Equity investor Tamilnadu Water Investment Company (TWIC)

261 Water Market Asia - India

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 262 Water Market Asia - Indonesia

Indonesia

Indonesia has been the backdrop for some epic water privatisation. After a regime change, arbitration ﬁ lings and multiple-round contract renegotiation, most private investors have lost appetite for this market. Regional players from Singapore or Malaysia still land the occasional building contract but the public sector is rarely committed to improving service and relies on subsidies and IFI grants for its survival.

While the needs are gigantic and mostly unanswered, there exists only very few interesting market opportunities in Indonesia for foreign players, outside any IFI-led procurement process, be they investors or contractors.

Still, Malaysian ﬁ rm Gadang Bhd is expecting to win tenders for two wastewater plants in 2006. But this is not the kind of business that will make large utilities look away from China.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Very disappointing Suez and Thames are still hanging on Future Opportunities Few but can't wait to leave. No one else is interested. Local competition Negligible Equipment Markets Comments Future Opportunities Some Regional players have landed some Local competition Negligible small scale construction deals. Other projects tend to be IFI-led.

Public Utilities Comments Track record Bad Coverage rates are very low even by Sustainability Poor emerging Asia standard. Reliance on ODA High Government Comments Commitment to deliver service No Like in the Philippines, the idea of Fiscal Resources Very limited "public service" still has a long way to go in Indonesia. Economy & Finance Comments Recovery since Asian crisis 1997 Average Negative FDI (net) since the Asian Local capital maket Basic crisis

263 Water Market Asia - Indonesia

I. General Information ruptcy have been passed and an anti-corruption committee established, although the popular perception is that little has been done yet Indonesia has a population of 219 million (2004 estimate based on to tackle corruption effectively. 2000 census). Population growth in Indonesia was 1.5% during the 1990s, but urban population growth is much higher and rates of ur- I.2 Political & Investment Environment banisation are high. The rate of urbanisation rose from 31% in 1990 Political stability has been restored in Indonesia after the turmoil sur- to 42% in 2000. Despite the setbacks caused by the Asian Crisis, rounding the departure of former President Suharto in 1998. Three poverty levels have been falling both by national and international Presidents came and went in quick succession between 1998 and standards: 7.4% of the population were living on less that US$1 a 2004, which saw the country’s second Parliamentary elections under day in 2003, compared to 12% in 1999. However, poverty remains a democracy and the fi rst direct Presidential election. The elections took serious problem: more than half the population live on less than US$2 place without unrest, suggesting that democratic institutions are be- per day and lack access to water and sanitation, health and education coming established after decades of authoritarian rule. Mass protests and other basic services. and civil unrest, which characterized the transition period from authori- Indonesia performs badly in water and sanitation outcomes, even tarianism, have faded out. In the elections, Bambang Yudhoyono won compared to other countries at the same income level. Overall, cover- in a landslide against incumbent and Megawati Sukarnoputri, giving age rates in urban areas are very low. WHO data puts coverage in ur- him a strong popular mandate to push through his campaign policies ban areas at 90%, but the level of network connections is in fact much of job creation, economic growth and fi ghting corruption. lower. Only fi ve PDAMs (local water utilities) in Indonesia achieve over Indonesia’s security situation has improved in many areas, with the 80% coverage, and a proportion of this water is distributed through devastating effects of the tsunami bringing the government back into on-selling or re-selling by households. talks with separatist rebels in Aceh. Peace deals have been signed Anecdotal evidence and deteriorating health indicators suggest that with armed separatist groups in other regions, and institutions for re- the quality of service provision has fallen in the years since the eco- gional autonomy are being put in place. However, attacks by Islamic nomic crisis. The country has one of Asia’s lowest rates of sewerage militants constitute an important ongoing threat to stability in the coun- and sanitation cover, and consequently has the highest incidence of try. Attacks on the Australian Embassy in Jakarta in August 2004 and typhoid in Asia. Poor performance is partly the result of rapid urbani- a second bombing in Bali in 2005 linked to Jemaah Islamiah dem- sation, a situation that is likely to worsen as migration to the cities onstrate that the government’s efforts to tackle terrorism have been continues and has been exacerbated by political interference and fi - inadequate. nancial constraints on water utilities. Regional governments are becoming more assertive politically since I.1 Macroeconomic Situation decentralisation reforms were implemented in 2001. The reforms were intended to diffuse resentment of the central government’s control of Indonesia’s economic policy performance since the Asian crisis has revenues from natural resources but were drafted hurriedly, leaving been broadly successful in restoring growth while keeping infl ation a mass of contradictions and confl icts with existing laws. These are and public spending under control. In 2003, Indonesia decided not to being dealt with slowly, leaving considerable legal and regulatory un- renew its arrangements with the IMF and has since been meeting its certainty. debt obligations. The process of structural reform has been slower: privatisation and bank restructuring initiatives have been repeatedly Infrastructure investment by the public and private sectors has col- delayed and the recapitalisation of banks has occurred at huge cost to lapsed since the 1997 economic crisis, despite efforts by the govern- the public budget. The Indonesian Bank Restructuring Agency, which ment to encourage foreign investors. Investment has been deterred was set up to restructure bad debts, has now been closed down, hav- by low returns on infrastructure projects, coupled with high perceived ing completed its task. Laws covering money-laundering and bank- legal, political, security and regulatory risks. The new government has

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 10.00 2006 334,046 5.00 2005 299,517 0.00 2004 257,852 -5.00 1998 1999 2000 2001 2002 2003 2004 2005 2006 -10.00 0 100,000 200,000 300,000 400,000 -15.00

Indonesia Dev eloping Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean)

15.00 Chart 1.3: 2004 Sector Share of GDP 10.00 Agricult. 5.00 15% 0.07 -0.25 -0.20 -1.20 -2.76 -1.81 -0.30 Serv ices 0.00 40% 1998 1999 2000 2001 2002 2003 2004 -5.00

Indonesia Dev eloping Asia (mean) Industry High Income Asia (mean) 45%

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 264 Water Market Asia - Indonesia

Table 1.1: Sovereign Risk Indicators Indonesia Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 591.00 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 58.20 59.60 50.84 Short Term Debt / Total Debt 2004 (%) 17.05 10.49 n/a Fitch Sovereign Rating (2004) B+

Table 1.2: Legal Risk Indicators 2004 Indonesia Developing Asia High Income Asia Time to enforce a contract (days) 570.00 392.62 103.67 Time to register property (days) 33.00 62.82 16.50 Time to resolve insolvency (years) 6.00 4.45 1.15 Time to start a business (days) 151.00 67.08 14.33 Legal rights of borrowers and lenders (0=low) 5.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Indonesia Developing Asia High Income Asia Political Rights 3.00 4.23 2.43 Civil Rights 4.00 4.69 2.14 Corruption Perception 1.90 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 Indonesia Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 16.16 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 126.82 185.54 1,281.59 Roads, paved (% of total roads) 57.10 44.75 75.32 Electric power consumption (kwh per capita) 411.01 717.46 7,505.93 Water supply failures (days) 2.90 10.00 n/a

Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%)

8 0.00 -1.00 2002 2003 2004 2005 2006 6 -0.90 -1.20 -1.10 -2.00 -1.30 -1.50 4 3.04 -3.00

1.60 -4.00 2 1.10 1.00 -5.00 0 2003 2004 2005 2006 -2 Indonesia Dev eloping Asia (mean) High Income Asia (mean) Indonesia Dev eloping Asia (mean) High Income Asia (mean) Chart 1.8: Real Interest Rate 2000-2003 (%) Chart 1.7: Inflation Rate 1999-2004 (%) 12.00 10.99 25.00 10.00 9.76 20.00 20.49 8.05 8.00 7.01 15.00 11.50 6.00 11.88 10.00 6.59 4.00 6.24 5.00 2.00 3.72 0.00 0.00 1999 2000 2001 2002 2003 2004 -5.00 2000 2001 2002 2003

Indonesia Indonesia Dev eloping Asia (mean) Dev eloping Asia (mean) High Income Asia (mean) High Income Asia (mean)

265 Water Market Asia - Indonesia

Main Cities of Indonesia (2000) Population '000 In rural areas, PDAM distribution constitutes a very small proportion of total rural water supply and community supply schemes serve a Jakarta 8385.00 third of the population. These schemes have sometimes been initiated Surabaya 2589.00 by the communities themselves but more often than not they have Bandung 2142.00 been set up as part of a donor-assisted project. 147m people rely on Medan 1792.00 groundwater as their main source. Semarang 1345.00 As the groundwater table is fairly high in many provinces of India, a Palembang 1442.00 large and increasing number of households and commercial/industrial prioritized infrastructure in its strategy to deliver economic growth. The users rely on their own wells as their main water source. government held an infrastructure summit for investors in Jakarta in The offi cial objective is for PDAMs to serve customers through piped January 2005 to try to win back foreign investors. Plans for US$145bn customer connections. However, of the 85m people living in the ser- of infrastructure projects were presented to investors, but so far inter- vice areas of the PDAMs, only 28.8m, or 35% are served through est has been very muted. Budgetary constraints and rising bills for 5.25m connections. This rate is declining as a result of poor asset subsidies and social spending make it unlikely that the government will maintenance and high rates of urbanisation. It is estimated that a fur- raise its own spending on infrastructure in the short-medium term. ther 15% of urban residents receive PDAM water but not through legal In the energy sector, the privatisation of state oil and gas company connections or distribution networks. There is no policy addressing Pertamina is planned for 2006, but a bill passed in 2002 to restructure non-network forms of supply, even though the majority of the popula- the electricity market and open it to PSP was annulled in 2004 by the tion use these alternative sources of water. PDAMs do not have regu- Constitutional Court, raising doubts about the legal status of PSP. lated supply points for small-scale vendors and vendors rarely sell water from non-PDAM water sources. There are few restrictions on foreign investment: it is permitted in virtually all sectors, including infrastructure; 100% ownership by foreign in- II.2 Financing vestors is allowed; the equity limits on foreign partners in joint-venture The Indonesian Government estimates that investment of IDR5.1trn enterprises have been raised to 95%; nor is their any minimum capital (US$573m) is needed annually in order to meet the water and sanita- requirement for foreign investors. The earlier divestment requirement tion MDGs. (BAPENAS Indonesia Country Report) has been reduced to a token amount. The government is drafting a new law that will specify equal treatment for foreign and domestic in- For the majority of PDAMs, tariffs are inadequate to cover operating vestors and will simplify procedures. However, the Asian crisis has had and maintenance costs, without including debt service or deprecia- a profound effect on foreign investment fl ows, even almost a decade tion. Local governments are also entitled to use part of the profi ts gen- later: foreign direct investment (FDI) approvals fell from US$40bn in erated by the enterprise for specifi c local and regional programmes. 1995 to US$9.8bn in 2002 and US$10.3bn in 2004. However, in practice, local governments have kept tariffs low, failed to provide funds for the extension and rehabilitation of networks and II. Water have insisted on receiving dividends. Most local governments routine- II.1 Sector Policy & Structure ly require dividend payments from their PDAMs even when cash fl ow is negative which is recorded in the accounts as ‘advance payment Water services in Indonesia are provided by local water enterprises, of dividends.’ Local governments rarely provide capital fi nancing, but known as PDAMs. These are wholly owned and regulated by local may provide small budgets for projects requested by PDAMs. government. Local governments have responsibility for ensuring the supply of water services, setting tariffs, establishing and monitoring One of the most serious problems in the Indonesian water sector service and performance standards and providing funds to the PDAM is the severe indebtedness of PDAMs to the Ministry of Finance. In for capital investment. Since 1999, the central government has en- 2003, 221 PDAMs held more than 400 outstanding loans to the MOF couraged local governments to convert PDAMs into limited liability with about 63% of these loans in arrears or in default, equivalent to companies, distinct from local enterprises, but there has been little US$500m. Given revenue and interest charges, the sector is estimated take-up of this policy. to be making losses of about IDR100bn a year. This fi gure increases substantially when depreciation is factored in. The fi nancial weakness The central government defi nes overall water policy and provides of PDAMs is due to interference by local governments in the operation technical assistance to lower tiers of government. It also sets quality of PDAMs and local governments drawing dividends from PDAMs re- standards and targets. gardless of the fi nancial position of the utility, mis-directed investment Since the passage of decentralisation laws in 1999, the powers and and PDAMs being too small to be fi nancially viable. responsibilities of local government have increased and the size of lo- Central government now fi nances investment through loans to cal government units has decreased. New, smaller municipal govern- PDAMs or Local Government (under the IUIDP programme). Previ- ment units known as Kabupatens have been created, many of which ously, all central to local transfers had taken the form of grants. Loans have chosen to set up their own PDAMs, seeing the water utility as a are made through subsidiary loan agreements (SLAs) funded by do- source of revenue. This has led to a rapid expansion in the number nors or domestic borrowing through Regional Development Accounts. of PDAMs and a decrease in their average size. 85% of PDAMs now Most SLAs are made at subsidised interest rates of 9-11 % and have serve fewer than 10,000 customers and are thus widely considered to maturities of 20 years with a 5 year grace period. However, fi nance be too small to achieve fi nancial viability. Furthermore, PDAM areas from the central government has been reduced as a result of public of service bear no relation to natural watershed boundaries and there budget constraints. is no functioning mechanism for local governments to share water resources. The Ministry of Finance retains the contingent liabilities, so PDAMs had little incentive to pay off their loans. Decisions on investment pri- Local governments are increasingly ignoring national decrees and orities were taken at the central level and local actors were sometimes policies. For example, they have not reacted to the Ministry of Home not consulted at all on the use of funds, resulting in inappropriate proj- Affairs regulation (7/1998) which does not permit the head of the local ects that failed to meet the demands of the PDAM. government to be part of the PDAM’s supervisory board and limits the number of local government bureaucrats on the board. Little has been done so far to deal with the fi nancial diffi culties of PDAMs: local governments continue to be unwilling to raise tariffs to- In the absence of adequate service from public networks, a majority wards cost recovery levels, or to invest equity in their water utilities. of households and businesses supplement piped water use with other Very few PDAMs are in a position to take on commercial debt, as water sources, especially wells. It is also common for PDAMs to sell envisaged in the government policy to convert PDAMs to limited li- water illegally to informal vendors who sell the water on to house- ability companies. holds. The water appears as NRW in the company’s accounts, but in fact constitutes a signifi cant source of revenue for PDAM employees. Financially distressed PDAMs that requested help were assisted un- In smaller cities, as much as 50% of water is supplied in these two der a World Bank project in preparing Financial Recovery Action Plans. ways. In rural areas, this fi gure rises to 88%. The Plans involved loan rescheduling in return for commitments from local governments to raise tariffs and improve operating effi ciency.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 266 Water Market Asia - Indonesia

Table 2.1: Income Level Indonesia Developing Asia High Income Asia GDP per capita 2004 (US$) 1,150.00 1,104.30 23,628.57 Population on less than US$1 /day 2004 (%) 8.00 18.23 0.00 Unemployment 2004 (%) 9.60 6.73 4.89

Table 2.2: Area & Population Indonesia Developing Asia High Income Asia Population Growth 2003 (%) 1.50 1.67 0.64 Urban Population Growth 2003 (%) 3.79 3.48 1.18 Population Density 2002 (pop/km2) 114.00 231.45 2,335.17 Area (thousands Ha) 190,457.00

Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban 2000-2003 (cst 2000 US$) (millions) 224 Population (%) 45.00 225.00 44.10 525.26 220 530 44.00 43.07 220.00 217 520 511.78 43.00 42.03 214 510 499.60 215.00 42.00 212 40.99 500 489.79 41.00 210.00 490 40.00 480 205.00 39.00 470 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002 2003

Chart 2.4: Consumer Exp. on Water 1999-2004 (US$m) Chart 2.5: Consumer Exp. on Water Growth Forecast 2005-2009 (%) 1,099.39 1,200 1,018.78 4.00 3.67 1,000 837.87 710.21 709.27 3.00 3.17 800 658.28 2.86

600 2.00 1.77 400 1.32 200 1.00 0 0.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Private fi nance has played a minor role in the sector. In Jakarta, Paly- Indonesia Dev eloping Asia (mean) ja invested US$132m and TPJ US$85m between 1997-2002. In the period 2003-2005, the concessionaires reduced annual investment High Income Asia (mean) further to keep down their exposure during negotiations about the operating and fi nancial plan for the second fi ve-year period. this remains weak. It has advisory powers with regard to tariffs and is Information on the scale of investment by small-scale providers is very responsible for monitoring ‘macro’ performance of the concessions limited, but in some projects, communities have raised 20% of costs. but in practice the regulator has been side-lined by the concession- Investment by households in wells, pumps, septic tanks etc. is con- aires and Pam Jaya on important issues. siderable, perhaps reaching hundreds of millions of US dollars each year. The private contracts have led to increases in coverage but little improvement in effi ciency and quality indicators. Non-revenue water II.3 PSP rates remain above 40% in both zones. The number of connections There are a small number of examples of PSP in Indonesia which has risen, as has the proportion of the population served, but both were mostly contracted before the onset of the economic and political indicators have risen more slowly than foreseen in the original con- crisis. By far the largest projects are the two 25-year concession contract or the revised contracts of 2001. This is largely the result of the tracts for the supply of water services in Jakarta which were signed economic and political crisis in Indonesia in 1997-8. The parties have in 1997 and went into operation in 1998. The West and East conces- since struggled to fi nd a resolution to the fi nancial impact of the cri- sions are 95% owned by Suez and Thames Water respectively. Pam sis. Originally, the concessionaires planned to invest the equivalent Jaya, the former public utility of Jakarta is the contract signatory on of US$500m in the fi rst 5 years of the contracts, but as a result of the the government side and responsible for monitoring performance of crisis, they invested approximately US$200m. These amounts have contractual obligations and agreeing performance targets for each not been suffi cient to generate forecast service improvements. fi ve-year operation period. In 2001, a regulatory body was set up but One of the earliest PSP projects in Indonesia was a concession for

267 Water Market Asia - Indonesia water supply to Batam Island, a special economic zone located near sory services to PDAMs and is engaged in a voluntary bench-marking Singapore. Under the Suharto presidency, the island was chosen as exercise for utilities with support from the World Bank. The Jakarta site for industrial development and a private operation was introduced concessionaires have declined to participate. Perpamsi intends to ex- to improve water supply service quality in order to attract investors. pand the number of utilities involved in bench-marking and to estab- The concession is a JV between Cascal and a local company and lish the collection and analysis of the data as an annual practice. has been fi nanced locally, which means that the concessionaire suf- The Jakarta concessions are regulated by contract. Pam Jaya, the fered much less as a result of the economic crisis. Other PSP projects formed public utility for the city, monitors the implementation of the include BOTs for bulk supply in Medan, one of the country’s most ef- contract. In 2001, a regulatory board was set up but it only has advi- fi cient utilities and for other major cities on the island of Java. Both sory powers and has very limited resources. The contracting parties Ondeo and Thames have considered other projects in Indonesia and have been reluctant to allow the regulator any role in discretionary Thames engaged in long negotiations for a contract in Bali, but prob- decision-making. As elsewhere in Indonesia, any increase in tariffs for lems with the Jakarta concessions have discouraged the companies Jakarta must be approved by the Governor and the local assembly. from expanding their interests in Indonesia. There have also been some small operations and management contracts involving Dutch MHSRI monitors rural supplies that fall outside the scope of PDAMs utilities which have been pursued in the context of donor assistance and the provision of services to poor communities outside PDAM net- projects. work. Informal providers are not regulated. Groundwater extraction is very poorly monitored. This is the responsibility of the Department of II.4 Tariffs Mines and its regional offi ces, which also sets charges for groundwa- In most cities, tariffs are well below cost recovery levels, although tar- ter extraction, but charges are too low to discourage use and are in iffs in Jakarta are higher than most other Asian cities (ADB Water Utili- any case usually not enforced. ties Yearbook). In 2003, tariffs were on average IDR980 (US$0.08)/ m3. Tariffs are structured on a rising block system. As a result of high II.6 Performance tariffs on high volume users, a large proportion of business and com- See Tables 3.10, 3.11, 3.12 mercial users have developed their own boreholes. III. Wastewater Affordability is not a problem for customers connected to the network who pay 1-2% of their income on water. However, those dependent III.1 Sector Policy & Structure on informal provision may pay much more. One study found that poor There is almost no formal institutional structure for sanitation in Indo- households in three major cities paid 16-33% of their income on wa- nesia and there is no branch of government that takes responsibility ter (USAID, 1997 for ADB Water Utilities). However, the survey also for performance in this sector. There is no sanitation policy that sets found that only a minority of poor households that were not connected out investment priorities, or provides a legal and regulatory frame- to the network wanted a connection, because of the perception of poor work for fi rms and households, or describes a strategy for the sec- quality of service from the PDAM. tor. Urban wastewater services are not specifi cally mentioned in the Autonomy Law that defi nes the responsibilities of local government Tariffs are proposed by the PDAM and must be approved by the local but it is generally understood that they lie within the authority of local government. In most localities, the tariff increase must also be ap- government. proved by the Local Assembly, which has held back progress towards cost recovery. Despite their statutory responsibility, most local governments regard sanitation as a private household or NGO responsibility. Households II.5 Regulation and developers are meant to install facilities in accordance with gov- The new Water Law (2004) provides scope for the creation of a na- ernment regulations, but these are poorly enforced. Investment in fa- tional regulator to monitor and enforce standards, approve tariffs and cilities to collect, treat and dispose waste is a public responsibility, but regulate and monitor PSP projects. there has been very little investment in this. Local governments give sanitation a very low priority in their spending decisions which are The Ministry of Human Settlements and Regional Infrastructure (MH- seen as a cost delivering little in terms of political benefi ts. SRI), formerly the Ministry of Public Works, is engaged in considering proposals for the structure of the regulator, an exercise which has Households and small scale providers fi nance their own systems, in- been supported by international donors. However, the law does not cluding installation and removal of septic tanks. 73% of households require the creation of the regulator or defi ne a time frame for institu- have some form of on-site sanitation, but many household-level septic tional restructuring. No concrete progress has yet been made in the tanks do not function effi ciently as they are not maintained. creation of a national regulator. However, local governments do not even provide drainage, septage PDAMs are monitored by local governments and local assemblies. collection, treatment and disposal, or regulation and oversight of PERPAMSI, the national association of water utilities, provides advi- households’ behaviour. Community managed sanitation is basically

The Jakarta concessions In 1997, concession contracts were awarded to Suez and Thames Water with their local partners for water services in the West and East zones of the city respectively. Both local partners were close to President Suharto, standard practice at the time, but a fact that turned against the foreign companies in the political upheaval that took over the country in 1998. When Suharto was overthrown, the former public utility seized back management control from the concessionaires, and Suez and Thames had to rely on high level diplomatic pressure to regain control over the concessions. In the process, they were forced to buy out their local partners and to agree to the renegotiation of their contracts. The economic crisis, meanwhile, threw out the fi nancials of the concessions. The collapse of the Rupiah raised the costs of servicing debt that had been raised on international markets backed by parent company guarantees. In addition, prices in the construction market and other parts of the Indonesian economy that had been dollarised suddenly shot up, while demand collapsed and infl ation spiked. The Governor of Jakarta announced that planned tariff increases would not take place until the crisis was over. In 2001, the parties fi nally agreed an amended contract, or ‘restated cooperation agreement,’ as it is quaintly known, under which the government would raise tariffs more slowly than originally planned, the fi rms’ production targets would be reduced and a regulator would be set up. But no sooner had it been signed, then all the parties failed to live up to their obligations and renegotiations began again. The low point in the concession came in 2003-4, when the government and fi rms gave up talking to each other and the fi rms were looking for ways to withdraw and to extract some value from their concession assets. Discussions were eventually rekindled in 2004. In 2004-5, the companies started to diverge in their approach. Thames Water’s international strategy is to leave Asia and the Jakarta contract is no exception. Suez’s attitude, by contrast, is informed by their unsuccessful attempt to terminate their contract in Manila. Instead, they have focused on putting the concession’s fi nance on a sustainable footing and in 2005 raised local bond fi nance without recourse to the parent company and came very close to agreeing a compromise with the government over tariffs.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 268 Water Market Asia - Indonesia

Table 3.1: Water Service Coverage Indicators 2002 (%) Indonesia Developing Asia High Income Asia Population with Access to Improved Water 78.00 76.85 100.00 Households Connected 17.00 22.27 98.00 Urban Population with Access 89.00 86.17 100.00 Urban Households Connected 31.00 48.27 99.33 Rural Population with Access 69.00 71.42 100.00 Rural Households Connected 5.00 14.58 95.50

Table 3.2: Water Resources Indonesia Precipitation Volume 2002 (bn m3/yr) 5 146 Precipitation Depth 2002 (mm/yr) 2,702.00 Groundwater: produced internally 1998-2002 (bn m3/yr) 455.00 Surface water: produced internally 1998-2002 (bn m3/yr) 2,793.00 Overlap: surface and groundwater 1998-2002 (bn m3/yr) 410.00 Water resources: total internal renewable 1998-2002 (bn m3/yr) 2,838.00 Water resources: total external 1998-2002 (bn m3/yr) 0.00 Water resources: total renewable 1998-2002 (bn m3/yr) 2,838.00 Agricultural water withdrawal 1998-2002 (bn m3/yr) 75.60 Domestic water withdrawal 1998-2002 (bn m3/yr) 6.62 Industrial water withdrawal 1998-2002 (bn m3/yr) 0.56 Total water withdrawal 1998-2002 (bn m3/yr) 82.78

Table 3.3: Water Resources II Indonesia Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 13,070.00 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 13,070.00 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 381.20 507.25 544.73 Dependency ratio 1998-2002 (%) 0.00 33.33 1.39 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 2.66 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 2.92 16.19 13.19

Chart 3.1: Water Uses 2002 (%) Chart 3.2: Fresh Water per Capita 1999-2004 (m3/head) 13,859 14,000 13,753 13,650 Indus. 13,800 13,506 13,600 13,369 13,381 1% 13,400 Dom. 13,200 13,000 8% 1999 2000 2001 2002 2003 2004

Agricult. projects with high social benefi ts but it is currently set at a very low 91% level and local governments choose to allocate DAU to more politically advantageous ends. Comparative information on local government fi nancing of sanitation is not available at the national level. Anecdotal information from one local government shows that of the DAU allocation, 6% was used on limited to some communal toilets and bathing facilities and there are a ‘human settlements’ and of this 80% was allocated to water supply, very small number of community-managed neighbourhood sewerage 15% to housing and only 5% to sanitation. systems. Other evidence suggests that local governments do not know how to The low priority of sanitation for the central government is also re- use the funds that they do allocate to sanitation and small sanitation fl ected in the absence of information and advisory programmes on budgets were under-used. SLAs could be used to onlend to sanitation the costs of inadequate wastewater services on health and the envi- projects, but little fi nance is currently provided through this channel, ronment. Awareness of sanitation issues and demands for improved refl ecting once again the low priority given to sanitation by local and sanitation services are minimal. central government in Indonesia. III.2 Financing III.3 PSP Public investment in sanitation is extremely limited. Before decentrali- There are no examples of PSP in the wastewater sector. This is due sation, local governments relied on special investment grants from the to the low priority given to the sector by the government and very low central government to fi nance sanitation investment (INPRES). Since tariff levels. Poor implementation of environmental standards means decentralisation, these have been replaced with block grants (DAU) that there is little incentive for businesses to improve their discharge and a new special subsidy (DAK). DAK is a form of grant fi nancing for

269 Water Market Asia - Indonesia standards. There is little scope for PSP in the current sectoral environ- access is through household level ‘on-site’ sanitation. Facilities for the ment. treatment and disposal are very limited. There is only one such plant for the whole city of Jakarta. III.4 Tariffs Sewerage networks reach only 1.3% of the country’s population, Cost recovery for sanitation is not considered a realistic political posi- equivalent to roughly 10% of urban residents. Only seven Indonesian tion. Few households pay tariffs for sanitation services. Those that do cities enjoy some sanitation coverage, and even these networks do pay a small surcharge on top of the cost of water. not cover large parts of the cities. Where treatment facilities do exist, However, households face signifi cant costs installing and maintaining they are often poorly operated and safe disposal of effl uent is rare. private sanitation facilities. Most sewerage is dumped in or fl ows into rivers and canals without III.5 Regulation any kind of treatment, leading to contamination of surface water resources. This in turn has led to widespread epidemics of water-borne Regulation of the sector is extremely weak. No central government diseases. The World Bank (2003) estimates the economic losses from Ministry is charged with responsibility for the sector with the result poor sanitation to be US$6.8bn a year. (2001 estimates, ADB TA 2805- that these is no regulatory oversight. The Ministry of Environment is INO Strengthening of Urban Waste Management Policies and Strate- responsible for the enforcement of wastewater standards but there is gies). The lack of sanitation results in economic losses estimated at no evidence to demonstrate that the Ministry takes this role seriously. 2.4% of GDP or US$6.8bn per year. A (draft) regulation on environmental health and safety specifi es re- IV. Environment and Legal Aspects quirements for water quality and wastewater discharges but this has not yet been implemented. IV.1 Water and Wastewater Fundamentals III.6 Performance Water Resources The performance situation in the sanitation sector is not surprisingly Despite abundant rainfall and fresh water resources, access to clean considerably worse than that for water. Indonesia has the lowest pro- water is decreasing. Increasing water pollution is not only damaging portion of urban households with adequate sanitation in Asia, includ- human health but also fi sheries, agriculture and coral reefs. Industrial ing countries with much lower income per capita. 68% of urban house- effl uents, particularly those from the mining industry, are one of the holds have access to private basic sanitation (SUSENAS). 73% of main causes of water pollution. Indonesia also lacks the means to

Table 3.4: Central and local governments responsibilities in the water sector Central Government Responsibilities Local Government Responsibilities Developing policies Ensuring provision of services at the local level Establishing and providing funds for subsidy Providing targeted subsidies to low income consumers programmes to low income groups Setting overall quality standards and coverage targets Establishing levels of service, operational performance and customer relations for the service provider Developing investment policies and funding mechanisms Providing funds for investment and O&M as required particularly related to funds from central government, IFIs and bilateral donors Defining institutional roles and responsibilities Determining tariff structures and approving tariffs

Table 3.5: Service coverage by public utilities PDAM Service Level (% population) Number of PDAMs* <20 173 20-40 43 40-60 34 60-80 10 >80 5 Total 265 Source: PERPAMSI *includes only those PDAMs involved in Perpamsi benchmarking exercise

Table 3.6: Urban water Supply Urban water supply % of population served PDAM supply + distribution 35 Private supply or distribution Est. 1-2 PDAM supply + non PDAM distribution 15 Alternative supply + alternative distribution (independent 8 and intermediate vendors/tankers) Self-provisioning (Community system) 1-2 Self-provisioning (Household level) 40

Table 3.7: Rural Water Supply Rural water supply % of population served PDAM supply + distribution 5 PDAM supply + non PDAM distribution 3 Alternative supply + alternative distribution 2-4 Self-provisioning (Community system) 33 Self-provisioning (Household level) 55

Table 3.8: Provision Types Type of water supply entity % population served PDAM provision (piped) 18 Alternative small-scale water provision 14 Self provision (household and community) 68 Source: World Bank Sector Review 2003

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 270 Water Market Asia - Indonesia

Table 3.9: Sector Financing Source of finance for water sector Amount IDR bn % total financing National government transfer (loan through SLA) 7500 100 (for investment) Loans outstanding 3200 Ministry of Finance debt accrued US$500m Table 3.10: Water Sources (SUSENAS) Main source of water (rural/urban) % households Individual source (pump, well) 52 Jointly owned sources (communal tap) 25 Network connection 15

Table 3.11: Tariffs (National Averages) Average water tariff /m3 (IDR) 980 Average water tariff /m3 (US$) 0.08 Average monthly bill (IDR) 26,150 Average monthly bill (US$) 2.20

Average water consumption lcd Average water consumption lcd (Low income) 100 Average water consumption lcd (mid-income) 150 Average water consumption lcd (high income) 250

Table 3.12: Utilities performance (2003) National Jakarta W Jakarta E Medan Affordability (% household income) 1-2 1-2 <1 Non-revenue water 44% 53% 53% UFW 40% Employees/1000 connections 11 6 6 5 Source: World Bank Sector Review

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) Indonesia Developing Asia High Income Asia Population with Access to Improved Sanitation 52.00 54.64 100.00 Households Connected 1.00 7.22 97.50 Urban Population with Access 71.00 77.09 100.00 Urban Households Connected 2.00 18.11 98.33 Rural Population with Access 38.00 48.08 100.00 Rural Households Connected 2.00 2.57 90.00

Table 4.2: Water Pollution 2001 (% of total BOD Emissions) Indonesia Developing Asia High Income Asia Water pollution, chemical industry 9.62 9.94 8.81 Water pollution, clay and glass industry 0.00 0.46 0.15 Water pollution, food industry 50.08 43.27 42.73 Water pollution, metal industry 2.81 7.62 4.84 Water pollution, other industry 0.00 6.08 13.17 Water pollution, paper and pulp industry 8.45 9.38 26.14 Water pollution, textile industry 21.00 21.17 8.17 Water pollution, wood industry 5.00 2.67 2.17 Table 4.3: Wastewater Treatment Type of wastewater treatment entity Number % of urban population Public sewerage networks 7 1.3 Special department of PDAM (Bandung, Cirebon, Medan, 5 Surakarta and part of Tangerang) Self-provisioning 98.7 (septic tanks) 59 (pit latrines) 21

Table 4.4: Examples of wastewater charges City (where relevant) Typical Hhold Bill for monthly consumption of 20m3 Cirebon 15% surcharge on water bill Bandung 30% surcharge on water bill

271 Water Market Asia - Indonesia deal with the population’s solid waste—open dumps are contributing crucial to the welfare of the people. to air pollution as well as contamination of the water supplies. The electricity sector reform bill was struck down by the Constitutional 70-75% of organic pollutants in Indonesia’s water bodies comes from Court on these grounds in 2005, raising the concern that the Water household waste, with the remainder coming from industrial waste. Law may also be found to be unconstitutional. The worst affected regions are the most populous: West Java, Central Java and Jakarta. Environmental Policy Environmental laws are openly fl outed by the private sector, often in As a result of unregulated groundwater extraction, water tables have collusion with local and provincial government offi cials. Environmental been falling. In Jakarta, abstraction of groundwater has led to the sa- destruction has intensifi ed since Suharto resigned from offi ce in May linisation of the parts of the aquifer. 1998. In June 2003 a World Bank report stated that air, water and Groundwater in the Northern part of the city, inhabited by low income ground pollution are increasing in Indonesia. households, is now unsuitable for drinking, although poor households continue to use the groundwater for cleaning. IV.2 Laws and Institutions See Tables 5.1 & 5.2. Water Resources Policy The 2004 Water Resources Act addresses the division of water re- V. Sources sources between sectors. Water for household use, which accounts EIU, ADB, World Bank, Perpamsi, Interviews for less than 4% of the total water resource allocation is given little attention in the law. Chart 4.1: Daily organic water pollutant emissions 1999- The law was the result of a sector assistance loan (WATSAL) from 2004 (kg) the World Bank, agreed in 1999. The law covers major institutional reforms to the sector, including water resources policy, and the delivery 1,200,000 997,370 933,824 of water supply and sanitation services. 1,000,000 825,151 880,315 724,376 752,834 The law allows water resources to be managed on a profi t-making 800,000 basis. Non-governmental organisations have objected strongly to the 600,000 law, arguing that it fails to protect the right to safe and affordable water, and transforms water from a social commodity into a commercial 400,000 good, with potentially dangerous consequences for the millions of 200,000 peasant farmers who depend on water to irrigate their fi elds. 0 There could be a confl ict between this law and the Constitutional prin- 1999 2000 2001 2002 2003 2004 ciple that requires the state to control economic sectors which are

Chart 4.2: Daily organic water pollutant emissions / 1000 people 1999-2004 (kg) 10.00

8.00

6.00 4.51 4.08 4.27 3.49 3.58 3.87 4.00

2.00

0.00 1999 2000 2001 2002 2003 2004

Indonesia Dev eloping Asia (mean) High Income Asia (mean)

Total Water Water Coverage Sewerage Water Production Non Revenue Metering Level Year Consumption (%) Coverage (%) (l/person/ day) Water (%) (%) (l/person/day)

2000 43.12% 54.57% 197.44 132.31 33.37% 93.49% 2001 45.00% 62.06% 195.75 127.05 35.57% 92.46% 2002 43.25% 83.33% 188.47 117.35 34.96% 92.46%

Connection Connection Collection Operating Cost Debt Service Ratio Continuity of Year Charge - water Charge - water Period (Days) Coverage (ratio) (%) service (Hrs/day) (US$/conn) (US$/conn) water utilities 2000-2002 water utilities

2000 54.04 108.79 0.76 2008.08% 226.28 18.33 2001 47.25 93.25 0.78 1919.76% 212.94 18.97

Table 5.1: Average performance of indonesian of performance Table 5.1: Average 2002 62.16 95.94 0.76 696.94% 241.86 20.37

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 272 Water Market Asia - Indonesia

Table 5.2: 22 largest indonesian water utilities (pop. served > 500,000) - 2002

vrgsna4.8 0.0127 36.38 122.70 204.80 40.38% n/a Averages

KotaTangerang

oaSrby onanana4.5 0.0 / 40 / / n/a n/a n/a 24.00 n/a 100.00% 40.45% n/a n/a n/a No KotaSurabaya

oaSkbm o2.5 0.096.82 205.20 21.65% No KotaSukabumi

oaSmrn o7.3 3.5127.43 235.15 75.93% No KotaSemarang

oaPninkN 81%141 120.26 194.11 68.10% No KotaPontianak

oaPlmag"it ui e / / / 90%9.0 / / 67 2.0n/a 525.00 76.79 n/a n/a 98.30% 49.07% n/a n/a n/a Yes KotaPalembang Musi" "Tirta

KotaPadang

oaMln o5.9 4.5159.46 242.65 55.29% No KotaMalang

oaMksrN KotaMakasar

Marta"

KotaBogor

"Bandarmasih" oaBnugYs5.5 7.3134 44 153.46 274.43 51.85% Yes KotaBandung

a.PraigaYs1.3 4.2145 85%100.00% 28.57% 104.58 146.42 15.73% Yes Kab.Purbalingga

a.Mgln N Kab.Magelang

Mataram"

a.Gw TraJnbrn"Ys219.60 Yes Kab.Gowa Jeneberang" "Tirta

a.GrtN 25%173 84 50. 78.42 157.33 12.50% No Kab.Garut

a.ClcpN 45%169 103.10 136.98 24.52% No Kab.Cilacap

a.Bn WeMnrn"Ys5.8 / .3na100%01 / / 6.00.91 161.40 n/a n/a 0.16 100.00% n/a 9.63 n/a 52.48% Yes Kab.Bone Manurung" "Wae

a.BgrYs2.9 4.7137 69%100.00% 36.95% 153.76 243.87 21.19% Yes Kab.Bogor

Utility name Utility

b ieo o2.0 2.79.12.7 93%0.13 99.35% 28.77% 92.51 129.87 23.00% No ab.Cirebon

Service?

Sewerage Sewerage

on/a No

o3.7 0.1160 42%100 24.25% 156.06 206.01 36.97% No

o7.1 5.2134 78%100 27.84% 113.45 157.22 78.01% No

o6.3 3.5129 31.61% 162.94 238.25 65.03% No

o3.0 0.6119 23%100%00 40 29 13 0.62 51.30 42.96 24.00 0.07 100.00% 32.35% 141.91 209.76 34.90% No

71%385 3.83.0 / .124.00 0.11 n/a 30.70% 234.58 338.50 27.11% o

/ / / / 0.0 .7na6.7na0.68 n/a 66.67 n/a 0.17 100.00% n/a n/a n/a n/a o

21%163 1.121.94% 114.21 146.30 22.12% o

(%)

overage overage

ater ater

(l/pers./d)

Production Production

Water

/ / 42%100%01 35 / / n/a n/a n/a 23.52 0.18 100.00% 24.28% n/a n/a

(l/pers./d)

Consumption

TotalWater

59 08%100%na24.00 n/a 100.00% 60.85% 85.98

Water(%)

Revenue Revenue

on on

28%9.5 .11.0na186 0.73 138.60 n/a 16.00 0.11 97.35% 52.81%

58%100%01 20 / 03 0.76 90.30 n/a 12.00 0.11 100.00% 45.81%

80%100%01 31 / 92 0.66 49.20 n/a 23.10 0.14 100.00% 38.05%

42%00%na24. n/a 0.00% 34.29%

47%100%01 2 0.12 100.00% 24.73%

0%100%01 / 55 45 0.70 94.50 95.58 n/a 0.14 100.00% .08%

6 0.0 .11.0na9.00.85 90.90 n/a 18.00 0.11 100.00% 16%

02%01 14 91 93 0.68 99.30 69.15 21.42 0.12 90.22% %

Level (%) Level

Metering Metering

96%00 23.10 0.04 99.60%

.0 / 40 / 17 0.62 71.70 n/a 24.00 n/a 0.00%

0%00 32 83 68 0.65 46.80 48.33 23.23 0.08 .00%

0%01 60 37 57 0.45 65.70 83.77 16.00 0.12 .00%

watersold)

(US$/m

UnitCost

.72.95.46.00.54 66.30 56.64 20.69 0.07

.22.06.46.00.65 63.30 64.44 24.00 0.12

(Hrs/day)

of service service of

Continuity Continuity

90 05 41 0.80 44.10 80.55 19.00

.28.74.00.75 43.80 86.97 2.92

0na5.00.68 50.10 n/a 00

(US$/conn)

Charge

Connection Connection

93 24 0.65 62.40 59.39

37 20 0.52 72.00 53.70

31 / n/a n/a 83.15

(Days)

Period

Collection Collection

(ratio)

Coverage Coverage Operating Cost Cost Operating

273 Water Market Asia - Indonesia

Table 6.1: Sector Regulation Law/Regulation Date Provisions Water Resources Act 2004 Legislation covers the legal status of community-owned systems, and provides for the creation of a sector regulator at the national level Ministry of Homes Affairs Circular 1999 Local governments should convert regional enterprises into limited liability companies. These companies would be able to obtain finance directly from local or international lenders. This circular has not been widely implemented Environment Management Law No 1997 Increases the legislative power of government and recognises the 23 right of individuals to a clean and healthy environment, and the responsibility of business and industry to provide accurate information on environmental management within their area of operation. Health Law No 23 1992 Sets out requirements for water quality PAM JAYA Director General 1990 Announcement by the Central Government allowing those with a Announcement metered piped connection to sell on water to their neighbours or to 030/INSTR/PAM/IV/1990 water vendors. In practice, this activity is strongly discouraged. Regional Enterprises Law 1962 Sets out the legal basis for the establishment of water enterprises (PDAMSs). This legislation also gave local governments the responsibility for setting tariffs and allows local governments to use part of the profit of PDAMs for specified regional purposes, under certain conditions. It is common practice for local governments to ignore these conditions.

Table 6.2: Sector Institutions Institution Responsibility Ministry of Home Affairs Oversight of regional water companies Ministry of Settlements and (KIMPRASWIL) Urban sanitation projects funded by the central government Regional Infrastructure National development agency (BAPENAS) Urban sanitation planning including coordination and monitoring at the national level Ministry of Health Responsible for monitoring environment health standards Ministry of Finance Allocation of finances to central and local government agencies for developmental infrastructure; responsible for the projects and for regulating foreign sources of financing Ministry of Environment Formulates and implements policy on environmental management

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 274 Water Market Asia - Indonesia

Known PSP Projects in Indonesia Aceh

North Aceh Industrial Water Supply

Aceh 25 -year BOT Total investment (USDm) 52.80

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 7,290 m3/d Contract awarded 1997 April

Equity investor PT Dwipa Inti Utama

Equity investor Humpuss Bali

Bali Water

Nusa Dua and Kuta Bali 20 -year BOT Total investment (USDm) 3.80

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 93,290 m3/d Contract awarded 1992 June

Equity investor PT Dewata Arta Kharsima

Equity investor PT Buana

Batam Island

Batam Island Water Services

Batam Batam Island 25 -year Concession Total investment (USDm) 200.00

Sector 1 Water Sector 2 No data Cascal’s annual report and accounts for 2002 state that the number of connections in Batam Island have gone up by 21% in the last year. Water demand was also up by 15%. The concession was signed in 1997 and requires US$200 million to be spent over 25 years. Over US$8 million has been invested in capital works since the start of the concession. Batam Island, off the coast of Singapore, has a large number of commercial users following the opening of an industrial park in the early 1990s. Cascal has also commissioned phase one of the $3.5 million Duriangkang WTP providing an additional 500l/sec of production capacity, thereby enabling project company Adhya Tirta Batam to keep up with projected demand increases for a further two years. The Duriangkang WTP will have an ultimate total capacity of 3,000l/sec.

Capacity Timeline

Production 138,000 m3/d Contract awarded 1996 June

Distribution 250,000 pop

Investment vehicle Cascal (JV) 50.00%

Equity investor PT Bangun Cipta Kontractor 50.00%

Equity investor Nuon 25.00%

Equity investor Biwater 25.00%

275 Water Market Asia - Indonesia

East java

Umbulan Bulk Water Supply Project

Umbulan East java 25 -year BOT Total investment (USDm) 339.00

Sector 1 Water Sector 2 No data The project entails the construction of 60km pipeline to connect Umbalan spring with Surabaya storage facility plus 61km of distribution pipes. Since 2003, PPIAF is funding technical assistance with to deliver a BOT project.

Capacity Timeline

Distribution 60 km Contract awarded 1994 January

Early termination 1997 June Termination! Sidoarjo Water Supply

Sidoarja East Java 25 -year BOT Total investment (USDm) 34.40

Sector 1 Water Sector 2 No data

Gadang Bhd bought out Veolia in 2005.

Capacity Timeline

Production 20,000 m3/d Contract awarded 1997 April

Equity investor Gadang Bhd

Equity investor PT Hansa Letsari

Equity investor PT Agumar Nusa

Equity investor Kinhill Engineering Jakarta

Jakarta Water (Eastern District)

Jakarta 25 -year Concession Total investment (USDm) 125.00

Sector 1 Water Sector 2 No data

See Box in country proﬁ le. In January 2006, Thames was expected to be leaving the project soon.

Capacity Timeline

Production 291,000 m3/d Contract awarded 1998 February

Equity investor RWE Thames Water

Jakarta Water (Western District)

Jakarta 25 -year Concession Total investment (USDm) 75.00

Sector 1 Water Sector 2 No data See Box in country proﬁ le. Suez wishes to retain a role but is seeking a local partner and has been re-ﬁ nanced with a local currency bond issue in 2005.

Capacity Timeline

Production 483,800 m3/d Contract awarded 1998 June

Equity investor SUEZ (Ondeo) Jambi

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 276 Water Market Asia - Indonesia

Jambi Water

Jambi BOT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 1998 n/a

Equity investor unkown local investor

Maluku

Ambon Water

Ambon Maluku O&M Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 1999

Operator Water Supply Drenthe (WMD - Netherlands) 60.00%

Sumatra

Pekambaru Water

Pekanbaru Sumatra 30 -year Concession Total investment (USDm) 15.00

Sector 1 Water Sector 2 No data A consortium led by Cascal, the joint venture company formed by the UK’s Biwater and Nuon of the Netherlands, has withdrawn from a 30-year concession to manage water supply services in Pekanbaru in Indonesia’s Riau province. The concession was signed by Adhya Tirta Pekanbaru (ATP), a consortium which is 45% owned by Cascal, and the regional government of Pekanbaru in February 2001 but has since failed to reach fi nancial close. In addition to Cascal, ATP consists of Indonesia’s PT Bangun Cipta Kontraktor (45%) and PT Prambanan Dwipaka (10%). At the time of the consortium’s appointment, the regulatory framework was unspecifi ed and subject to fi nalisation. However, ATP’s negotiations with fi nancial institutions have been hindered by the continued failure to achieve a satisfactory regulatory framework and tariff mechanism. Under the terms of the concession, ATP would have been responsible for improving water supply coverage in Pekanbaru from its current 12% to a 70% coverage ratio. The city, in the centre of Sumatra, has a population of around 600,000. A regulator was set up in December 2000, comprising various public fi gures with legal, fi nancial and technical backgrounds, to supervise the contract and mediate during disagreements between the local government and ATP. However, the regulator was not accepted by fi nanciers as it was felt to be too closely tied to local government interests. The Asian Development Bank (ADB) is now funding a consultancy project to recommend a new framework for water sector regulation in Indonesia. The project is being undertaken by Stone & Webster of the US.

Capacity Timeline

Distribution 450,000 pop Contract awarded 2001 February

Early termination 2002 October

Investment vehicle Cascal (JV) Termination! Equity investor Nuon

Equity investor Biwater

Yogyakarta Water Treatment Project

Yogyakarta Sumatra 25 -year BOT Total investment (USDm) 75.00

Sector 1 Water Sector 2 No data As of July 2004, Boustead Singapore signed a heads of agreement on a clean water deal with the Sultan of Yogyakarta, Sultan Hamengku Buwono X. It has been selected by the government of Yogyakarta Province as the supplier of clean treated water to the city and its sub districts of Sleman and Bantul which has a total population of 2.2m people. The concession was for 25 years and was extendable. It was awarded under a design, build, operate and transfer (DBOT) scheme covering an area of 1115 sq km, about 1.8 times the size of the Singapore Island. There was an initial minimum off-take guarantee from the government, which escalates in successive years in

277 Water Market Asia - Indonesia

accordance with the demographic growth of the province; The provincial government was also providing payment guarantee on the tariffs. Site work was expected to commence in the last quarter of 2004 and was expected to be completed at the beginning of 2006.

Capacity Timeline

Distribution 450,000 pop Contract awarded 2004 July

Production 100,000 m3/d

Equity investor Boustead Singapore Ltd 49.00%

EPC contractor Boustead Singapore Ltd

Medan Water Supply

Medan Sumatra 25 -year BOT Total investment (USDm) 85.00

Sector 1 Water Sector 2 No data Suez holds a bulk water supply BOT contract in Medan, since 2000, through a subsidiary Tirta Lyonnaise, which includes a take-or-pay agreement with the city water board. This was the subject of allegations of corruption, which have been denied by the city council and the company.

Capacity Timeline

Production 170,000 m3/d Contract awarded 1997 May

Equity investor SUEZ (Ondeo)

West Java

Ciparens Tangerang Water

Ciputa West Java Total investment (USDm) n/a

Sector 1 Water Sector 2 No data In March 2005, the Indonesian government was to offer projects to the private sector. One of these project was the Ciparens Tangerang Water Supply in Ciputa, Pamulang, Pondok Aren, Bintaro, Bumi Serpong Damai, and Karawaci. United Envirotech was believed to be interested.

Capacity Timeline

Production n/a m3/d Announced 2005 March

Equity investor unknown

Serang Water Opportunity!!

Serang West Java BOO Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 1997

Equity investor SUEZ (Degremont)

Tirta Ciparen Permai Water

Tangerang West Java 25 -year BOT Total investment (USDm) 36.70

Sector 1 Water Sector 2 No data Suez has won the 25 year concession contract in 2001 for the production and distribution of drinking water to the Ciputat, Pamulang and Pondok Aren districts of Tangerang, a region that borders Jakarta. Under the consortium name Tirta Ciparen Permai (TCP), Ondeo Services’ bid was awarded the highest technical and ﬁ nancial evaluation for a contract estimated to generate over 250 million Euros over its duration. Investments will total over 40 million Euros and include the construction of a drinking water plant with a 32 million m3/yr capacity and a 800km distribution system. Water supply for this network will be provided by a main transmission pipeline currently running through the Ciputat district. Tangerang, a residential area, has a population of 800,000 and signiﬁ cant commercial activity. It is located

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 278 Water Market Asia - Indonesia

next to the West part of the City Jakarta, an area supplied since 1998 by PALYJA, an Ondeo Services subsidiary.

Capacity Timeline

Production 90,000 m3/d Contract awarded 2001 October

Equity investor SUEZ (Degremont) 85.00%

Bekasi (east Jakarta) Industrial Park

Bekasi West Java BOO Total investment (USDm) n/a

Sector 1 Water Sector 2 Wastewater

Capacity Timeline

Treatment 8,000 ton/d Contract awarded 1991

Production 13,000 m3/d

Equity investor Lippo (Indonesia)

Equity investor Hyundai

279 Water Market Asia - Indonesia

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 280 Water Market Asia - Lao PDR

LAO P.D.R.

Lao PDR is a very poor economy with extremely limited ability/ willingness to pay for service amongst users. Like in Cambodia, the existence of a relatively successful, small scale, informal local private sector providing water treatment/distribution services is more a sign of massive government failure than one of private sector participation conducive to “value-for-money” solutions for service delivery. The scope for PSP will remain small-scale and low-tech for the foreseeable future. Sector institutions are being developed under the usual blend of IFI blueprints but implementation will take a long time. A ﬁ nancially weak government is also dependent on IFI funding for any signiﬁ cant CAPEX programme. Any opportunities for contractors will thus be through IFI-type procurement rules. Opportunities for international investors are virtually inexistent.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Success with very small scale Many small scale projects projects exist. Access to credit and Future Opportunities None (too small ventures) regulation are major hurdles Local competition Significant for very small scale even for small scale projects provison. Equipment Markets Comments Future Opportunities Few Tourism and IFI projects are Local competition Not negligible at the sub- the only viable opportunities contracting level Public Utilities Comments Track record Very Bad Financial performance is Sustainability Limited extremely varied and ranges from profit making to Reliance on ODA Very High bankrupt utilities.

Government Comments Commitment to deliver service No Fiscal Resources Very limited Economy & Finance Comments Recovery since Asian crisis 1997 Above average Fast growing economy but Local capital maket Non-existent remains very poor per capita

281 Water Market Asia - Lao PDR

I. General Information The Government made some progress in strengthening its weak revenue base. Revenue collection, excluding grants, is estimated to have Lao People’s Democratic Republic (Lao PDR) is a land-locked country risen to 11.9% of GDP in 2004 from 11.0% in 2003. Over the same with an area of 236,800 square kilometres; most of which is mountain- period, central government expenditures fell to 16.7% of GDP from ous and about 47% is forested. The country has 16 provinces, one 18.8%, and the overall fi scal defi cit narrowed to 4.8% from 7.8%. Ef- municipality and a special zone. The estimated 2005 population is 5.8 forts were made to address an imbalance in public spending, refl ected million giving a current average population density of 21 people per in an increase in recurrent expenditures (such as wages, transfers, square kilometre. The range in population density is from the highest and interest payments) to 8.4% of GDP in 2004 from 7.8% in 2003, in Vientiane Municipality, where it is 149 people per square kilometre, while capital and on-lending expenditures declined from 11.2% to to the lowest in Xaysomboun Special Zone, where the density is 8 8.8%. people per square kilometre. Lao PDR has the third lowest population of the ASEAN countries. In some of the mountainous areas the GDP is projected to grow at around 6-7% annually over 2005-2007, population is very scattered. underpinned by planned expansion of gold and copper mining projects and the planned construction of the Nam Theun 2 hydropower The population of Lao PDR lives predominantly in the rural areas of dam. Nam Theun 2 is expected to start producing electricity for export the country, with only 20% of people living in urban centres. Urbaniza- in 2009, which may accelerate growth further. tion is beginning to increase steadily. The current annual population growth is 2.8%, the highest in ASEAN countries, which means that Infl ation has been brought under control but still averages 10% p.a. the population of Lao PDR will double by the year 2025. This rapid The reversal of the real interest rate curve since 2002 may announce increase is already affecting the environment through the increased slightly more comfortable conditions for local investors. use of natural resources. In remote areas, water supply infrastructure hardly exists, while there is a lack of access to adequate sanitation I.2 Political & Investment Environment facilities. Lack of safe water supply, poor sanitation and inadequate The Government is moving to raise revenues needed for social and hygiene are still the major factors behind the high mortality of children economic development. It committed to introducing a VAT by January under 5 years old. 2007. However, there remains uncertainty regarding a tax exemption I.1 Macroeconomic Situation for investment, which may erode the revenue base, depending on how new laws on domestic and foreign investment are implemented. Growth is estimated to have picked up to 6.5% in 2004, with a strong Some progress was also made in reforming the banking sector, with push from an 11.4% upturn in the industry sector as mining expanded. the cabinet approving a proposal to lower entry barriers and improve After several years of catch up, Lao PDR is now growing at the mean market access for foreign and private banks. Activity is picking up a rate of developing Asia. The dominant agriculture sector recorded only little with regard to reforming debt-burdened SOEs. The Government modest growth of 3.5%, hampered by lower than forecast dry-season is gradually including 5 SOEs in the group to be restructured includ- rice production. The services sector grew by 7.3%, partly on account ing Lao State Fuel, Lao Import-Export, and Road-Bridge Construction of a recovery in tourist arrivals, which were 30% higher in the fi rst 5 Company No. 13. Plans will be drawn up that aim to make the SOEs months of 2004 than the year-earlier period when the regional SARS commercially viable and able to service their debts without public outbreak and local security concerns kept visitor numbers down. subsidies. The restructuring of water utilities has been ongoing since 1999 (see below). The incidence of poverty, based on minimum food consumption of 1,983 calories a day, declined to 32.7% in 2003 (as of 30 September To promote private sector development, amendments to the laws on 2003) from 39.1% in 1998, partly as a result of economic growth in domestic and foreign investment were adopted to equalize tax incen- recent years. tives for foreign and domestic investors and streamline the investment

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 8.00 2006 2,478 6.00 2005 2,316 4.00 2004 2,177 2.00 0.00 2,000 2,100 2,200 2,300 2,400 2,500 2,600 -2.00 1998 1999 2000 2001 2002 2003 2004 2005 2006

Laos Dev eloping Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean)

12.00 10.00 Chart 1.3: 2004 Sector Share of GDP 8.00 6.00 Serv ices 4.00 1.98 24% 1.37 1.45 0.92 2.00 0.00 Agricult. 1998 1999 2000 2001 2002 2003 2004 49%

Laos Dev eloping Asia (mean) Industry High Income Asia (mean) 27%

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 282 Water Market Asia - Lao PDR

Table 1.1: Sovereign Risk Indicators Laos Developing Asia High Income Asia External Debt Per Capita 2004 (US$) n/a 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) n/a 59.60 50.84 Short Term Debt / Total Debt 2004 (%) 0.04 10.49 n/a Fitch Sovereign Rating (2004) n/a

Table 1.2: Legal Risk Indicators 2004 Laos Developing Asia High Income Asia Time to enforce a contract (days) 443.00 392.62 103.67 Time to register property (days) 135.00 62.82 16.50 Time to resolve insolvency (years) 5.00 4.45 1.15 Time to start a business (days) 198.00 67.08 14.33 Legal rights of borrowers and lenders (0=low) 2.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Laos Developing Asia High Income Asia Political Rights 6.00 4.23 2.43 Civil Rights 7.00 4.69 2.14 Corruption Perception n/a 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 Laos Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) n/a 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 32.05 185.54 1,281.59 Roads, paved (% of total roads) 44.50 44.75 75.32 Electric power consumption (kwh per capita) n/a 717.46 7,505.93 Water supply failures (days) n/a 10.00 n/a

Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%)

8 0.00 2002 2003 2004 2005 2006 6 -2.00 4 n/a -4.00 2 -3.90 n/a -6.00 0 -6.00 -6.10 -5.90 -2 2003 2004 2005 2006 -8.00 -4 -3.50 -3.80 -4.10 -6 Laos Dev eloping Asia (mean) High Income Asia (mean)

Laos Dev eloping Asia (mean) High Income Asia (mean) Chart 1.8: Real Interest Rate 2000-2003 (%) Chart 1.7: Inflation Rate 1999-2004 (%) 18.00 140.00 16.00 15.71 128.42 14.83 120.00 14.00 12.00 11.82 100.00 10.00 80.00 8.00 6.64 60.00 6.00 40.00 4.00 25.09 15.49 20.00 7.81 10.63 10.46 2.00 0.00 0.00 -20.00 1999 2000 2001 2002 2003 2004 2000 2001 2002 2003

Laos Laos Dev eloping Asia (mean) Dev eloping Asia (mean) High Income Asia (mean) High Income Asia (mean)

283 Water Market Asia - Lao PDR process. The Government’s commitment to strengthening the busi- Main Cities of Laos (1999) Population '000 ness environment is explicitly stated in the National Growth and Pov- Vientiane 583.00 erty Eradication Strategy. Legal and administrative hurdles remain, however, high and above most regional averages (see table 1.2). Savannakhet 748.00 Champasak 558.00 In the longer term, accession to WTO, if achieved, is likely to encour- Luang Prabang 406.00 age the development of a more predictable and transparent business environment, which, combined with enhanced market access, should Informal Sector facilitate private investment. Increasingly, local private contractors are moving into this market by providing affordable services tailored to local needs. The arrangement II. Water is marked by a close community-contractor relationship, fl exibility in II.1 Sector Policy & Structure fi nancing arrangements (community and contractor contributions), design that matches demand, and rapid expansion to serve new con- While access to water remains inadequate in Lao, signifi cant progress nections or neighboring communities. has been achieved over the past 15 years. In 1991, about 33% of the urban population and 15% of the rural population in the country had There are already a number of successful examples in Lao PDR where access to treated water supplies. Reliable water supplies were avail- a private contractor and the community have negotiated, fi nanced and able in only 7 of the country’s 17 provincial capitals. In those towns constructed their own water supply system. Investment costs are typi- where water supplies were reliable, water supply was of acceptable cally between US$5 and US$15 / capita. These schemes are largely quality in Vientiane and Savannakhet, but was poor in the other towns unregulated, and there remains a need to develop the institutional, and did not meet the recommended World Health Organization stan- legal and regulatory framework. The private sector needs confi dence dards. Water supply systems were generally old, in poor condition, that investments are protected, tariffs must be fair, and minimum qual- and unable to provide for existing and future demand. Planning and ity standards need to be respected. skilled personnel to manage the systems were in short supply. The country had not made any signifi cant investment in urban water sup- Of the 87 smaller, mostly poorer towns that have no formal piped wa- ply since 1981. The need to further develop water supplies in the ter schemes with household connection, some towns have developed provincial capitals and strengthen the institutional capabilities of the basic water services through communal standposts or services pro- national water supply agency was urgent. vided by small-scale independent providers. Water is supplied either by pipe to nearby households or customers go to collect water from Today, access to improved water services (urban and rural) in Lao vendors where the water is pumped untreated from a shallow well P.D.R. is estimated to be about 55%. In the capital Vientiane and the or river. The cost of water from the unregulated providers in these four secondary towns about two-thirds of the population has access poorer small towns is expensive at 10,000 - 15,000 Kip/m3 (equivalent to piped water with household connections. But in the remaining pro- to about US$1.00 - 1.50/m3). This compares to about 1,700 Kip/m3 vincial and small towns, about 82% of the population does not have (equivalent to about US$0.17/m3) in the larger, wealthier urban cen- access to piped water supply services with household connection. tres with piped, household water supply that have tariffs set by the provincial authorities (table 3.4). Population growth and urbanisation follow a somewhat less intensive trend than in other developing Asian economies (tables 2.1 & 2.2); Recent Legal and Policy Developments along with the above-average levels of poverty, these factors contrib- The Government has introduced many economy-wide policy reforms ute for limited demand growth for water in absolute terms. in recent years, in response to economic conditions and development The Urban Sector needs. These include, for example, opening the way for private sector engagement and decentralising responsibilities to subnational lev- There are four categories of urban centres in Lao PDR (table 2.3), els. There has been considerable technical assistance from interna- namely: The Capital Vientiane, 4 regional centres (also provincial tional organizations to introduce water sector reform and institutional capitals), 13 other provincial capitals (including one special region) change, although slow progress has been made in some areas. Fi- and 130 small towns. The fi ve largest settlements (which include the nancial resources are very limited, so that most development invest- capital city, Vientiane, and the four secondary towns, Luang Phra- ment, rehabilitation and some recurrent costs have been met by IFIs. bang, Khanthabouly, Thakek, and Pakse) are situated along the Me- kong River. These fi ve settlements account for some 45% of the total On paper, signifi cant progress has been made regarding the water urban population. When taken together with the 13 other provincial sector review, policy development and planning, and in establishing centres, the main urban cities and towns encompass 58% of the urban a modern legal basis, although implementation of some aspects of population. reform, particularly with regard to coordination, is taking more time to put into action. The remaining 42% of the urban population (or 9% of the total population) lives in 117 small district centres or towns, ranging in size The government has given high priority to investment in the irrigation from 19,000 people (Seno, Savannakhet Province) to just 300 people sub-sector since agriculture is the foundation of national economic (Samuoi, Saravane Province). More than 90 of these small district development, necessary for food stabilization and about 85% of the centres do not have a piped water system with house connections. population lives in rural areas. However, the water source development is still at a low level: irrigated area is only 20% of the national In principle all water supply systems in these urban centres should paddy area and hydropower production is still at 2% of its potential. eventually be owned and operated by a Provincial Nam Papa (Water Development in other sectors is still at a low level compared to hydro- Supply Authority or PNP) based in the Capital or a provincial capital. power and irrigation. However, not all urban areas will accelerate their development suffi ciently to become part of a Nam Papa water supply system. Water Although some advances have been achieved in the water sector, supply systems not defi ned as a Nam Papa are “rural water supply problems still remain. These include: unusual rainfall patterns in some systems”. These may have been established with the support of Min- years, high evaporation, fl ood and drought in some of the main agri- istry of Public Health, NGOs, other donors, or the villagers may have cultural areas of the country; the impact of shifting cultivation on water established them on their own initiative. resources although this activity has been signifi cantly reduced; and confl ict of interests for management within the sector since most water There are, established PNPs in Vientiane, 16 provincial capitals and sub-sectors are still responsible for multiple roles of regulator, man- one special region, with a total of 36 urban water supply systems, ager and service provider. supplying 85,700 service connections, and serving a population of 488,000 of a total urban population of approximately 1 million, of Optimal use of water resources is a critical factor in realizing the which Vientiane caters for 42%. Full water treatment is provided in 16 Government’s dual strategic objectives of poverty reduction and sus- of the 36 systems. Only a handful of formalised water supply systems tainable economic growth plans. In the past few years the Govern- exist in small towns. These communities use considerable resources ment has introduced various legislative and institutional measures to to access water from wells, rivers and water vendors. manage water resources more effi ciently and effectively. To foster the

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 284 Water Market Asia - Lao PDR

Table 2.1: Income Level Laos Developing Asia High Income Asia GDP per capita 2004 (US$) 376.00 1,104.30 23,628.57 Population on less US$1 per day 2004 (%) 26.00 18.23 0.00 Unemployment 2004 (%) n/a 6.73 4.89

Table 2.2: Area & Population Laos Developing Asia High Income Asia Population Growth 2003 (%) 2.30 1.67 0.64 Urban Population Growth 2003 (%) 4.71 3.48 1.18 Population Density 2002 (pop/km2) 23.35 231.45 2,335.17 Area (thousands Ha) 23,680.00

Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban (millions) Population (%) 6.00 21.00 20.68 5.79 5.80 5.66 20.50 20.21 5.53 5.60 20.00 19.74 5.40 5.40 5.28 19.50 19.28 5.20 19.00 5.00 18.50 2000 2001 2002 2003 2004 2000 2001 2002 2003

Table 2.3: Loa PDR main urban centres Urban categories Num. of towns % urb. pop Vientiane (>150,000) 1 45% Secondary Towns (20,000 to 60,000) Khanthabouly; Luangprabang; Pakse; 4 Thakhek Other Provincial 13 13% Centers (4,000 to 20,000) 127 (88 without Small Towns / District Centers (<2,000 to piped water 42% 15,000) supply) Total 145 100% adoption of an integrated water resources management (IWRM) ap- but implementation is at an early stage, particularly via IFI-funded proach at an operational level, the Government has focused its atten- projects, and there is strong community unwillingness to pay for ser- tion on key areas in agriculture and hydropower. vices.

However, the most signifi cant institutional problem in the water sec- Promoting regional cooperation: Lao PDR is a signatory to the Mekong tor is the inadequate coordination among key central agencies and River Agreement, which provides a valuable vehicle for cooperative provincial departments. There are 12 central agencies that are directly activities and resource management in the basin. The Lao National involved in water sector management while another 10 have a direct Mekong Committee is active, but the ability of Lao PDR to promote ar- interest in it. In particular, a system needs to be developed at the com- rangements to equitably manage shared Mekong resources is limited munity, district and provincial levels to make water resources manage- by its size and position. ment more effi cient and equitable in line with the Government’s policy of decentralized planning. II.2 Financing Despite economic diffi culties and hyper-infl ation, the government has Improving water services: Because of limited fi nancial resources for managed to arrange for a signifi cant amount of investment in the ur- O&M and investment, service coverage and quality has been declin- ban water sector. Around US$104m has been invested in the devel- ing, but funding from IFIs is enabling water services to be extended opment of water supply systems since 1963, with US$88m invested and improved. Water-related infrastructure has been a state responsi- since 1986. The programme has brought about a potable piped water bility, but engagement of benefi ciaries through “Community Organisa- supply to about 49% of the urban population in 2004. tions” – particularly for O&M – is incorporated into current projects, as a means of achieving system sustainability. Facilities are being Rehabilitated or new water supply systems are available in Vientiane, transferred to communities and Water User Associations; the process provincial capitals and a small number of tertiary level towns. They will take time to implement. There is limited engagement of the private tend to provide acceptable service 24 hours a day with daily consump- sector in water services, except for community groups and individual tion levels 120-150 litres per capita. Non-revenue water varies be- water users. tween 20 and 50%.

Conserving water: There is a tradition of state provision of services, The Sector Investment Plan with heavy subsidies and tariffs that are set at “affordable” levels that are inadequate to cover costs. Cost recovery is accepted in principle Prime Ministerial Decree 37 and the proposed Sector Investment Plan

285 Water Market Asia - Lao PDR

(SIP) set a framework for further fi nancing of Nam Papa. The SIP conduct of production, trade and services); and states that the total cost to reach the Government’s target of 80% coverage for water by the year 2020 will be US$188 million (includ- - Joint Enterprise (Private or State-owned Enterprises in a joint ven- ing expansion of existing systems). However, if the per capita cost of ture with local or foreign parties). US$23 from Vietnam is used as a benchmark, together with a short In summary, the legal basis is in place for a range of types of enter- design period of 5 years, then about US$8.2million (excluding expan- prise to register as water service providers, including private contrac- sion of existing systems) would be suffi cient for the 80+ new small tors. However, the overall framework needs to be better understood town schemes and large village schemes needed to reach a 100% and clarifi ed with regard to other aspects of the law (ownership, prop- coverage. The SIP includes US$50 million for the 60 smallest towns erty, contract arrangements, land law etc.). More than 80 related laws, (populations less than 6,000), amounting to costs of US$150 / capita. decrees, regulation etc. have been identifi ed for further analysis. These smaller, poorer towns would come under the SIP during 2012- 2020. II.4 Tariffs To date all Nam Papa systems have been fi nanced through IFI grants/ Tariffs in the sector have progressive block rate structures, with differ- loans, and designed and built by international consultants/contractors. ential tariffs for non-domestic users in some cases. The government Financing has been channelled to Nam Papa via Ministry of Finance has regularly attempted to increase tariffs to give the sector greater sub-loans. Once constructed, the system is handed over to the Pro- fi nancial stability and independence. Vientiane now has an average vincial Authorities who “delegate” management to the Nam Papa. Pro- tariff of KN195/m3 (1999) [real tariffs in Vientiane, based on sales are vincial Nam Papas are then responsible for fi nancing maintenance, closer to KN360/m3] and provincial capital have approved tariffs going renewal and replacement, and expansion of systems within their pro- up to KN250/m3 (1999). The fi nancial viability of most water supply vincial boundary. entities is however far from assured.

II.3 Private Sector Participation Before decentralization in 1999, all tariffs were decided at the central level. Tariffs are now decided at the provincial level, but there has PSP has started developing in Lao on a very small scale and involving been no national body to oversee this work and there is no national local players and fi nancing only. There is a growing and active private tariff policy to refer to. The Water Supply Authority (WASA) is cur- sector that is looking for guidance from the government on how to rently drafting a national tariff policy and is beginning to undertake this become more signifi cantly involved with providing and fi nancing for- role as it gains confi dence as the WS sector regulator. Users are not mal water supply services. There are a small number of existing pri- involved in the setting of the tariff, nor are tariffs explained. Present vate investments in water supply, which tend to be build-own-operate solutions to the problem of tariff setting for full cost recovery seem to (BOO) type contracts. These are simple contracts based on shared be focusing on the mechanical issues of tariff calculation. private and community fi nancing, with a high level of trust between the partners. The model is not widespread due in part to limited fi nancial Cross-subsidies are often used to legitimize “regional” service provid- resources and the high costs of commercial debt. These small-scale ers, but there are also negative aspects. They can: a) drive higher end water supply entrepreneurs are using a step-by-step approach to sys- users off of the system (e.g. industrial customers), b) raise the cost of tem development. By starting small they do not run into immediate serving the others; c) drive up the cost of locally produced goods; d) cash defi cits, and they are able to gradually expand systems to meet lead to over-consumption by those under-charged; e) lead to fi nancial growth in demand. If the investments are controlled, then tariffs can be laxity on the part of utility if the company rather than needy customers kept lower and there is potential to achieve full cost recovery. are subsidized; and f) geographic cross subsidies need to balance the advantage of using locally raised revenue to be used for local Financing is usually wholly from the owner-manager, or a mix of com- improvements against economies of scale. munity and private funds. The arrangement is typically based on a contract between the service provider and the Village Committee At present, Nam Papa tariffs typically cover cash expenses but do not (approved by the town / District Center Committee), and through a meet depreciation costs. Systems are therefore dependent on public business construction licence from the appropriate authority (e.g. Pro- subsidies. The possible need for Government fi nancial support on a vincial DCTPC). case by case basis is acknowledged in Decision 37.

Most of these systems are designed to Nam Saat specifi cations (i.e. When compared to the total yearly expenditures, the tariff level is too below the Nam Papa or urban water authority level). Typical invest- low to cover direct costs and this means that depreciation, system ment costs are of the order of US$15 per capita (for a system costing expansion and loan repayments cannot be funded except by exter- US$15,000 serving 200 households). Other systems are more make- nal subsidies. The average tariff (US$0.09/m3) represents 0.04% of shift (e.g. in Ban Fang Deng a system costing US$1,200 serves 50 average monthly household income of poor families in small towns households or about US$5 per capita). (US$13.5/ month) for 20 litres of water per day (or 0.6 m3/month - WHO minimum water requirement). This actually makes the relative The main issues faced by small scale providers working on a BOO cost comparable to water provided in developed countries, and is basis with communities are: a) Access to credit / fi nancing at competi- perhaps at a level the poorer consumers can afford to pay for water tive rates (current commercial rates are about 25%); b) Professional supply services. The problem in recent years seems to be that, where training / support; c) Clear local regulations: absence of legal basis new facilities were built, they were over-designed and ineffi ciently de- for service provision, unclear approval procedures, absence of tariff veloped. setting procedures, absence of quality standards regulation and enforcement. Connection costs Legal Framework for PSP The average yearly household income of a poor family in small towns is about US$161 (1999). The average connection cost in small towns The 1994 Business Law sets out the process of registration for a is about US$43 (as reported by the WSP). This represents about 27% business enterprise, and some limited information on the rights and of annual household income, and is a hindrance to many poorer fami- obligations of partners and shareholders, the nature of bye-laws, the lies connecting to the system. There is no subsidy system to assist transfer of shares, and the audit procedures. Article 16 states: “An poor families, although new projects are focusing on ‘a deferred pay- enterprise will be considered as lawfully created only when properly ments scheme, with payments spread over 24 months’. Urban water registered.” The Business Law identifi es four types of enterprises, all supply users do not contribute to the construction costs of the sys- of which are relevant to the water sector: tems. Yet, users are expected to contribute to the completed services - Private Enterprise (Sole-Trader or Company); through connection fees. None of the Nam Papas had a policy of low or discounted connection costs to encourage users to join the system - State-owned Enterprise (all shares owned by the State); (with this cost then being regained through the tariff).

- Collective Enterprise (a business cooperative – created by farmers, II.5 Regulation handicraft artisans and small traders to join funds and labor for the During the late 1990s, the government announced its intention to move

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 286 Water Market Asia - Lao PDR

Table 3.1: Water Service Coverage Indicators 2002 (%) Laos Developing Asia High Income Asia Population with Access to Improved Water 55.00 76.85 100.00 Households Connected 8.00 22.27 98.00 Urban Population with Access 49.00 86.17 100.00 Urban Households Connected 25.00 48.27 99.33 Rural Population with Access 60.00 71.42 100.00 Rural Households Connected 4.00 14.58 95.50

Table 3.2: Water Resources Laos Precipitation Volume 2002 (bn m3/yr) 434.30 Precipitation Depth 2002 (mm/yr) 1,834.00 Groundwater: produced internally 1998-2002 (bn m3/yr) 37.90 Surface water: produced internally 1998-2002 (bn m3/yr) 190.40 Overlap: surface and groundwater 1998-2002 (bn m3/yr) 37.90 Water resources: total internal renewable 1998-2002 (bn m3/yr) 190.40 Water resources: total external 1998-2002 (bn m3/yr) 143.10 Water resources: total renewable 1998-2002 (bn m3/yr) 333.50 Agricultural water withdrawal 1998-2002 (bn m3/yr) 2.70 Domestic water withdrawal 1998-2002 (bn m3/yr) 0.13 Industrial water withdrawal 1998-2002 (bn m3/yr) 0.17 Total water withdrawal 1998-2002 (bn m3/yr) 3.00

Table 3.3: Water Resources II Laos Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 34,440.00 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 60,327.00 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 542.60 507.25 544.73 Dependency ratio 1998-2002 (%) 42.91 33.33 1.39 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 0.81 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 0.90 16.19 13.19

Chart 3.1: Water Uses 2002 (%) Chart 3.2: Fresh Water per Capita 1999-2004 (m3/head) 68,389 70,720 73,834 Indus. 80,000 59,855 63,184 65,184 6% 60,000 40,000 Dom. 20,000 4% 0

Agricult. 1999 2000 2001 2002 2003 2004 90%

Chart 3.4 : Comparative Water Tariffs 2004 Supply type Supplier Kip/m3 US$/m3 Public Standpost Community 0.00 0.00 Piped Water Nam Papa (Urban) 1,700.00 0.16 Small town 200 litre drums unformal 10,000.00 0.94 20 litre bottles Private Factory 250,000.00 23.58 0.75 litre bottles Private Factory 2,666,000.00 251.51

287 Water Market Asia - Lao PDR towards a more decentralised form of governance, and resolved in in many, but not all, of the companies in a couple of years. Until then 1998 to decentralised some of its responsibilities in all sectors, which responsibility will remain vested in the local political authorities. resulted in some departments becoming state enterprises, under the provision of the business law of 1994. Subsequently the water sector II.6 Performance has been partly decentralised, while, in accordance with the constitu- The fi nancial performance of the water companies is extremely vari- tion, the State still retains a certain control over the sector. able with some reporting very high profi ts whilst others report cata- strophic losses. This variability has multiple causes: During the period of centralised administration, Nam Papa Lao (NPL), the Lao Water Supply Agency, was responsible for developing and - Tariffs are set according to varying criteria, e.g. cost of service, politi- managing all piped water systems in the country and administered its cal perception of affordability etc. responsibilities through provincial branch offi ces. NPL was an SOE under the administrative control of the Ministry of Communication, - Different cost structures due to the unique technical characteristics Transport, Post and Construction (MCTPC). of the companies’ systems

Following the decentralisation of the sector, NPL has become Nam - Water companies’ accounts include the fi nancial performance of Papa Vientiane (NPV), Vientiane Water Supply Agency, responsible non-core activities such as bottled water factories for the Vientiane Prefecture, and the NPL branch offi ces have become Provincial Nam Papas (PNPs). NPV remains under the control of the - Different levels of effi ciency MCTPC, while PNPs are administered by the provincial equivalent of - Varying capital structures the MCTPC, controlled by the governor. - Inequitable accounting policies that favour older systems over newer Each Nam Papa is now fully responsible for the management of its ones (depreciation charged on original asset procurement costs) share of the water supply system including any debt from the former NPL. They are meant to operate as corporatised entities seeking full Cash fl ow performance is very varied but usually bad. Tariffs for the 18 cost recovery. While NPV stands a chance to achieve this goal, the water supply companies are generally based upon the actual costs of government recognises that PNPs face a much more diffi cult task. service provision, themselves based upon statutory accounting prin- NPV has been assigned to train PNPs and these sub-national enti- ciples, some of which do not refl ect the real costs, especially deprecia- ties have been allowed to receive concessionary fi nance. Rural water tion. Along a similar vein many companies have high levels of debt but supply is the responsibility of Nam Saat or Rural Water Supply Au- do not, as yet, incur costs related to that debt due to generous grace thorities. period provisions. Once these costs start to be incurred signifi cant rises in tariffs may be necessary. Regulating the Sector In 1999, the Water Supply Authority (WASA) was created to regulate II.7 Facilities & Technology the newly decentralised sector and channel funds for new capex. By There were some examples of unsuitable designs by external consul- its own accord, WASA was not immediately conversant with the regu- tants that did not function well considering local conditions and experi- lation concept. Its powers and responsibilities include: a) the enforce- ence, level of service choice, or affordability and willingness to pay. ment of regulations, b) the promotion of an investment friendly environment, c) comparative competition, d) economic regulation (tariffs). For water treatment systems:

Despite diffi culties, WASA immediately launched into a review of the - No pre-sedimentation tank before a slow sand fi lter; sector and identifi ed the following problems in the sector: - A sand island in the river has been used to act as an infi ltration gal- - Weak fi nancial structures; lery leading to a ‘wet well’;

- Political control of tariffs; - UV water treatment technology broke down soon after construction.

- Poor operational effi ciency; The main diffi culties appear to be high wet season sediment runoff into rivers leading to turbidity problems and the provinces’ inability to - Poor cash fl ow resulting in falling levels of service; get or afford spare parts for imported machinery. All these systems are being repaired/upgraded through additional IFI loan funding. - High levels of customer dissatisfaction. III. Wastewater Not before 2001, did the NPSE (Vientiane Capital City) accept the principle of a Tariff Review and offi cially recognise WASA as the sec- Sector Policy & Structure tor regulator. Subsequently WASA developed a Charter setting out its Lao PDR does not have any centralised wastewater management rights and obligations, which was only ratifi ed in 2004. WASA is now system. Excreta is disposed through on site facilities such as septic in charge of: tanks and latrines, or though natural assimilation. Only those individu- - Tariff Policy: Based upon social, fi nancial and economic criteria als who can afford septic tanks and appreciate their health effects have invested in them. Poor maintenance, inadequate design and - Regulatory Accounting Guidelines: Required for more accurate as- unhygienic practices greatly limit the positive effects that such facili- sessments of the fi nancial status ties could have. However, low population density in most parts of the country prevents such practices from becoming serious problems. Lo- - Tariff Determination Methodology: Application of Tariff Policy and calised environmental problems have been observed in urban areas. Regulatory Accounting Guidelines Urban sanitation is estimated at around 70% in 2002.

- Tariff reviews (2005 – 2007) No government department is directly responsible or has a budget for sanitation. Donors have been providing funding for the Ministry of Currently the responsibility for tariffs is totally vested in the Provincial Health to become involved on this issue, but the lack of focus on urban Governors’ Offi ces. This all too often results in uneconomically low areas leaves most of the sanitation problems unaddressed. tariffs that in turn results in falling levels of service and is a major disincentive for investors. Draft legislation intends to transfer some of IV. Environment and Legal Aspects this responsibility to WASA in the near future, although fi nal approval of tariffs will still remain vested in the local political authorities. To this IV.1 Water and Wastewater Fundamentals end, WASA is in the process of developing a tariff policy, a necessary Water Resources fi rst step before the WASA can meet its tariff setting obligations. A more transparent tariff determination process based upon regulatory Climate is typically tropical with a rainy season from mid-April to mid- accounts, affordability and many other factors is also in the pipeline. It October dominated by the humid southwest monsoon. The average is envisaged that WASA will be in a position to provisionally set tariffs rainfall is 1,600mm but ranges from 1,300mm in the northern valleys

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 288 Water Market Asia - Lao PDR

Savannakhet

Vientiane Pref

Champasack

Luangprabang

Khammoune

Oudomxay

Bokeo

Attapeu

Vientiane

Luangnamtha

Huaphanh

Bolikhamxay

Saravane

Xiengkhuang

Phongsaly

Xayabury 0 1000 2000 3000 4000

to over 3,700mm at high elevations in the south. About 75% of the demonstrates. rainfall occurs during the rainy season. The water level in the Me- kong River may fl uctuate by up to 20 meters between wet and dry Water Resources Management Policy seasons. Progress in this area is mixed. There has been good progress in such aspects as improved fl ood mitigation measures and avoidance of ad- Around 80% of the country’s area lies within the Mekong River Ba- verse environmental/social effects of development, in which the coun- sin. The remaining 20% drains through Vietnam directly to the South try has benefi ted from the incorporation of good practice into projects China Sea. The major tributaries of the Mekong all have signifi cant funded by IFIs. In other areas, such as the availability of data for de- watersheds. Besides the major tributaries of the Mekong, there are sign and operational purposes, mechanisms for water allocation, or hundreds of small streams which mostly have a torrential regime dur- the management of water quality and wastewater, progress has been ing the rainy season and have a very low or no fl ow during the dry weaker. Decentralisation of responsibilities to sub-national bodies re- season. quires the building of management capacity, which will take time. The total annual fl ow of water fl ow in Lao PDR is estimated at 270,000 Since the Government’s development strategy emphasizes poverty million cubic meters, equivalent to 35% of the average annual fl ow of reduction and economic growth through improved management of the whole Mekong Basin. The monthly distribution of the fl ow of the water resources, application of the IWRM approach is necessary to rivers in Lao PDR closely follows the pattern of rainfall: about 80% reinforce links and synergies between water and land use, the envi- during the rainy season (May-October) and 20% in the dry season, ronment, and sustainable development. A high level inter-ministerial from November to April. For some rivers in the central and southern water resources committee is required to deal with cross sectoral is- parts of the country the fl ow in the dry season is less: around 10 to sues and situations of competition for water resources. 15% of the annual fl ow. The Government has approved the Water and Water Resources Law The abundant water sources in Lao PDR have the potential to support (the Water Law). Article 22 of the Law, for example, expresses a num- socio-economic development, especially hydropower and irrigation ber of principles which are in accordance with the IWRM approach. sub-sectors. The hydropower potential of Lao PDR is great compared The Government has also documented issues relevant to river basin to other countries in the lower Mekong River Basin providing an op- planning and management through consultations with the concerned portunity to earn foreign income as the Nam Theum 2 hydro project stakeholders and developed a strategy by preparing a 1998 National

289 Water Market Asia - Lao PDR

Water Sector Profi le (NWSP) and 1998 Water Sector Strategy and nating line agencies in drafting of strategies and action plans, pro- Action Plan (SAP). The SAP, addresses crosssectoral issues by em- grams and regulations necessary for the planning, management, use phasizing appropriate policy, community education and data manage- and protection of water and water resources. It is also responsible for ment. As a fi rst step to build capacity to implement these policies and monitoring, control, promotion and reporting on the implementation of plans, the Government established Water Resources Coordination activities related to water and water resources.” Committee (WRCC) in February 1998. Lao PDR has made good progress in recent years in developing wa- The 1999 Mandate of the Water Resources Coordinating Commit- ter resources policy, legislation, regulations and guidelines. However, tee defi nes the rights and duties of the WRCC. That list of rights and some of the policy remains at a general level, without suffi cient detail duties, although broad, is mainly directed to actions such as “study, and corresponding legal documents to allow full implementation. The monitor, coordinate and advise.” It also clearly indicates an important Draft Policy on Water and Water Resources is in the fi nal approval role for the WRCC in all of the IWRM functions. The WRCC is com- stage and may serve as a “framework policy” under which more de- posed of the Vice-Chairman of Science Technology and Environment tailed policy topics on priority water resource management issues can Agency as Chairman and representatives of the following organiza- be developed. Both the 2001 Decree to Implement the Water Law tions nominated by the Prime Minister’s Offi ce: and the 1999 WRCC Mandate give the WRCC a role in developing policy and regulations which is the important role for the Coordinating - Ministry of Agriculture and Forestry (Vice Chairman); Committee.

- Ministry of Industry and Handicrafts IV.2 Laws and Institutions - Ministry of Communications, Transport, Post and Construction Water Supply Authority - Ministry of Public Health The Water Supply Authority (WASA) was established on the level of a Department in the Ministry of Communication, Transport, Post and - Ministry of Justice Construction with the mentioned decision No. 37/PM on Management and Development of the Water Supply Sector (Lao PDR 1999) and a - Lao National Mekong Committee Ministerial Decision on Organisation and Activities of the WASA (No. - Lao Women Union 1728/MCTPC 1999). WASA has a professional staff of 11, but not yet any permanent secretaries. The Authority has a Director and a - Lao National Front for Construction Deputy, in charge of three Divisions: Organisation and Administration, Project Management and Technical Appraisal. Science Technology and Environment Agency Contact: The mandate of the WRCC is to: Noupheuak Virabouth (Director) Water Supply Authority - Provide advice to the Government on matters relating to water and water resources; Head Ofﬁ ce Address:

- Coordinate the planning, management, follow-up, inspection and Water Supply Authority protection of water and water resources to achieve sustainable development and use of water and water resources in line with the Govern- Department of Housing and Urban Planning ment policy of socio-economic development. Ministry of Communication, Transport, Post and Construction

Within this mandate the WRCC shall: Vientiane, Lao PDR

-Coordinate the formulation of strategy and action plans in the water Tel: + (856 21) 451826, 452167 Fax: + (856 21) 451826 sector to manage, develop and protect the water and water resources; E-mail: [email protected]

- Implement decisions and instructions relating to water and water re- http://www.wasa.gov.la/ sources; Provincial Authorities - Study and propose the policy, regulatory framework and implementation arrangements required for planning, management and protec- Provincial Governors are in charge of all public affairs in a Province. tion of water and water resources; With Vice-Governors, they supervise and monitor the functions and operations of the Provincial arms of the central line ministries. With re- - Monitor, inspect, support, promote and periodically report on the spect of the Ministry of Communication Transport Post and Construc- implementation of action plans, laws and regulations on water and tion (MCTPC), this is the Department of Communication Transport water resources; Post and Construction (DCTPC), headed by a Director. MCTPC, and thus WASA, executes its authority and functions in the urban water - Advise on matters relating to policy, regulations and plans of non-wa- supply sector through the Director of DCTPC. The Managing Director ter sectors that may create impacts on water and water resources; of a Nam Papa is therefore expected to work with the Director of DCT- PC, in particular on all issues concerning centrally funded projects to - Develop, advise and/or implement programs and measures to in- be executed by the Nam Papa. crease awareness of government and private agencies, and the general public in the management and protection of these resources; Provincial Nam Papas are termed Nam Papa State-owned Enterpris- es (NPSEs or PNPs). PNPs are “responsible for the management and - Propose measures to resolve conﬂ icts over water and water resourc- operation of all water supply and wastewater management systems es within the country and with other countries; and the development of raw water sources in urban and rural areas.” - Create and manage funds, and propose expenditures from the funds PNPs are meant to be ran on a commercial basis in accordance with for activities relating to the management and protection of water and three-year corporate plans. In practice this is seldom the case and the water resources; wastewater situation remains unaddressed.

- Encourage, support and promote the exchange of data and informa- For a water supply system in Lao PDR to be deﬁ ned as a Nam Papa it tion relevant to water and water resources. should meet the following characteristics (WASA 2000):

The 2001 Decree to Implement the Law on Water and Water Re- - The water is treated to WHO drinking water quality standards, the sources, issued by the Prime Minister, deﬁ nes the structure of water system is piped, with individual house connections, and resources planning and management at the national and river basin - It is located in an urban centre, deﬁ ned as a centre with more than levels. The Decree states that the WRCC is: “responsible for coordi-

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 290 Water Market Asia - Lao PDR

Huaphanh

Xayabury

Phongsaly Actual leakage Sekong Expected leakage Target Luangnamtha

Saravane

Vientiane

Savannakhet

Bokeo

Borikhamxay

Xiengkhuang

Oudomxay

Attapeu

Khammuane

Luangprabang

Xaysomboun

Champasack

Vietniane Pref

0 300 600 900

Chart 3.4: Leakage per connection (litre/day)

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) Laos Developing Asia High Income Asia Population with Access to Improved Sanitation 53.00 54.64 100.00 Households Connected n/a 7.22 97.50 Urban Population with Access 70.00 77.09 100.00 Urban Households Connected n/a 18.11 98.33 Rural Population with Access 36.00 48.08 100.00 Rural Households Connected n/a 2.57 90.00

2,000 dwellings and a population density greater than 30 persons per resources protection in order to secure the sustainable development hectare. and use of water and water resources. The provincial authorities shall collaborate with WASA regarding admission of water resources devel- Other institutions opment through the WRCC. WRCC is established with the Chief of The Ministry of Public Health (MPH) is, according to decision no. 37/ the Institute of Scientifi c Technology and Environment as President. PM, responsible for facilitation, co-ordination and direction of all rural This institute is attached to the Science, Technology and Environment water supply, and urban and rural environmental hygiene activities. Agency (STEA) of the Prime Minister’s offi ce. STEA is the Environ- This includes the monitoring of potable water quality, presently based mental Authority of Lao PDR. on the WHO water quality guidelines and WASA’s draft water quality The Ministry of Finance (MOF) carries out the function of: i) invest- standards. ment support and fi nancial arrangements for all funding into the sec- The National Centre of Environmental Health and Water Supply tor, and ii) fi nancial support in the short- and medium-term to PNPs (NEW) shall be responsible for the management of technical aspects where commercial targets cannot readily be achieved. in promoting rural water supply, and urban and rural environmental hygiene throughout the country. Legal Framework In the Decree of the President of the Lao PDR No. 126 of 2 November The Water Resources Co-ordination Committee (WRCC) was set 1996, the Law on Water and Water Resources (Lao PDR 1996) was up under the Decree No. 09/PM. WRCC is responsible for co-ordi- issued, and became effective. The law sets the principles, regulations nation of planning, management and monitoring of water and water and measures for management, exploitation, use, preservation and

291 Water Market Asia - Lao PDR development of water as a major natural resource in the country. The hundred thousand dollars (per town). The extent to which such com- intention of the law is to preserve water and sustainable water re- panies would or could invest their own capital is very limited. sources to ensure sufﬁ cient quantity and quality to meet the people’s requirements and to promote agriculture, forestry, industry, and na- From the results of the ‘Private Sector Mapping’ study carried out tional economic development as well securing environmental protec- by the Urban Research Institute in 2002/2003, the private sector is tion. The Law states that the water resources are the property of the much more active than previously thought with regard to construction, national community, as represented by the State. bottled drinking water, ice factories and construction materials shops. However, there is a lack of businesses dedicated to the water supply With regard to the use of water, the Law distinguishes between small sector, suggesting that this market is not yet developed and needs scale, medium scale and large-scale use. Small-scale use by individ- support to grow. ual families does not require approval if there is no particular restrictions on the water source. Other use will require approval, registration, VI. Sources contract, feasibility study or environmental assessments as the case EIU, WHO, WASA, ADB, World Bank, independent research. may be.

V. Construction & Equipment Markets In Lao PDR there are few domestic construction companies capable of pre-qualiﬁ cation under ICB. However, there is good capacity for contracts of the order of US$200,000-300,000, and domestic companies are extensively sub-contracted on larger projects (see table 5.2).

There appears to be good domestic capacity to compete for contracts relating to small town water supply, where investments can be expected to be as low as US$10,000 (per village) rising up to several

Table 5.1: Examples of small scale PSP in Lao PDR Town (Province) Project Investment Owner Operator Legal Status Ban Fang Deng (Xasettha) Water pumped from river to Private (about Private Private Unregulated elevated tank. 50 households. No $1,200 or $5 / meters. Payment for 200 liter tanks capita) based on trust (water used recorded by the household). Ban Done Kilo (Atsaphang - Water pumped from shallow well. Private (about Private Private Unregulated thong) Collected in 200 liter drums. Selling $1,200) 50 drums per day. Morphu (Phathoum-phone) Nam Saat specifications RC high- 70/30 Private Private Construction level tank. Private/Commu licence from nity (about DCTPC. $6,000 or $14 / Unregulated capita) service. Ban Saphai Neua (Pakse) Nam Saat specifications RC high- Private (about Private Private Contract with level tank. 90 households (will $13,500 – or Village increase to 200). $15 / capita - of (approved by which 40% loan Town at 25% p.a.) Committee). Unregulated service.

Table 5.2 : Local Private Sector Type of private company Number Where do they register? Construction companies 427 Provincial DCTPC Drinking water factories 188 Provincial DIH Ice factories 362 P rovincial DIH Water equipment production Not available Provincial DIH factories Construction material shops 290 Provincial DoT (5 water supply; 2 sanitation) Notes: This data is from 17 provinces and Vientiane Capital City (2002 data). Companies are classed depending on their size (value of assets). Companies can join to form a consortium, in which case their class rating is upgraded

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 292 Water Market Asia - Lao PDR

Morphu Village water supply system Management model: Private Water Company Ownership: Not clear, but ultimately assets will transfer to the Village (Chief representing the village) Oversight: Stakeholder consultation Operation: Private Water Company Contract: Design-Build-Lease. Two contracts: between private company – village authority (chief), and private company – individual households. Under the lease agreement, when 90% of the households in the village are connected, the contract will run for a further ﬁ ve years before renegotiation. Legal basis: DCTPC construction business licence. Regulation: design and construction supervision by DCTPC; tariff set by Private Operator; no regulation of performance or water quality. System: design based on household demand assessment; mechanized borehole; 2” PVC intake pipe;15m3 RC tank of height 10m; 4” mains distribution pipe; 88 connections (2002). Cost: Contractor stated 60 million Kip ($6,000) – approximately $14 / capita. Notes: design and construction supervision by Champasak DCTPC; Nam Saat advice on water quality and quantity, and assistance with drilling; tax exemption for construction to support local entrepreneurs.

293 Water Market Asia - Lao PDR

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 294 Water Market Asia - Malaysia

Malaysia

In the short-term, sector restructuring is creating some uncertainty, but ultimately the new set-up should mean more federal government funds and an injection of capital raised by the water asset holding company, WAHCO. All this is very good news for local and international EPCs. Restructuring is not such good news for BOT project developers, who will come under pressure from the government to renegotiate the terms of their contracts. It also poses risks for concessionaires, if the government follows through on its plan to bring all water sector assets under a single central company. Concession companies are hoping that the government will allocate large regional O&M contracts to them instead. Projects under the 5-year national development plan are announced in early 2006. International companies will have to hope that competition from Malaysian players will not be too strong. Long-term, Malaysia will have to integrate its water and wastewater policies and institutions better to ensure the efﬁ cient use of resources and the protection of water resources. For now, residential wastewater provides limited opportunities for PSP and industrial sector services will mainly be snapped up by local companies.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Mixed Some major project failures alongside Future Opportunities Few some genuine success stories. Local competition Significant Equipment Markets Comments Future Opportunities Numerous Restructuring should open up new Local competition Significant sources of finance for major capital works.

Public Utilities Comments Track record Medium Sustainability will improve with Sustainability Good centralisation of assets and upward harmonisation of tariffs. Reliance on ODA Limited Government Comments Commitment to deliver service Yes The government is fully engaged in Fiscal Resources Limited the water sector reform. Economy & Finance Comments Recovery since Asian crisis 1997 Above average Industrial economy and less volatile Local capital market Basic towards sophisticated than neighbouring Thailand or Indonesia.

295 Water Market Asia - Malaysia

I. General Information Main Cities of Malaysia (2002) Population '000 Malaysia is a federal country made up of 13 States and the two Fed- Kuala Lumpur 1367.00 eral Territories of the capital region and Labuan Island. The country’s Johor Baharu 724.00 population is concentrated in the States of Peninsular Malaysia, where Ipoh 601.00 commercial and industrial activity is also centred. The States of Sabah Klang 503.00 and Sarawak in East Malaysia are lower in terms of both population Petaling Jaya 460.00 density and average income but have signifi cant reserves of natural resources, including oil, natural gas, palm oil and timber. struction industries. Malaysia is a middle-income country with a per capita income of The country has had consistently low infl ation levels in recent years of US$8,800. Less than 8% of the population is below the poverty line. It less than 2%, but the government is currently struggling to keep the has a population of 23 million that has been growing at a rate of under budget defi cit under control. There was a slight resurgence of Infl ation 2% a year in recent years. Urbanisation is underway but has not been for 2005. Prices are being pushed up by tax increases and lower pet- as rapid as in many other countries of the region. 57% of the popula- rol subsidies. Interest rates were expected to rise at the end of 2005. tion lives in cities. Total government debt peaked in 2002 at 69.4% of GDP as the government used public spending to reinvigorate the economy. The Gov- The main centre of population in the country is the Klang Valley, where ernment has since cut spending, reducing the federal budget defi cit the capital city of Kuala Lumpur is situated, along with the cities of Pet- from 5.6% of GDP in 2002 to a projected defi cit of 3.7% in 2005. The aling Jaya, Shah Alam and Kelang. Johor Bahru, located near Singa- government is also in the process of streamlining the tax system. pore on the southern tip of Peninsular Malaysia and Ipoh, in the north of the country, are other major population centres. The economic cen- Malaysia sustains a positive current account balance but total external tres are Kuala Lumpur, Johor and the island of Penang off the West debt is rising, mostly as a result of an increase in short-term external coast of the country. Kuala Lumpur is the focus of fi nancial activity debt. This has contributed to an increase in perceptions of fi nancial and the location of the country’s main stock exchange, while Labuan risk in the country. Island in East Malaysia is an off-shore fi nancial centre. At the onset of the Asian crisis, the capital markets were restricted Water tariffs are comparatively low in terms of the household budget, and the exchange rate for the Ringgit was pegged to the US dollar. even among the poorer income groups. Both rural and urban areas The government has since started to liberalise and deregulate trade are adequately covered by piped supply and there is little informal and capital markets once again and has relaxed restrictions on for- sector activity. eign currency credit facilities and trading and outward investment. The currency is approaching benchmark levels for the Japanese Yen and I.1 Macroeconomic Situation Euro set by the Minister of Finance, at which point a review of the cur- Malaysia has enjoyed strong economic growth performance in recent rency policy should take place. The Ringgit is expected to shift to a decades. The Asian crisis in 1997-8 caused a slowdown in growth managed fl oat exchange rate regime in 2005 or 2006. rates but Malaysia was able to recover more quickly than other coun- Malaysia has a well developed fi nancial sector compared to its in- tries in the region, although weak demand for Malaysia’s exports in come and size. The market capitalisation of the Kuala Lumpur Stock 2001, especially electronics, led to a growth rate of less than 1% in Exchange is one of the largest in the region. It grew from US$64bn in that year. However, the economy has recovered once more, achieving 1991 to US$313bn in 1996. Today, its market capitalisation stands at growth of 4-7% in the following years. Growth in 2005 is expected to over RM 700bn, and the KLSE index has been on a general upward be between 5-6%. The departure of foreign workers has led to labour trend since 2001. In 2004-5, the KL Composite Index of shares rose shortages, which has reduced growth in the manufacturing and con- 4%.

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 10.00 2006 128,928 5.00 2005 122,247 0.00 2004 114,786 -5.00 1998 1999 2000 2001 2002 2003 2004 2005 2006 105,000 110,000 115,000 120,000 125,000 130,000 -10.00

Malay sia Dev eloping Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean) 12.00 10.00 Chart 1.3: 2004 Sector Share of GDP 8.00 4.92 Agricult. 6.00 4.20 3.00 3.38 7% 4.00 2.70 2.60 2.00 0.63 0.00 Industry 1998 1999 2000 2001 2002 2003 2004 Serv ices 33% 60% Malay sia Dev eloping Asia (mean) High Income Asia (mean)

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 296 Water Market Asia - Malaysia

Table 1.1: Sovereign Risk Indicators Malaysia Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 2,030.00 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 45.30 59.60 50.84 Short Term Debt / Total Debt 2004 (%) 17.98 10.49 n/a Fitch Sovereign Rating (2004) BBB+

Table 1.2: Legal Risk Indicators 2004 Malaysia Developing Asia High Income Asia Time to enforce a contract (days) 300.00 392.62 103.67 Time to register property (days) 143.00 62.82 16.50 Time to resolve insolvency (years) 2.30 4.45 1.15 Time to start a business (days) 30.00 67.08 14.33 Legal rights of borrowers and lenders (0=low) 8.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Malaysia Developing Asia High Income Asia Political Rights 5.00 4.23 2.43 Civil Rights 4.00 4.69 2.14 Corruption Perception 5.20 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 Malaysia Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 5.56 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 623.58 185.54 1,281.59 Roads, paved (% of total roads) 76.20 44.75 75.32 Electric power consumption (kwh per capita) 2,831.81 717.46 7,505.93 Water supply failures (days) n/a 10.00 n/a

Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%) 12.90 14 12.50 0.00 10.80 12 2002 2003 2004 2005 2006 10 -2.00 8 6.30 6 -4.00 -3.10 -3.60 -3.30 4 -6.00 -5.31 2 -5.60 0

-2 2003 2004 2005 2006 Malay sia Dev eloping Asia (mean) High Income Asia (mean) Malay sia Dev eloping Asia (mean) High Income Asia (mean) Chart 1.8: Real Interest Rate 2000-2003 (%) Chart 1.7: Inflation Rate 1999-2004 (%) 12.00

16.00 10.00 10.30 14.00 8.00 12.00 10.00 6.00 8.00 4.00 6.00 2.71 2.60 2.70 2.00 4.00 2.74 2.00 1.53 1.42 1.81 1.06 1.45 0.00 0.00 2000 2001 2002 2003 -2.00 1999 2000 2001 2002 2003 2004

Malaysia Malaysia Dev eloping Asia (mean) Dev eloping Asia (mean) High Income Asia (mean) High Income Asia (mean)

297 Water Market Asia - Malaysia

The fi nancial sector has undergone a process of reform and consoli- Singapore utility’s water treatment plant. dation since the crisis. The number of fi nancial companies has been radically reduced and the restructuring of non-performing loans has II. Water been supported by the national government, but problems in the bank- II.1 Sector Policy & Structure ing sector have not been fully resolved. Within Malaysia’s federal political structure, responsibility for water The service sector accounts for 45% of Malaysian GDP. Infrastructure lay with the 13 state governments until 2005, when a constitutional quality is generally high, with good coverage rates for services and amendment was passed to transfer responsibility to the central gov- few reported problems. ernment. Until that time, the Public Works Department of the central government had been responsible only for the protection and devel- The legal environment in Malaysia has been generally supportive of opment of trans-boundary water resources, reviewing the investment foreign direct investment but short-term capital fl ows have been sub- programmes proposed by the states and providing technical support ject to greater restrictions since the Asian Crisis. These restrictions to the states for the implementation of these programmes. Since 2004, are gradually being liberalised under the government of Prime Minis- the central government has primarily responsibility for the provision of ter Abdullah Badawi. services. The government is currently developing a plan to restructure Malaysia was one of the fi rst countries in the region to encourage and regulate the sector and the details of the new system are not yet private sector investment in infrastructure, both through greenfi eld certain. projects and through divestitures. Privatisation was offi cially launched The restructuring is set out in the Water Services Industry Bill and the with the Privatisation Master Plan of 1991, but several sectors, includ- National Water Services Commission Bill. These two bills, presented ing water treatment, were already open to private investment. The to Parliament in 2005, provide for the creation of an asset-holding degree of private sector participation was particularly important in company for water supply assets at the national level and for a nation- the transport sector, in particular toll roads, and in electricity genera- al water regulatory body to monitor the sector. The central government tion. The principal electricity supplier in the country, Tenaga Nasional has confi rmed that the restructuring will not affect existing contracts (TNB), has been partially privatised since 1992. The telecoms sector between state governments and the private sector but it is possible is one of the most competitive in the region for both fi xed line and cel- that concessions will be converted into O&M contracts, perhaps or- lular telephony. ganised into a small number of regional blocs. Infrastructure has been a priority in Malaysia since the early 1980s, The asset-holding company, WAHCO, is expected to raise fi nance with a large role for the private sector. In the Seventh Malaysia Plan for capital investment in the private fi nancial market of US$500mn by (1996-2000), the private sector was expected to provide nearly 80% 2007. The asset-holding company will be backed by a federal gov- of the total infrastructure spending, equivalent to US$27bn. The government guarantee and is expected to be able to raise funds more ernment has supported PSP through soft loans, equity investments, cheaply on the capital markets. Assets constructed with these funds directed lending through banks and public funds and explicit and im- will be leased out to water operators, generating a secure stream of plicit guarantees to private investors. Unlike large-scale privatisation revenues. This structure is intended to overcome problems of short programmes in many other developing countries, the majority of con- loan tenures available to infrastructure projects on the local capital tracts in Malaysia have been awarded to local companies. However, market through the issue of long-term bonds backed by a government multinational companies have played a role in some of the greenfi eld guarantee. This structure is intended to be phased out once the water projects. Some members of the Government of former Prime Minister sector has attained full cost recovery for operation and capital costs, Mahathir Mohamad were implicated in corruption scandals surround- but the proposal must be approved by the Cabinet and the Parliament ing privatisation contracts, which were often awarded without a trans- before it can implemented. parent and competitive process. Financing has been drawn largely from local capital markets. These new laws supersede the State Water Supply Enactments which empowered the State Water Supply Authorities to supply water to Since the Asian Crisis, the progress of privatisation has slowed con- customers, to lay distribution pipes and to develop and protect water siderably, with major projects delayed or cancelled, including the Ba- sources. These Water Supply Enactments also provided for the cor- kun Dam and Hydroelectricity Project, one of the world’s largest pri- poratisation of water supply authorities, the involvement of the private vately funded infrastructure projects, which was eventually reinstated sector and the creation of regulatory entities in some states charged and is expected to be completed in 2009. with protecting the interests of the state government and of consum- Several of Malaysia’s privatised infrastructure projects have encoun- ers. These Enactments have been made and revised at different times tered problems and the government has had to take on the fi nancial in the different states. liabilities of the concessionaires. A large number of toll road and urban Under the old sector structure, the federal government has jurisdic- rail projects have proved to be fi nancially unviable. In some cases, tion over hydropower, navigation, maritime fi sheries, water supplies, projects have been transferred back to public ownership, including rivers and canals, except those wholly within one state or regulated two in the watsan sector: the water concession in Kelantan and the by an agreement between the States concerned. Rivers and riverine national sewerage service provider, Indah Water Konsortium. fi sheries and water supplies and distribution wholly within the State I.2 Political & Investment Environment were specifi ed as ‘State List’ under the constitution. Most of the water- related federal laws are not valid in Sarawak and Sabah, which have Malaysia enjoys political and institutional stability. In 2003, leadership greater legislative autonomy than the states of Peninsular Malaysia. passed from Mahathir Mohamad to Abdullah Badawi, Prime Minister However, water in these two states will be brought under the federal and head of the UMNO (United Malays National Organisation) party, umbrella after the sector restructuring. the dominant party in the ruling National Front coalition. His leadership was confi rmed in the March 2004 election in which the NF won Formerly, the Department of Public Works within the Ministry of Public a strong majority. Badawi was elected on an anti-corruption platform, Works (JKR) was the primary Ministry responsible for the sector. In- pledging to tackle corruption that had become endemic in the country frastructure policy and planning has now been transferred to the new under Mahathir, but his efforts to pursue prosecutions are opposed by Ministry of Power, Water and Communications as of 2005. many of the older UMNO members who were appointed by Mahathir, Water services in Malaysia have been provided by different types of some of whom are directly implicated in cases of corruption. entity, depending on the state (see Table 3.3). The table shows the Malaysia’s relations with its neighbours can be tense but there is only type of water service provider by state as of 2003, but it is important a very faint possibility of confl ict. The water sale agreement between to note that these entities are likely to undergo consolidation and har- Malaysia’s southern state of Johor and Singapore has been the cause monisation as part of the sector restructuring. of past disputes between the two countries but Badawi has attempted State Public Works Departments and Water Supply Departments have to ease relations with Singapore in a series of visits. Singapore has limited autonomy and their fi nancial activities are treated as part of the been developing alternative sources of water to reduce its depen- overall State budget. This led in some cases to lower levels of effi cien- dence on transfers from Malaysia while Malaysia has increased its cy and expertise. State Water Supply Boards have more fi nancial and treatment capacity in Johor to avoid sourcing treated water from the administrate autonomy, but do not have a commercial orientation and

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 298 Water Market Asia - Malaysia

Table 2.1: Income Level Malaysia Developing Asia High Income Asia GDP per capita 2004 (US$) 4,510.00 1,104.30 23,628.57 Population on less than US$1/day 2004 (%) 2.00 18.23 0.00 Unemployment 2004 (%) 3.55 6.73 4.89

Table 2.2: Area & Population Malaysia Developing Asia High Income Asia Population Growth 2003 (%) 1.90 1.67 0.64 Urban Population Growth 2003 (%) 3.10 3.48 1.18 Population Density 2002 (pop/km2) 72.68 231.45 2,335.17 Area (thousands Ha) 32,975.00

Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban 2000-2003 (cst 2000 US$) (millions) Population (%) 26.00 25.46 60.00 59.44 25.00 1,800 1,760.16 25.50 59.50 58.77 25.00 24.53 59.00 58.09 1,750 24.50 24.01 58.50 1,682.35 1,700 24.00 23.30 58.00 57.42 1,643.80 1,645.12 23.50 57.50 1,650 23.00 57.00 22.50 56.50 1,600 22.00 56.00 1,550 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002 2003

Chart 2.4: Consumer Exp. on Water 1999-2004 (US$m) Chart 2.5: Consumer Exp. on Water Growth Forecast 2005-2009 (%) 455.82 476.15 500 433.31 4.00 402.31 422.09 400 350.26 3.00 300 2.00 200

100 1.00 1.39 1.30 1.61 1.11

0 0.32 0.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Malay sia Dev eloping Asia (mean) staff are subject to civil service rules. Some states therefore chose to corporatise the state water entity, providing full ﬁ nancial autonomy to High Income Asia (mean) the managers of these fully publicly owned enterprises.

States were expected to cover operations and maintenance costs term, the government plans to spend RM51.9bn on water supply from through tariffs and transfers from the state budget, but constrained 2000-2050. budgets and lack of expertise meant that assets were often not adequately maintained. This factor, combined with the deteriorating fi - In the Ninth Malaysia Plan, between US$1.6-2.1bn is likely to be al- nancial position of states as a result of BOTs, were the driving reasons located for water projects, compared to requests for water projects behind the decision to bring the sector under central government con- from the states amounting to US$5.3bn. These projects will be ad- trol. After centralisation, it is expected that central government funds ministered by the Energy, Water and Communications Ministry. It is will continue to support the capital investment programme expected that US$2.7bn worth of projects will be fi nanced from local capital markets through the asset-holding company, Wahco, in this II.2 Financing initial period. Malaysia’s water sector is fi nanced by a combination of public and Malaysia has received substantial ODA support for the development private fi nance. For the Eighth Malaysia Plan (2001-2005), the federal of water supply and distribution. The Japan Bank for International Co- government allocated RM3966m for 129 water supply projects. Within operation (JBIC) is a key funding institution. In 2004, JBIC agreed a this total, 710m was allocated for inter-state water transfer projects, RM750m loan facility for the Pahang-Selangor water transfer scheme. while Pahang, Kedah and Negeri Sembilan, Malacca and Sarawak In 2000, JBIC allocated US$475m to the development of sewerage were all allocated more than RM300m for projects during this period. systems in Malaysia. The World Bank has only been involved in one The largest projects being developed in the current period are the project in the last 25 years, a US$62m loan to Johor, which encour- Pahang-Selangor Raw Water Transfer Project (RM1bn) and the Teli- aged the utility’s managers to consider PSP to expand production. bong and Telipok Water Supply Scheme in Sabah. Over the longer The ADB has not lent money to Malaysia for the water sector in the

299 Water Market Asia - Malaysia last 10 years. The most recent loan was a US$105m multi-state water public and private sources of fi nance in order to carry out its ambitious supply improvement project agreed in 1994. Another notable project investment programme. This type of integrated model had been com- was the 1986 Malaysian Rural Water Supply Schemes project to ex- mended by the central government but will have to be modifi ed with tend rural water supply coverage to 4.2 million people. The project the restructuring of the sector. was the largest donor-supported project in the sector at the time and Kota Kinabalu was one of the earliest BOTs in the country. It privatised included 70 treatment plants, 342 reservoirs, 4 major dams, 48 pump- water supply in 1993 to Jetama Sdn. Bhd (majority owned by Ondeo). ing stations and 67 river intakes and accounted for a rapid increase in The company took over the State Water Department’s functions of op- rural supply coverage fi gures. erating water production and transmission facilities for Kota Kinabalu Until the 2004 restructuring, the central government provided fi nanc- and three adjoining municipalities, and employed 120 water depart- ing for capital works programmes developed and proposed by the ment staff members. The contract required the Government to pay states. For each fi ve-year planning period, state water departments for construction through a monthly fi xed fee. The other component, would put forward a list of projects based on national and state-level the variable fee, is charged according to the volume of treated water assessments of projected demand growth. Proposals were reviewed supplied. Jetama is required by the agreement to undertake the refur- by the federal Department of Public Works (JKR) which would pri- bishment of fi ve treatment plants and to build a dam. Since privatisa- oritise projects according to need and past performance and allocate tion, additional water production has increased the water pressure in subsidised loans among the states. States which were not able to Kota Kinbalu, allowing water to be piped directly to houses in informal access suffi cient levels of central government fi nance then sought out settlements and making the previous system of collection from water private partners to absorb some of the burden of investment. point sources unnecessary. However, the costs implied by the BOT structure have proven diffi cult for the state to sustain. By the end of this period, several state water boards and companies encountered fi nancial diffi culties as bulk treated water prices paid to II.4 Tariffs BOT converged with consumer tariffs. This led to a second round of See table 3.6. Under the sector restructuring, the government intends restructuring in the sector, towards consolidated water companies re- to harmonise tariffs across Peninsular Malaysia. Low tariff states like sponsible for both production and distribution. This is the case in the Penang have objected to this, fearing that they will lose their compara- State of Johor, where water services are provided by a private con- tive advantage in attracting foreign investors. cessionaire, SAJ Holdings listed on the KLSE as Ranhill Utilities. The concessionaire is responsible for meeting commitments to the state’s II.5 Regulation two BOT providers. The state of Selangor, which also provides water The economic regulation of Malaysia’s water sector is currently be- to the capital region, has faced the most severe fi nancial diffi culties as ing restructured. Until 2004, when responsibility for the sector was a result of its BOT contracts. A huge expansion in treatment capac- transferred from the state governments to the federal level, regulation ity in the 1990s was largely fi nanced by the private sector through a was also carried out at the state level. In 2004, fi ve states had created series of BOT deals but the water distribution company, PUAS, cor- State Regulatory Bodies: Johor, Kelantan, Penang, Negeri Sembilan poratised in 2002, was unable to meet payments due to its suppliers. and Terengganu. These regulators were created when water services The company was fi nally transferred to a private concessionaire in were corporatised, or, in the case of Negeri Sembilan, when the state December 2004 after extensive negotiations, with debts of US$605m was considering engaging the private sector in a concession. The reg- to its suppliers. The government agreed to provide US$139m in grants ulators are not autonomous, either structurally or fi nancially. The staff and soft loans to the private company to assist it in implementing a are usually civil servants who report to the state administration. None pipe replacement and non-revenue water reduction programme. The of the regulatory bodies has any decision-making powers in relation to Malaysian Bank Pembangunan dan Infrastruktur is providing sup- setting tariffs or performance requirements, but they do play a role in port to pay off debts to suppliers. Sabah is in a similar position, with monitoring and enforcement, and in formulating recommendations. US$250m in debts to its BOT contracts, but although state offi cials have been through several rounds of discussions with private inves- In 2003, the federal government created the National Water Council tors, no concession contract has yet been concluded. to administer the awarding of contracts and to manage the fi nancing of public sector projects as well as to manage sector reforms. The II.3 Private Sector Participation council decided in July 2003 that the management and fi nancing of Several states have engaged the private sector under different con- water in all states (except the two states of East Malaysia, Sabah and tractual arrangements, from small-scale technical assistance con- Sarawak) be placed under the purview of the federal government. The tracts to BOTs and full concessions. federal government criticised some states for their failure to control costs and poor planning and management. Some states, led by the Two of the most populous states, Selangor and Johor have fully priva- opposition parties, objected to the transfer of powers, but the shift was tised both production and distribution, accounting for 40% of the total subsequently approved by the Parliament. population of the country. Adding the population of Penang, where water services are provided by a publicly listed company, almost half In 2004, regulatory powers were shifted to the central government. the country’s population is served by a ‘privatised’ company. The government declared that any future PSP would be in ‘holistic’ water services, in other words, would include source development, Kelantan, on the East coast of peninsular Malaysia, was one of the treatment and distribution and possibly wastewater management. A earliest states to engage the private sector in distribution as well as new Ministry, the Energy, Water and Communications Ministry was production. Kelantan Water was set up as a joint venture between set up in April 2004 charged with defi ning policies for Malaysia’s in- state agency Yayasan Kelantan Darulnaim (30% equity) and Thames frastructure sectors. The following month, the government announced Water (70% equity) in 1995. However, burdened with debts of over the creation of a national regulatory framework for water, the National MYR100m (US$24.5m), the company was unable to implement Water Commission (SPAN), to be set up following the passage of planned network infrastructure extensions, bringing housing and com- supporting legislation. The proposed commission would serve as a mercial projects in the state to a standstill. Other problems included regulatory body to ensure that water supplied is of high quality and low pressure, service disruptions and poor quality water supply. The affordable to consumers. It would check water quality, tariffs, water federal government offered a MYR600m (US$147m) soft loan to the sources, profi ts, losses and depleting of water sources and also plan Kelantan state government to solve the resultant water crisis. In 2000 ways to channel water from other states as some states do not have Thames Water agreed to sell its entire 70% equity in Kelantan Wa- adequate sources of water to meet demand. ter for MYR50 (US$12.2 million) back to the Kelantan State Govern- ment. The Ministry of Health develops and enforces drinking water quality guidelines which since 1983 are monitored and enforced under the Penang is an example of a different model of commercialisation: there, National Drinking Water Quality Surveillance Program. the state government did not engage the private sector in bulk treated water projects, but decided to corporatise the utility in 1999 to increase II.6 Performance effi ciency. In 2001, the company was the fi rst water service enterprise In 2001, 97% of the urban population was served with piped water, to be fl oated on the KLSE. 70% of the company is still owned by the compared to 86% of the rural population, giving national coverage of state government. This arrangement allows the company to access 92% overall. Average demand is 287lcd. All connections are metered

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 300 Water Market Asia - Malaysia

Table 3.1: Water Service Coverage Indicators 2002 (%) Malaysia Developing Asia High Income Asia Population with Access to Improved Water 95.00 76.85 100.00 Households Connected 0.00 22.27 98.00 Urban Population with Access 96.00 86.17 100.00 Urban Households Connected 0.00 48.27 99.33 Rural Population with Access 94.00 71.42 100.00 Rural Households Connected 64.00 14.58 95.50

Table 3.2: Water Resources Malaysia Precipitation Volume 2002 (bn m3/yr) 948.00 Precipitation Depth 2002 (mm/yr) 2,875.00 Groundwater: produced internally 1998-2002 (bn m3/yr) 64.00 Surface water: produced internally 1998-2002 (bn m3/yr) 566.00 Overlap: surface and groundwater 1998-2002 (bn m3/yr) 50.00 Water resources: total internal renewable 1998-2002 (bn m3/yr) 580.00 Water resources: total external 1998-2002 (bn m3/yr) 0.00 Water resources: total renewable 1998-2002 (bn m3/yr) 580.00 Agricultural water withdrawal 1998-2002 (bn m3/yr) 5.60 Domestic water withdrawal 1998-2002 (bn m3/yr) 1.52 Industrial water withdrawal 1998-2002 (bn m3/yr) 1.90 Total water withdrawal 1998-2002 (bn m3/yr) 9.02

Table 3.3: Water Resources II Malaysia Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 24,202.00 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 24,202.00 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 376.40 507.25 544.73 Dependency ratio 1998-2002 (%) 0.00 33.33 1.39 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 0.97 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 1.56 16.19 13.19

Chart 3.1: Water Uses 2002 (%) Chart 3.2: Fresh Water per Capita 1999-2004 (m3/head) 30,000 Indus. 27,822 28,193 27,126 28,000 26,840 21% Agricult. 26,105 24,639 62% 26,000 24,000 22,000 1999 2000 2001 2002 2003 2004

Dom. 17% II.7 Facilities See table 3.10. III. Wastewater but in many places meters are inaccurate or inoperative. Non-revenue water levels are high, with a national average of 39%, due principally III.1 Sector Policy & Structure to aging asbestos cement pipe networks and under-metering, al- Responsibility for wastewater was consolidated in the Sewerage Ser- though illegal use is also a problem in some places. vices Department (SSD) of the federal government in 1993-4. The Few of Malaysia’s water utilities recover full operating costs from tar- Sewerage Service Act amended and consolidated laws relating to iffs collected. Operating ratios of the water authorities in the different improving sanitation, the environment and improving public health. states range from 0.52 in Terengganu up to 3.39 in Sabah. Operating It provided for sanitation services to be provided by a single body ratios tend to be worse in states where there is private participation appointed by the federal government. It also imposed a structure of in water treatment, but not in water distribution, as was the case in penalties for discharges. It is implemented by the Sewerage Services Selangor and Sabah. Financial performance is better in Johor, where Department and the Local Government Department which are both distribution has been privatised, or in Penang, where both activities under the Federal Ministry of Housing and Local Government. are provided by a corporatised entity. However, the government has a This shift was prompted by growing debts and poor asset mainte- clearly stated policy that tariffs should cover operating costs for water nance by local authorities which have previously had responsibility utilities. for the provision of sewerage. State governments lacked the neces- See tables 3.7, 3.8 & 3.9. sary ﬁ nancial and technical resources to maintain assets and provide

301 Water Market Asia - Malaysia effi cient services. 80% of the plants handed over were not in good III.7 Facilities working condition and failed to meet the required effl uent standards. See tables 4.5 & 4.6 During the restructuring, assets were transferred from local authorities to the centre. IV. Environment and Legal Aspects The assets of 86 authorities, serving a population of 16m people were IV.1 Water and Wastewater Fundamentals then privatised to the Indah Water Konsortium in a deal valued at US$2.3bn. The SSD managed the assets of the remaining, mostly Water Resources rural, sewerage systems and took on a regulatory role. IWK soon ran Malaysia has generous amounts of freshwater resources, with rain- into diffi culties as consumers refused to pay bills in protest at the pri- fall concentrated during the monsoon season. The country therefore vatisation and the introduction of additional tariffs for sewerage ser- has adequate amounts of freshwater overall but needs to manage vices even though tariffs were well below those envisaged in the con- large seasonal and regional variations. Total annual rainfall amounts tract. Tariffs for commercial customers were reduced further in 1998 to 990bnm3 of which 566km3 is surface runoff, 64km3 goes into as a result of the Asian crisis. Several law suits were brought against groundwater. Malaysia has total estimated internal water resources of IWK for the pollution of waterways. 580km3/year but these are unequally distributed across the country. The central government was forced to step in to restore the fi nancial Selangor, the most developed and populous region of Malaysia has viability of the fi rm and extended RM450m in soft loans to the com- relatively low surface runoff. The neighbouring state of Pahang, with a pany. In 2001, ownership of the company was returned to the public much larger surface area, has 33bnm3 of runoff each year. Construc- sector and the government took on US$184m in accumulated debts. tion of a major raw water transfer project between Pahang and Se- IWK remains under the ownership of the Ministry of Finance and is langor begins in 2005 with ODA fi nancing from Japan. The island of managed under a private O&M contract. No further attempt has been Penang has limited fresh water resources and transports water 80% made to engage the private sector in the provision of sanitation ser- of its water from the mainland. vices. In 2005, collection rates remain very poor with US$130m still owed in unpaid bills. Seasonal variation in rainfall has created a need for large water storage facilities. Malaysia currently has 69 dams in operation and a fur- Malaysia does not yet have any water recycling facilities. ther 47 dams are planned over the long-term planning horizon up to 2050. Most of the existing dams are single purpose dams, while future III.2 Financing dams will be designed to serve multiple purposes. The central government has full responsibility for the fi nancing of the Nationwide, groundwater accounts for only 2% of overall supply, al- sanitation sector. Between 1994 and 2002, IWK invested approxi- though groundwater is exploited in a few states for small-scale do- mately US$69m in projects to improve collection and treatment fa- mestic and industrial purposes. The most extensive use of ground- cilities. Under the Eighth Malaysia Plan (2001-2005), US$26m were water is in coastal Kelantan, where up to 70% of water supply comes allocated by the federal government for sewerage projects. from groundwater sources. The government views groundwater as Public resistance to wastewater charges has been strong and con- a viable alternative source of water where surface water resources sumers have effectively boycotted wastewater bills so little revenue are limited, as in some water-stress districts in Perlis, Kedah, Perak, can be recovered from user charges. Terengganu and Negeri Sembilan, or in periods during which surface water supply is interrupted. In 2000, Malaysia was allocated a loan by JBIC to improve the country’s sewerage services. 13 projects with a total estimated cost of RM2.1bn Environmental Policy (US$560m) were prioritised under for fi nancing under the loan. A spe- The Environmental Quality Act (1974) and the Environmental Quality cial agency, the Project Implementation Unit, was created to deal with Order (1987) and related acts set out the framework for prevention, the disbursement and monitoring of the funds. Road Builder (M) Bhd abatement and control of pollution. This law is implemented by the Holdings Bhd, a leading local construction company together with Department of the Environment, within the Ministry of Science, Tech- Japanese partners Shimizu Corporation and Hitachi Plant Engineer- nology and Environment, while monitoring is also carried out by the ing & Construction Co Ltd, have been awarded a RM978 million ($257 Environmental Quality Council. An Environmental Impact Assessment million) contract to upgrade Klang Valley’s sewerage system. is required for the exploitation of groundwater and water supply proj- III.3 Private Sector Participation ects of more than 4,500m3/day. Discharge licences are required and discharges are required to meet specifi c effl uent standards. However, The only wastewater PSP project, the Indah Water Konsortium, was a implementation of these requirements is often weak and water treat- failure and was returned to the public sector in 2001. ment operators can play a useful role in monitoring river quality and III.4 Tariffs alerting the authorities to low quality. See table 4.4 IV.2 Laws and Institutions III.5 Regulation See table 6.1 The government has tightened standards for wastewater treatment V. Sources plants, issuing guidelines and approval criteria for contractors for EIU, ADB, MAlaysia Water Association, Interviews new treatment works to try to prevent a repeat of low-quality plant construction in the past. Property developers are required to make a Table 3.6: 2001 Water Tariffs RM US$ contribution to the construction of sewerage systems for new develop- Sabah 0.52 0.14 ments under the Capital Contribution Policy. Sarawak 0.55 0.14 Discharge regulation is the responsibility of the Department of Envi- Perlis 0.56 0.15 ronment which has been conducting monitoring of rivers since 1978, N Sembilan 0.74 0.19 primarily to establish the status of water quality, detect changes and Penang 0.75 0.20 identify pollution sources. The Department maintains a network of Kedah 0.76 0.20 manual river monitoring stations throughout Malaysia. Pahang 0.8 0.21 Trengganu 0.86 0.23 III.6 Performance Kuching 0.9 0.24 Perak 0.94 0.25 Malaysia’s wastewater treatment plants routinely fail to meet national Kelantan 0.99 0.26 discharge standards. In 2001, compliance with biochemical oxygen Sibu 1.02 0.27 demand parameters stood at 66%, and at 85% for suspended sol- Melaka 1.03 0.27 ids standards. The government has sought to improve performance Selangor 1.12 0.29 through stricter controls on treatment plant contractors’ requirements Labuan 1.15 0.30 and through a programme of investment to upgrade existing plants. Johor 1.4 0.37

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 302 Water Market Asia - Malaysia

Table 3.3: Water Supply Entities Type of water supply entity Number Public agency: State Public Works 7 - Kedah, Negeri Sembilan, Sabah, Pahang, Perlis, Labuan, Sarawak Dept./State Water Supply Dept. (excluding districts of Kuching, Sibu, Miri, Bintulu and Limbang) Public agency: State Water Supply 4 - Melaka, Perak, Kuching, Sibu Board Publicly owned companies (state govt.) 4 - Penang, Kelantan, Terengganu and LAKU (Miri, Bintulu and Limbang in Sarawak) Private companies 2 - Johor, Selangor

Table 3.4: Water Distribution by Private Company State Population (mn) Selangor (including FT of Putra Jaya) 4.2 Federal Territory of Kuala Lumpur 1.4 Johor 2.7 Penang* 1.3 Total 10.6 Proportion of Total Population 46% *The Penang utility is listed on the KLSE but it is 70% state-owned Data Source: www.citypopulation.de; Authors’ calculation

Table 3.5: Water Treatment: Production by Public & Private Companies State/Service Area Private (m3/day ‘000) Public (m3/day ‘000) Private (%) Johor 1201 - 100% Kedah 601 240 71% Kelantan - 213 0% Kuching - 269 0% Labuan 26 8 77% LAKU 153 - 100% Melaka - 320 0% Negeri Sembilan 209 311 40% Pahang - 627 0% Penang 763 - 100% Perlis - 84 0% Perak 434 431 50% Selangor 3130 - 100% Terengganu 349 - 100% Sabah 511 194 72% Sarawak - 136 0% Sibu - 72 0% Total 7376 2904 72% Data for 2001 Source: Malaysia Water Industry Guide 2003, Authors’ update & calculation

Table 3.7: Operational Performance State/Service Area NRW (%) Table 3.9: Financial performance LAKU 18 State/Service Area Operating ratio Penang 22.3 Terengganu 0.52 Sarawak 27.6 Johor 0.6 Sibu 30 Penang 0.64 Labuan 31.6 Kedah 0.73 Johor 32 Kelantan 0.73 Trengganu 32.2 Melaka 0.73 Melaka 34.4 N Sembilan 0.79 Kuching 34.9 Perak 0.9 Perak 37.2 Kuching 0.94 Perlis 39.2 LAKU 0.94 Selangor 41 Sibu 0.99 Pahang 43 Pahang 1.07 Kedah 43.1 Perlis 1.17 Negeri Sembilan 45.1 Sarawak 1.52 Kelantan 45.8 Labuan 1.66 Sabah 61.7 Selangor 2.04 Non-revenue water is high in Sabah 3.39 Malaysia’s water utilities, with an Data: 2001 average level of around 40 per cent. Table 3.10: Water Industry Key Indicators (2001) Design Capacity (mld) 13,034 Table 3.8: Metering Production (mld) 10,280 Meter Age (National average) Millions Number of treatment 460 <5 years 3.074 plants 5-10 years 1.302 Number of connections 4.828 >5 years 0.436 (m) Total 4.813 Length of pipes (km) 88,786

303 Water Market Asia - Malaysia

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) Malaysia Developing Asia High Income Asia Population with Access to Improved Sanitation n/a 54.64 100.00 Households Connected n/a 7.22 99.29 Urban Population with Access n/a 77.09 100.00 Urban Households Connected n/a 18.11 99.00 Rural Population with Access 98.00 48.08 100.00 Rural Households Connected n/a 2.57 90.00

Table 4.2: Water Pollution 2001 (% of total BOD Emissions) Malaysia Developing Asia High Income Asia Water pollution, chemical industry 15.53 9.94 8.81 Water pollution, clay and glass industry 0.23 0.46 0.15 Water pollution, food industry 32.87 43.27 42.73 Water pollution, metal industry 7.81 7.62 4.84 Water pollution, other industry 14.27 6.08 13.17 Water pollution, paper and pulp industry 14.29 9.38 26.14 Water pollution, textile industry 8.00 21.17 8.17 Water pollution, wood industry 7.00 2.67 2.17

Chart 4.2: Daily organic water pollutant emissions / 1000 people 1999-2004 (kg) 10.00 8.30 8.54 7.69 7.83 8.04 8.00 6.99

6.00

4.00

2.00

0.00 1999 2000 2001 2002 2003 2004

Malay sia Dev eloping Asia (mean) High Income Asia (mean)

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 304 Water Market Asia - Malaysia

Chart 4.1: Daily organic water pollutant emissions 1999- 2004 (kg)

250,000 218,459 197,166 207,861 180,641 188,012 200,000 158,761 150,000 100,000 50,000 0 1999 2000 2001 2002 2003 2004

Table 4.4: Wastewater tariffs (2000) Table 4.5: Wastewater Sector Indicators * 2001 Customer Monthly charge Network pipelines 9,945km Domestic (low cost homes) 2 Network pump station 329 Domestic (village or estate) 3 Public wastewater treatment 6,693 Domestic (other, septic tank) 6 plants Domestic (other, connected) 8 Septic tanks 938,886 Commercial (small business unit) 8-56 Population with piped sewerage 9.7m Commercial (large business unit) 56-9,975 Population with septic tank 4.7m Total population served 14.4m *(data for assets managed by IWK; does not include Sabah, Sarawak and some rural systems)

Table 4.6: Large-scale plants 2001 Population Treatment Capacity Location Technology Equivalent (m3/day) Pantai, Kuala Lumpur 560,000 126,000 Aerated Lagoon Jalan Jeti, Penang 410,615 NA Marine Outfall Lebuh Raya, Penang 212,915 47,906 Aerated Lagoon Bandar Baru Bangi, Selangor 150,000 33,750 Aerated Lagoon USJ 14, Subang Jaya, Selangor 120,005 27,001 Oxidation Ditch Bunus Regional Pond, Kuala Lumpur 103,000 23,175 Aerated Lagoon Kota Permai, Penang 8,989 18,223 Oxidation ponds with pumping system Mak Mandin, Penang 67,090 15,095 Oxidation ponds with pumping system Butterworth, Penang 51,232 11,527 Oxidation ponds with pumping system Sri Hartamas, Kuala Lumpur 51,000 11,475 Sequential Batch Reactor

Table 5.1: Demand by Sector 2000 & 2030 2000 (Mld) % demand 2030 (Mld) % demand Domestic 5,558 19% 12,662 30% Industrial 3,985 13% 11,863 29% Dom + Indus 9,543 32% 24,485 59% Irrigation 20,139 68% 16,802 41% Total Demand 29,682 100% 41,287 100% Source: Malaysia National Water Resources Study 2000-2050

Table 5.2: Demand and Supply (2000) Mld Total Demand (Dom/Indus) 9,543 Total Supply 13,034 Ratio of Demand: Supply 73% Source: Malaysia National Water Resources Study 2000-2050

Table 6.1: Water and Sanitation Legal Framework Proposed Water Industry Bill Proposed National Water Services Commission (SPAN) Bill 2005 Constitution Amendment Law: transferred responsibility for water supply from the states to the federal government.

1993 Sewerage Service Act: amended and consolidated laws relating to improving sanitation, and the environment and improving public health; provided for sanitation services to be provided by a single body appointed by the federal government. 1989 Revision of the 1920 Waters Act: ownership of all rivers in a state belongs to the ruler of the state or in the State Authority. A licence is required to divert river waters 1984 National Forestry Act: allows States can declare areas ‘Permanent Reserved Forests’ which can be used to protect water catchment areas 1974 Environmental Quality Act (with the Environmental Quality Order, 1987): framework for prevention, abatement and control of pollution 1974 Geological Survey Act: requires anyone sinking a well to notify state authorities, with the exception of low yield wells used for domestic purposes.

305 Water Market Asia - Malaysia

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 306 Water Market Asia - Malaysia

Known PSP Projects in Malaysia Indah Wastewater Urban Sewerage Rehabilitation

National level project 30 -year Concession Total investment (USDm) 2,331.70

Sector 1 Wastewater Sector 2 No data UU was originally a partner in the Indah Water Konsortium (IWK), which was awarded a USD$2.4 billion 28 year BOT contract to renew and operate the sewerage system in Malaysia. UU exited the consortium in 1996, before the contract became a failure.

Capacity Timeline

Distribution 4 km Contract awarded 1993 June

Early termination 2001 Termination! Equity investor Aims Worldwide International Sdn. Bhd.

Johor

Equiventure Water

Sunghai Layang Johor State 25 -year BOT Total investment (USDm) 284.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 55,000 m3/d Contract awarded 1992 June

Equity investor Pilecon Engineering Berhad

Equity investor Kembangan Dinamik (M) Sdn Bhd

Equity investor SUEZ (Ondeo)

Johor Southern Water

Johor 20 -year ROT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 1994

Equity investor unknown local investor

SAJ Water Supply

State of Johor 30 -year Concession Total investment (USDm) 59.70

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 1,200,559 m3/d Contract awarded 1999 April

Equity investor SAJ Holdings 85.00%

Technical RWE Thames Water

307 Water Market Asia - Malaysia

Kedah

Langkawi Water

Langkawi Kedah 25 -year O&M Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 1995

Operator Taliworks (Malaysia) Kelantan

Kelantan Water Supply

Kelantan 25 -year Concession Total investment (USDm) 10.00

Sector 1 Water Sector 2 Wastewater Thames was also forced to leave its water supply operation in Kelantan (Malaysia) in 1999. It was privatised in 1995, via Kelantan Waters Sdn Bhd, a 70:30 joint venture between Thames Water and Yayasan Kelantan Darulnaim. The JV was granted a 25-year concession contract worth RM1 billion. By 1998, Kelantan Waters had debts in excess of RM100 million; consumers were forced to deal with low water pressure, supply disruptions and unhygienic water supply; and the federal government had to step in with a RM600-million soft loan. In 1999, the Kelantan state government bought back Thames Water’s 70% stake in Kelantan Waters for RM50 million. Though proﬁ table, Kelantan has one of the lowest rates of water connections, with only 57.5% receiving piped water to their homes; and non- revenue water (NRW) stood at 40% in 2003, above the national average of 37%

Capacity Timeline

Production 600,000 connec Contract awarded 1995 June

Early termination 1999

RWE Thames Water Equity investor Termination! Negeri Sembilan

Kepis Water

Negeri Sembilan 10 -year O&M Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 0 m3/d Contract awarded 1999

Operator Taliworks (Malaysia)

Sungai Terip Water

Negeri Sembilan 10 -year O&M Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 0 m3/d Contract awarded 1999

Operator Taliworks (Malaysia)

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 308 Water Market Asia - Malaysia

Penang

Penang Water Divestiture

Penang Divestiture Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Distribution 1,400,000 pop Contract awarded 2000 n/a

Production 800,000 m3/d

Equity investor IPO (public listing) 25.00%

Perak

Greater Ipoh Water Supply Phase 2

Ipoh Perak 35 -year BOT Total investment (USDm) 64.70

Sector 1 Water Sector 2 No data In 1998 Veolia bought a 30% stake in Intan Utilities which operates the water facilities for the city of Ipoh, the capital of Perak state. Veolia sold its 30% stake back in to Intan, which is now looking for a buyer.

Capacity Timeline

Production 334,000 m3/d Contract awarded 1989 June

Equity investor Intan Utilities 40.00%

Taiping Water Supply Project

Taiping Perak State 20 -year BOT Total investment (USDm) 18.60

Sector 1 Water Sector 2 No data

Capacity Timeline

Distribution 300,000 pop Contract awarded 1989 November

Production 110,000 m3/d

Equity investor Wembley Industries Holdings

Equity investor Sisma Water Technologies SDN Berhad

Equity investor Gopeng Berhad

Equity investor SUEZ (Degremont)

Sabah

Jetama Water Supply

Kota Kinabalu Sabah 20 -year Concession Total investment (USDm) 1,271.00

Sector 1 Water Sector 2 No data One operation is a bulk water supply BOT in Kota Kinabalu, Sabah state, which started in 1993 through the subsidiary Jetama Sdn. Bhd (Ondeo Services), one of three such BOTs set up by the Sabah state government. According to the ADB review, the contract is a success; however, the state has found it impossible to pay the price set by the agreements, as the total revenue collected from water users (Ringit 60-65m) is far less than the amounts it has to pay to the contract companies (Ringit 165m). As a result the state is seeking to privatise the entire water distribution system, to a Malaysian company, Ranhill Utilities: the state chief minister said “the contract was being scrutinised to ensure that the clauses were not lop-sided.. the weaknesses of previous water privatisation deals should not be repeated.”

309 Water Market Asia - Malaysia

Capacity Timeline

Distribution 500,000 pop Contract awarded 1992 June

Production 11,400 m3/d

Equity investor John Holland (Malaysia) 10.00%

Equity investor SUEZ (Degremont) 35.00%

Labuan Water Supply

Labuan Sabah 15 -year BOT Total investment (USDm) 44.00

Sector 1 Water Sector 2 Wastewater

This contract was not renewed after 2002.

Capacity Timeline

Distribution 61 km Contract awarded 1987 January

Equity investor Promet Bhd.

Equity investor Leighton Holdings

Equity investor IPCO International Ltd.

Lahad Datu Water

Lahad Datu Sabah 20 -year BOT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 72,000 m3/d Contract awarded 1995

Equity investor IPCO International Ltd.

Sabah State Water Supply

n/a Sabah Concession Total investment (USDm) n/a

Sector 1 Water Sector 2 No data The state is seeking to privatise the entire water distribution system. The buyer is a Malaysian company, Ranhill Utilities. Discussions have been dragging on.

Capacity Timeline

Production n/a m3/d Announced 2004 April Opportunity!! Timatch Water

Timtach Sabah 20 -year Concession Total investment (USDm) 58.00

Sector 1 Water Sector 2 No data

www.timatch.net

Capacity Timeline

Production 185,000 m3/d Contract awarded 1993

Equity investor RWE Thames Water

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 310 Water Market Asia - Malaysia

Selangor

SYABAS Water

Selangor 30 -year Concession Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 3,130,000 m3/d Contract awarded 2005 March

Equity investor Puncak Niaga Holdings Berhad 70.00%

Selangor Water Phase III

Selangor 30 -year BOT Total investment (USDm) 526.00

Sector 1 Water Sector 2 Wastewater

Capacity Timeline

Distribution 2,000,000 connec Contract awarded 1999 March

Production 800,000 m3/d

Equity investor Sweet Water Alliance (Malaysia) 40.00%

Equity investor Gamuda 30.00%

Investment vehicle Syarikat Pengular Air Sungai Selangor Sdn Bhd 70.00%

Selangor Water Phase II

Selangor 26 -year BOT Total investment (USDm) 519.80

Sector 1 Water Sector 2 No data

Veolia used to have a stake in this project and left in 2004.

Capacity Timeline

Production 950,000 m3/d Contract awarded 1996 June

Equity investor Puncak Niaga Holdings Berhad

Selangor Water Phase I

Selangor 26 -year O&M Total investment (USDm) 90.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 1,121,400 m3/d Contract awarded 1994 December

Early termination 2005 October Termination!

Equity investor Veolia Environnement

Equity investor Puncak Niaga Holdings Berhad

311 Water Market Asia - Malaysia

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 312 Water Market Asia - Nepal

Nepal

Political instability is holding back economic development. Civil distrurbance and frequent strikes prevent businesses from operating normally. Nepal has so far completely failed to reform and develop its water and sanitation sector. Levels of coverage are very low and repeated attempts to introduce private sector participation have failed to attract any attention amongst investors. Apart from the odd World Bank/ADB project, there are very few opportunities for private players in Nepal. The only signiﬁ cant donor programme, the US$460m Malamchi water supply project, has been held up by political interference, accusations of corruption and the government’s failure to meet loan conditions.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Non-existent Repeated attempts to introduce Future Opportunities None PSP have all failed. Local competition Negligible Equipment Markets Comments Future Opportunities Few Only IFI-led projects make any Local competition Negligible sense in Nepal. Public Utilities Comments Track record Very Bad Performance is very weak, with Sustainability Poor only a few areas having decent coverage and service. Reliance on ODA Very High Government Comments Commitment to deliver service No Repeated reforms and plans all Fiscal Resources Very limited failed to be implemented. Economy & Finance Comments Recovery since Asian crisis 1997 Below average One of the poorest economies in Local capital market Non-existent the region

313 Water Market Asia - Nepal

I. General Information rebellion in rural areas, which began in 1996 and has been growing in strength since then. Nepal is one of the poorest countries in the world, with GNI per capita of only US$260. It has a population of just over 25 million. Govern- In 2001, the Crown Prince, Dipendra, shot dead the King and Queen, ment revenues are dominated by donor funds amounting to around before shooting himself. The new King, Gyanendra, took power in No- US$500m each year, equivalent to about US$20 per person. Its larg- vember 2001 and subsequently dissolved Parliament. National elec- est donor is India and its economy and fi nancial system are deeply tions due to be held in November 2002 were put off indefi nitely and the interconnected with the Indian economy. The country is largely rural, King took direct control of the Army, ordering fi erce repression of the with agriculture accounting for 40% of output, compared to 23% for Maoist rebellion. The military crack-down proved ineffective in ending industry. the rebellion and it is now estimated that there are 10-15,000 armed rebels throughout the country. Some rural areas are entirely under I.1 Macroeconomic Situation control of the insurgents and the rebels have regularly brought the Growth rates are unstable, partly because general strikes called by country to a standstill by calling general strikes in Kathmandu. Their the Maoist rebellion regularly bring the economy to a standstill. In key demand is to replace the monarchy with a republican system, 2002, the economy shrank, but recovered in 2003-4 to grow at 3-4% while more moderate opposition groups are calling for the restoration and it is expected to continue growing at this rate in 2005-7. Nepal’s of democratic process. rate of growth in 2004 was below that of all the other countries in In February 2005, the King sacked the Prime Minister, declared a South, South-East and East Asia, although it exceeds the country’s state of emergency and assumed direct rule. New laws on press cen- level of population growth of 2% a year, leading to slowly increasing sorship and restrictions on demonstrations were introduced. 250 of- per capita income. Other macroeconomic indicators are satisfactory: fi cials were detained. As a result, several governments suspended aid infl ation is below 5%, debt service accounts for 6% of exports and to Nepal, but India has softened its stance and restored relations. The interest and exchange rates are relatively stable. However, political state of emergency was lifted at the end of April 2005 but the King has instability threatens to undermine the performance of the economy retained extraordinary powers. Strict censorship laws remain in place at any time. and popular demonstrations and strikes are banned in and around Nepal’s infrastructure coverage is very poor, in part because of the Kathmandu. country’s mountainous terrain. Only 30% of roads are paved, and only 17% of the population has a telephone connection. Health and educa- II. Water tion indicators are also poor: only 35% of women are literate, com- II.1 Sector Policy & Structure pared to 63% of men. This refl ects in part the fact that large sections of the rural population are effectively cut off from social and develop- Policy mental expenditure. Nepal has given a high priority to the water and sanitation sector, allocating 6% of its development budget to this between 1996-2001. The large urban areas including the capital are located in the Kath- However, performance of the sector is generally poor. mandu Valley. Kathmandu itself has a population of 11 million (including the large ‘fl oating’ population of non-permanent residents). Key policy documents include: the National Water Sector Policy and Strategy, 1988, the draft National Sanitation Policy, 2002, the 10th Na- I.2 Political & Investment Environment tional Development Plan, Nepal’s Medium-Term Expenditure Frame- Nepal’s political situation in recent years has been turbulent. The work, and Nepal’s Poverty Reduction Strategy Plan. country’s fi rst democratic election took place in 1991, putting an end The Ninth Five Year Plan (1997-2002) estimated national urban water to the absolute monarchy. However, disillusionment with superfi cial supply coverage at 62.5%, and set a target for 100% coverage by politics and the plight of the rural poor has lent support to a Maoist

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 8.00 2006 7,161 6.00 2005 6,952 4.00 2004 6,717 2.00 0.00 6,400 6,500 6,600 6,700 6,800 6,900 7,000 7,100 7,200 -2.00 1998 1999 2000 2001 2002 2003 2004 2005 2006

Nepal Dev eloping Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean)

12.00 10.00 Chart 1.3: 2004 Sector Share of GDP 8.00 6.00 Serv ices 4.00 Agricult. 40% 2.00 0.25 0.25 40% 0.00 0.00 0.00 -0.11 0.00 -2.00 1998 1999 2000 2001 2002 2003 2004 Nepal Dev eloping Asia (mean) Industry High Income Asia (mean) 20%

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 314 Water Market Asia - Nepal

Table 1.1: Sovereign Risk Indicators Nepal Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 131.91 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 66.75 59.60 50.84 Short Term Debt / Total Debt 2004 (%) 2.02 10.49 n/a Fitch Sovereign Rating (2004) n/a

Table 1.2: Legal Risk Indicators 2004 Nepal Developing Asia High Income Asia Time to enforce a contract (days) 350.00 392.62 103.67 Time to register property (days) n/a 62.82 16.50 Time to resolve insolvency (years) 5.00 4.45 1.15 Time to start a business (days) 21.00 67.08 14.33 Legal rights of borrowers and lenders (0=no credit access) 4.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Nepal Developing Asia High Income Asia Political Rights 4.00 4.23 2.43 Civil Rights 5.00 4.69 2.14 Corruption Perception 2.80 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 Nepal Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 19.64 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 17.83 185.54 1,281.59 Roads, paved (% of total roads) 30.80 44.75 75.32 Electric power consumption (kwh per capita) 63.59 717.46 7,505.93 Water supply failures (days) 5.60 10.00 n/a

Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%) n/a n/a 8 0.00

-1.00 2002 2003 2004 2005 2006 6 -2.00 -1.50 -1.70 4 2.91 2.40 -3.00 1.90 -3.00 2 -4.00 0.30 -5.00 0 2003 2004 2005 2006 -2 Nepal Dev eloping Asia (mean) High Income Asia (mean)

Nepal Dev eloping Asia (mean) High Income Asia (mean)

Chart 1.7: Inflation Rate 1999-2004 (%) the end of the plan period. The National Water Supply Sector Policy (1998) specifi es these points: 16.00 - redefi ning the roles and responsibility of existing sector institutions 14.00 for effective and effi cient service delivery; 12.00 -facilitate decentralised operations ; 10.00 - develop partnerships with the private sector, NGOs, and community based organisations; 8.00 7.45 - develop alternative institutions to enhance existing service levels in 6.00 5.71 urban water supply services and promote the involvement of the private sector; 4.00 3.03 2.79 - develop technical and institutional capacity to reduce losses; 2.00 2.48 2.69 - increase tariffs to cost recovery levels; 0.00 Little progress has been made in these reforms. No new sector institu- -2.00 1999 2000 2001 2002 2003 2004 tions or strategies have been developed and implemented and there has been no success so far in establishing a PSP project.

Nepal A National Water Resources Strategy and National Water Plan currently is under preparation with the main objectives to develop a set Dev eloping Asia (mean) of speciﬁ c short, medium and long term action plans for the water sector including programmes and projects, investments and human High Income Asia (mean) resources.

315 Water Market Asia - Nepal

Structure Main Cities of Nepal (2001) Population '000 The Ministry of Physical Planning and Works (MPPW) is responsible Kathmandu 671.80 for formulating policies and plans in the water sector, and, in close co- Biratnagar 166.60 ordination with the National Planning Commission (NPC), it is respon- Birgunj 112.40 sible for overall national and sectoral planning including the annual Lalitpur 162.90 development plans. The MPPW is also responsible for the implementation of infrastructure works. Pokhara 156.30

It is ultimately responsible for all water supply and wastewater servic- Rural areas es in the country. It reviews and approves sector plans, policies, and development budgets. It also supervises several sector institutions, The institutional context of the rural WSS sector in Nepal is changing including the Department of Water Supply and Sewerage (DWSS), as a result of decentralisation. the Nepal Water Supply Corporation (NWSC), the Rural Water Sup- The Local Self-Governance Act (LSGA) of 1999 mandates decentrali- ply and Sanitation Fund Board, and the Town Development Fund. sation from central to local levels and outlines the roles of the local The responsibility for water supply and wastewater services lies with authorities at district and village levels. The LSGA is clear that district NWSC. and village authorities will be taking increasing responsibility for plan- Under the current arrangements, there are frequent overlaps in agen- ning and providing rural infrastructure, including water and sanitation. cy responsibilities and a lack of clarity in incentives and roles. For District development planning activities, ongoing for several years, example, the functions of management, asset ownership, corporate have resulted in district periodic plans for most districts. The LSGA governance, tariff-setting, service monitoring, and capital expansion requires that line ministry departments such as the DWSS no longer planning in the Kathmandu utility are all bundled under the Ministry, implement subprojects at the district or village levels as they had in and none of these functions has been insulated from political interfer- the past. But the Government’s decentralisation efforts have yet to be ence. fi rmly institutionalised, and there are clear confl icts among line ministries themselves as to how and when transfer of responsibilities and The main sector agencies are: associated budgets will effectively take place. - Department of Water Supply and Sewerage (DWSS), The DWSS, under MPPW, has been responsible for water supply - Nepal Water Supply Corporation (NWSC) in semiurban and rural areas. It is required to hand over completed schemes to local authorities and water user groups for O&M. - Rural Water Supply and Sanitation Fund Development Board DWSS has been unable to adequately address issues, in the past, All these agencies report to the (MPPW). with regard to gender, participation, and NGO involvement. The Gov- ernment is restructuring DWSS by changing its role from implemen- Urban Supplies tation to facilitation (technical support, regulation, quality control and Water supply in Kathmandu and other urban areas in the Kathmandu monitoring, etc.). Planning and implementing of smaller schemes will Valley (Lalitpur, Bhaktapur, Kirtipur and Madhyapur) and through- be decentralised to the district level and benefi ciary communities. out the country is supplied by the Nepal Water Supply Corporation (NWSC). In total, the NWSC has responsibility for supplies to 27 of Government policy is to include local authorities and communities in the larger urban areas. planning and implementing of rural WSS projects, with communities contributing at least 20% of capital costs and becoming owners of the The NWSC was preceded by the Water Supply and Sewerage Board assets; to delegate O&M of schemes to water user groups; and to which was set up in 1973 as a semi-autonomous government agency, conduct public awareness campaigns to educate consumers about with responsibility for all major urban areas. In 1984, the Board was water as a scarce resource and the relationship between water, sani- transformed into the Water Supply and Sewerage Corporation in a tation, and health. move that was intended to give the agency more independence and better effi ciency incentives. Local government services are monitored and supported in central government by the Ministry of Local Government, which is also in In 1990 the WSSC was converted into the NWSC in reforms intended charge of rural development. to give the company greater autonomy, including the right to revise the water tariff. Members of the Board are appointed by the government. Many non-governmental agencies have initiated programs to provide village and small-town water supply and sanitation services directly The NWSC has never managed to operate as an autonomous cor- with communities and they have been active at the community level in poration free from government interference, although on paper is has implementing donor-funded projects. More than 80 local and national signifi cant autonomy in its day-to-day management. In practice, it is organisations have been involved in implementing these projects. chronically dependent on operating subsidies from the national government and tends to function more like a civil service department Informal service suppliers and alternative sources than a commercial utility. To compensate for the lack of network water, the poor use a wide After several donor-funded programmes for sector reform, little has variety of sources of water, including traditional sources such as dug changed in the operation of the NWSC. Donors have therefore pushed wells and ‘stone spouts’ (ancient water points served by spring water the government to engage the private sector in the management of piped from outside the city). the company. So far, these efforts to introduce PSP have made little They rely mostly on shallow groundwater. Many poor households have progress. inexpensive suction handpumps (installed for much less than the cost NWSC is not the sole supplier of water in the Kathmandu valley. Many of a connection), and many of the NGO fi nanced water points are sup- commercial and industrial operations, and some individual house- plied by shared shallow tubewells. The poor also rely on water from holds, draw their water from their own wells, and numerous private free public standposts, which are paid for by the Ministry of Finance. operators provide tanker supplies. NWSC has a policy of not installing any new free standposts. Service Private tankers generally source water from springs and do not use at these standposts is unreliable in the extreme due to intermittent NWSC water supplies. Tanker supplies are unregulated both in terms supply; as a result some public water points have been fi tted with of quality and price. The on-selling of NWSC water is also unrestricted, tanks which are fi lled by NWSC tankers. NWSC tankers also bring and there are examples of this being done on a commercial basis. water to poor communities in times of extreme water stress, but this service is sporadic. Towns There are private NWSC connections in some poor neighborhoods, The DWSS is responsible for water services in 30 smaller towns. but these are usually heavily shared. These practices are resulting in DWSS also implements a large share of government-funded rural wa- the unsustainable exploitation of aquifers, with shallow levels increas- ter supply and sanitation schemes ingly at risk of pollution.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 316 Water Market Asia - Nepal

Table 2.1: Income Level Nepal Developing Asia High Income Asia GDP per capita 2004 (US$) 240.90 1,104.30 23,628.57 Population on less US$1 per day 2004 (%) 39.00 18.23 0.00 Unemployment 2004 (%) n/a 6.73 4.89

Table 2.2: Area & Population Nepal Developing Asia High Income Asia Population Growth 2003 (%) 2.26 1.67 0.64 Urban Population Growth 2003 (%) 5.21 3.48 1.18 Population Density 2002 (pop/km2) 167.20 231.45 2,335.17 Area (thousands Ha) 14,718.00

Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban (millions) Population (%) 12.87 26.00 25.44 13.00 25.50 24.89 12.50 25.00 24.33 12.50 12.19 24.50 23.79 11.90 24.00 23.25 12.00 23.50 23.00 11.50 22.50 22.00 11.00 2000 2001 2002 2003 2004 2000 2001 2002 2003

Table 3.1: Water Service Coverage Indicators 2002 (%) Nepal Developing Asia High Income Asia Population with Access to Improved Water 88.00 76.85 100.00 Households Connected n/a 22.27 99.00 Urban Population with Access n/a 86.17 100.00 Urban Households Connected 62.50 48.27 99.50 Rural Population with Access n/a 71.42 100.00 Rural Households Connected n/a 14.58 97.00

Table 3.2: Water Resources Nepal Precipitation Volume 2002 (bn m3/yr) 220.77 Precipitation Depth 2002 (mm/yr) 1,500.00 Groundwater: produced internally 1998-2002 (bn m3/yr) 20.00 Surface water: produced internally 1998-2002 (bn m3/yr) 198.20 Overlap: surface and groundwater 1998-2002 (bn m3/yr) 20.00 Water resources: total internal renewable 1998-2002 (bn m3/yr) 198.20 Water resources: total external 1998-2002 (bn m3/yr) 12.00 Water resources: total renewable 1998-2002 (bn m3/yr) 210.20 Agricultural water withdrawal 1998-2002 (bn m3/yr) 9.82 Domestic water withdrawal 1998-2002 (bn m3/yr) 0.30 Industrial water withdrawal 1998-2002 (bn m3/yr) 0.06 Total water withdrawal 1998-2002 (bn m3/yr) 10.18

Table 3.3: Water Resources II Nepal Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 8,053.96 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 8,541.59 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 413.67 507.25 544.73 Dependency ratio 1998-2002 (%) 5.71 33.33 1.39 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 4.67 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 4.84 16.19 13.19

317 Water Market Asia - Nepal

II.2 Financing and has proposed a performance-based management contract. The management contract involves the recruitment of an experienced op- About 5-7% of Nepal’s development budget is allocated to the wa- erator to provide a management team backed up by corporate tech- ter and sanitation sector. Of this, two thirds is fi nanced by external nical support to improve the utility’s performance. The remuneration sources. (ADB project report community based WSS 2003). Grants of the operator is based on a combination of a fi xed base fee and and loans from donors therefore constitute the bulk of capital fi nance additional rewards/bonuses for either achieving or exceeding specifi c for the sector. performance targets. The proposed management contract allows the IFIs have been involved in improving the effi ciency of Kathmandu’s operator to develop an investment plan for rehabilitation and main- water sector since 1989 when an IDA-funded $71m ($60m from IDA) tenance which would be implemented with funds from an Operating project to rehabilitate the network was agreed. However, due to non- Investment Fund. Capital investment in network extension is treated compliance with some of the requirements, $39m of the loan was can- separately. celled in 1997. Later, Japanese assistance helped to rehabilitate one This model is thought to be more manageable than the lease model water source and add capacity to the system. as there is some experience with management contracts in Nepal. NWSC has experienced a series of fi nancial crises as a result of insuf- However, these contracts have been on a fi xed-fee basis and they fi cient and delayed tariff increases. Consequently, the company has have been designed for relatively short interventions. Government had problems in fi nding the fi nancial resources to provide counterpart agencies have not so far engaged in a long-term contract with strong funding for projects or to manage a proper programme of network performance incentives. maintenance, replacement, and extension. After numerous delays, the project was tendered but only one com- The fi nancial performance of NWSC has deteriorated over the past pany submitted a bid by the close in late 2005. It is unclear at this few years. User charges covered 100% of operating expenses in stage how the authorities intend to deal with this outcome. 1998, but only 88.9% in 1999 and 84% in 2000. If capital-related charges such as depreciation and interest are included, user charges II.4 Tariffs cover barely 50% of costs. Despite the measures taken to reschedule There is a high level of subsidy for access and regulatory systems are debt service (including the conversion of dues to IDA into Government weak, although at the same time user awareness of demand/supply equity), the lack of internal cash generation has prevented NWSC conditions is high. Tariff structures for drinking water are designed to from investing at a scale that would match demand growth or make a encourage conservation, but the effects are not yet seen in reduced dent in its service backlog, or even keep its existing assets in working consumption. condition. A progressive block tariff is used, but it is hard to implement with faulty Funding agencies have in fact worsened the tariff problem by failing to metering, does little to help the poor (few are connected individually, pursue consistent policies on the conditions of their assistance. Tariff and in shared supplies multiple families under one meter risk being in increases were required as conditions of appraisal and effectiveness the higher tariff blocks), and benefi ts mainly middle class customers in for the World Bank Rehabilitation Project, but these conditions were areas that have relatively better service. either waived or delayed, and NWSC failed to comply with several loan covenants concerning its fi nancial performance. Since the end of II.5 Regulation the World Bank project, there has been one signifi cant tariff increase Regulatory functions are currently carried out by the MPPW and the in February 2002 but the fi nancial condition of NWSC is serious and MLG. There is no independent regulation. In principle, the NWSC has the company is barely able to cover its operating costs. These fi nan- the autonomy to set tariffs for urban areas but in practice political in- cial problems are exacerbated by the lack of management accounting tervention in the tariff-setting process has been frequent. information and dubious accounting practices. Regulatory reforms have been proposed and discussed under sev- II.3 Private Sector Participation eral donor-sponsored projects, but not implemented. Five years ago, the government had considered the creation of a National Regulatory Efforts to engage the private sector in the water and sanitation sector Board in the context of the World Bank project and to form a Kath- have made limited progress, despite extensive donor involvement and mandu Valley Water Authority as an Asset Holding Company for the technical assistance in the selection of PSP model, contract design infrastructure assets. and tendering etc. More recently, the ADB has supported a project to reform water ser- In the 1990s, the government entered into discussions with the World vice institutions in the context of the multi-donor Melamchi water sup- Bank to fi nance the institutional reform of the sector in the context of ply project. It has proposed setting up three new institutions: the Water the Kathmandu Water Supply Project which envisaged the provision Authority (WA), the Water Utility Operator (WUO) for the Kathmandu of funds for rehabilitation of the network in urban areas and the in- Valley and the NWRSB (National Water Supply Regulatory Board). volvement of the private sector in the form of a management or lease contract. Various options for PSP in the provision of water services The reforms provide for a Water Authority with the following func- in the metropolitan/urban areas of Kathmandu Valley were examined tions: fi rst by the World Bank. - act as the asset owner of the systems in the metropolitan/urban ar- Firstly, a full privatisation or a concession contract for 20-plus years eas of Kathmandu Valley. In due course, the infrastructure developed was considered but found to be extremely risky for any potential in- under the Melamchi project will be transferred to the WA as well. As vestor/operator without very large incentives to induce fi rms to bid. the asset owner, the WA will be responsible for ensuring the develop- Further, the consultants expressed concerns about how to overcome ment of the additional infrastructure required for the expansion of the fi erce public resistance to the privatisation of water supply. water supply and wastewater systems in the future. Major projects to develop infrastructure for additional interbasin raw water transfer The World Bank then supported a 10-year affermage/lease model for schemes will also be the responsibilities of the WA, and may be del- PSP under which the network assets were to be managed by a private egated to a body established specifi cally for that purpose; operator. This operator would have been required to make limited investments in improving the network but it would not have borne the full - award and monitor a licence for the operation and management of revenue and investment risks associated with a concession. the water supply and wastewater systems serving the metropolitan/urban areas of Kathmandu Valley; and to award and monitor contract(s) Two separate efforts to implement this arrangement had to be can- for the operation and maintenance of the interbasin raw water transfer celled because too few fi rms with appropriate experience were will- scheme infrastructure constructed under MWSP and any subsequent ing to prequalify. This demonstrated that potential bidders regarded projects; the risks of operating water services in Kathmandu Valley as too high relative to the investment of effort and funds required. The World - develop and oversee the implementation of policies for water supply Bank ceased to pursue the project after the failure of the second bid and wastewater services in Kathmandu Valley; in 2001. - identify the need and obtain funding for future development of the In 2003, the ADB took up the PSP design project from the World Bank water supplyand wastewater systems.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 318 Water Market Asia - Nepal

Table 3.4: Tariffs City Charge Rupees Non-metered house connections flat rate 176.00/month Metered charges <10m3 increasing block Min charge >10m3 increasing block 9.70/m3 Source: World Bank 2001

Chart 3.1: Water Uses 2002 (%)

Chart 3.2: Fresh Water per Capita 1999-2004 Dom. Indus. (m3/head) 1% 3% 9,250 9,206 9,200 9,153 9,122 9,116 9,150 9,098 9,091 9,100 9,050 9,000 Agricult. 1999 2000 2001 2002 2003 2004 96%

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) Nepal Developing Asia High Income Asia Population with Access to Improved Sanitation n/a 54.64 100.00 Households Connected n/a 7.22 99.29 Urban Population with Access n/a 77.09 100.00 Urban Households Connected n/a 18.11 99.00 Rural Population with Access n/a 48.08 100.00 Rural Households Connected n/a 2.57 90.00

Table 4.2: Water Pollution 2001 (% of total BOD Emissions) Nepal Developing Asia High Income Asia Water pollution, chemical industry 3.92 9.94 8.81 Water pollution, clay and glass industry 1.18 0.46 0.15 Water pollution, food industry 43.28 43.27 42.73 Water pollution, metal industry 1.54 7.62 4.84 Water pollution, other industry 0.98 6.08 13.17 Water pollution, paper and pulp industry 8.10 9.38 26.14 Water pollution, textile industry 39.00 21.17 8.17 Water pollution, wood industry 2.00 2.67 2.17

Box 1: Melamchi Water Supply Project The Kathmandu urban area suffers from water shortages and poor quality raw water. The government has long appreciated the need to develop new water sources for the city and secured development assistance to this end, but the project has been held up for years. In a series of Government studies, dating back to 1988, the MWSP was identiﬁ ed as the most appropriate long-term solution to the valley’s water shortage problem. On completion, the MWSP was intended to divert 510,000 m3/day of water from the Melamchi, Yangri, and Larke rivers to the Kath- mandu Valley for a total project cost of US$464m.

Originally, the project envisaged major augmentation of supply through an inter-basin transfer of water, new water treatment plant, extension of bulk distribution network and storage capacity, and, waste water treatment capacity. The largest single component of the project was a 28 km x 7.5 m2 gravity water conveyance tunnel to transfer water and a bulk distribution system comprising 54 km of mostly gravity-fed mains for bulk water transmission

The Melamchi Project is a multi-donor project (ADB, NORAD, JBIC, SIDA, NDF, OPEC), in preparation by the Melamchi Water Supply Develop- ment Board (MWSDB). The ADB is the lead agency ﬁ nancing the project, providing a US$120m loan, while US$80m is coming from the World Bank.

The ﬁ rst stage of the MWSP will convey 170 MLD, which, in combination with the existing water sources and the Japan International Coopera- tion Agency (JICA)-ﬁ nanced Manohara Project (20.7 MLD) which was due to be commissioned in March 2004, will satisfy the water demand of Kathmandu Valley up to 2012. (ADB 2003)

319 Water Market Asia - Nepal

(Source: ADB 2003) The ongoing implementation of water resource development and water supply projects, notably the Japan International Cooperation Agen- The government has given its agreement to this reform programme cy-fi nanced Manohara Project and multi-agency fi nanced Melamchi but has not moved forwards in implementation. Water Supply Project (MWSP), have drawn attention to the great II.6 Performance need to improve the competency and effi ciency of utility management if maximum benefi t is to be gained from these substantial investments NWSC distributes water to 100,000 private connections, including (see Box 1). yard connections, and 1,300 standposts. III. Wastewater Like many other countries in the region, water supply is intermittent and in 2001 most users in Kathmandu received water for less than III.1 Sector Policy & Structure four hours per day, at such low pressure that many people extracted it The problems associated with limited access to sanitation and low lev- from the mains with pumps. A few areas enjoy 24-hour water supply, els of hygiene awareness are extensive and, again are borne dispro- while many other areas do not receive water at all. Only one third of portionately by women and children. The United Nations Development customers have fully plumbed household connections, leaving most Programme (UNDP) reports that diarrhea accounts for up to 25% of with some form of shared supply. Around 12% of the population has all childhood deaths in the country. In terms of national morbidity pat- no access at all to piped water supplies. terns, ailments related to inadequate water and sanitation account for Service connections are of the ‘spaghetti’ type: small diameter (15mm) almost 72% of all ailments reported. Sanitation coverage in 1997 was galvanised iron pipes laid at very shallow depths often with long exten- 61% in urban areas and only 17.5% in rural areas. sions. This leads to high level of physical and commercial leakage. There is no bulk metering at sources and reservoirs so measures of Structure production are not accurate. About 75% of the service connections The NWSC also supplies sewerage services in three areas Kathman- are metered, but less than half the meters function. As meters create du, Lalitpur (Patan) and Bhaktapur (other towns do not have water- a headloss which further reduces the pressure at the tap, many users borne sewerage). The DWSS is the responsible for sector policy and have removed their own meters, or had NWSC move them to an un- planning. metered supply. As a result, any estimates on water usage, demand, Municipalities are responsible for the provision of public sanitation. production and network effi ciency are highly unreliable. (World Bank There are currently 26 public sanitation facilities in urban areas some 2001). of which are maintained under lease by independent operators, but Poor service quality has led to extensive self-provisioning. For exam- responsibility for household sanitation is not clearly defi ned. It cur- ple, non-domestic small enterprise demand is estimated at just 5% of rently falls somewhere between the municipality and NWSC, but the domestic demand, since most hotels and industries install their own latter is interested only in sewerage, which covers a small portion of ground water supplies or procure tanker services. Kathmandu, Patan and Bhaktapur. (WB 2001) NWSC exhibits many features of ineffi ciency: it has high techni- Policy cal losses, low bill collection effi ciency (approximately 70% of the Nepal’s fi rst national sanitation policy was produced in 1994, and amounts billed), and overstaffi ng; (ii) low tariff level (around 1 to 2% while it prompted some positive initiatives it had little impact on cover- of household income), and a deteriorating trend in pricing with annual age. Generally, the sector focus has been on rural more than urban adjustments (5% per year) insuffi cient to match the high growth in development and water rather than sanitation. operating expenses. In the Ninth Five Year Plan there was a shift away from specifi c al- NRW is around 40%, although the poor quality of data on produc- location to sanitation programmes and only one sanitation project was tion, distribution and use makes it extremely diffi cult to estimate. As of mentioned explicitly, for sewage treatment prior to disposal in the Bag- 2003, the corporation has 2,100 staff of which 1,300 are in the Kath- mati river. Despite this, the plan set very ambitious targets for latrine mandu Valley operations or in overall corporate management and ad- coverage: 40% of the population as a whole (36% for rural areas and ministration; unskilled and semiskilled labor account for 45% of this 60% for urban areas). total. Studies conducted in preparation for the abandoned PSP lease contract estimated surplus staff at around 500. This implied a doubling of coverage within 5 years, but the policy did not specify the institutional mechanisms by which this would be The government intervenes frequently in internal matters like staff re- achieved. With the assistance of UNICEF, DWSS has revised the cruitment or use of vehicles. 1994 Sanitation Policy as of January 2001. (WB 2001) The NWSC is dependent on donor and government funds for its investments, and its management does not have any incentive to ensure III.2 Financing that capital expenditure is effi cient. Rather than engaging in mainte- As for the water sector, the majority of fi nancing comes in the form of nance and rehabilitation of existing assets, the NWSC has responded grants and loans from donors and international fi nancial institutions to deteriorating facilities by seeking new investments to increase the onlent to the NWSC and local governments through the MPPW. supply of water. III.3 PSP Analysts tend to share the view that the NWSC has operated primarily There is no formal participation of the private sector in wastewater as a procurement agency for new works and has not developed the services in Nepal. Small-scale private operators provide septic tank managerial skills and corporate culture required for satisfactory utility installation and maintenance services, although the quality of the fa- management. cilities is generally low and there is no control over the disposal of Problems under NWSC management include: septage. - The distribution system itself has been expanded beyond its ability III.4 Performance to supply water. The structure of the distribution system is extremely Only 17% of households in Kathmandu and 34% in Patan are con- ineffi cient with a multitude of small diameter pipelines often laid in nected to sewers, which mostly discharge untreated sewage into the parallel along the same streets. Bagmati and Bishnumati rivers. Other municipalities, except Bhak- - NWSC has not been able to sustain its NRW-reduction programmes, tapur, do not have sewerage. Attempts to introduce sewage treatment despite funding and support from donors have met with limited success. - Only three out of nine branches of NWSC in Kathmandu are com- Two treatment plants were built under IDA assistance for Kathmandu puterised and the NWSC is unable to produce proper management and Lalitpur (Patan) but have not been operational as little sewage accounts for the whole company or each region fl ows into them; two more in Bhaktapur failed, apparently because farmers blocked the lines and directed sewage on to their fi elds. These problems have prevented the full utilisation of fi nancing made available by donors for the improvement of services. One of the most obvious manifestations of inadequate sanitation in Kathmandu is the Bagmati River, which receives a heavy load from

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 320 Water Market Asia - Nepal

Table 5.1: Donor funded projects for the water and sanitation sector in Nepal 2000-2005 Project Donor Date US$m Community-Based Water Supply and Sanitation Sector ADB 2003 24 Community based approach to expand the coverage of improved WSS facilities to poor and remote areas that have been historically neglected in sectoral development including conflict- afflicted areas; support a range of sectoral support organizations, including both public and private sector and NGOs; support decentralisation efforts

Kathmandu Valley Water Services Sector Development Program ADB 2003 10 Loan to support institutional reforms by introducing private sector participation (PSP) for the management of water supply and wastewater service delivery in the Kathmandu Valley via a performance-based management contract. The loan supports the design of the contract , consulting services for the three new entities (WA, WUO and NWSRB) and the completion of ongoing computerisation of billing and accounting systems for existing NWSC branches in the Kathmandu Valley.

Kathmandu Valley Water Services Sector Development Program ADB 2003 5 Loan to support institutional reforms by establishing the three entities: the Water Authority (WA) and the Water Utility Operator (WUO) for the Kathmandu Valley, and the National Water Supply Regulatory Board (NWSRB). Commercialisation of WUO under a performance-based management contract; staff reductions. Financing for initial operating costs of proposed WA and WUO and support for efficiency measures in the newly formed WUO (using NWSC voluntary retirement scheme)

Melamchi Water Supply Project ADB 2001 464 The Project will improve the health and well-being of the people in Kathmandu Valley by NORAD, alleviating the critical water stress in the region, where 1 million urban dwellers receive piped OPEC, water for only two hours every two days. This will be accomplished by tapping additional water JBIC, resources from the Melamchi River, increasing the water treatment capacity, enhancing access to JICA water, and optimizing the use of existing water resources.

Small Towns Water Supply and Sanitation Sector ADB 2000 54 Loan to assist the Government in implementing a part of its 15-year plan for small towns water supply and sanitation development. The project provides water supply, limited drainage, and sanitation facilities in 40-50 new small towns with average populations of about 12,000 each. Project beneficiaries are about 0.6 million people, of whom more than 34 percent live below the official poverty line

Table 5.2: Selected Donor-funded Projects for Urban Water & Sanitation 1990-2000 Project Donor Date US$ (m) Urban WSS Rehabilitation Project (loan) WB-IDA 1991 60 Kathmandu WSFIP Phase I and II (grant) JICA 1992 28 Management Support to NWSC (grant) UNDP 1992 3.40 Leak detection and Water Control Programme (grant) Norway 1993 2.40 Melamchi Scheme - Feasibility Study (grant) UNDP 1995 0.85

Table 6.1: Useful Contact Contact Name Mr. M.N. Aryal, Secretary between two very much larger nations, which brings particular issues Ministry/Agency Ministry of Physical Planning which must be dealt with in the context of shared water resources. and Works Address Water Resources Telephone No. 977-1-422-7280 Demand in the Kathmandu Valley is estimated at 150MLD (ADB Fax 977-1-422-8420 2003). The combined production capacity of the groundwater and sur- Email [email protected] face water sources in the dry season is between 65 and 85 MLD and [ADB loan for water institutional reform contact person] even in the wet season, the production capacity only reaches 140 MLD. Under these water shortage conditions, NWSC has applied a sewers and open drains as well as suffering pollution from indus- rationing system whereby water is allowed to fl ow to different sections trial effl uent. It is considered a serious public health hazard, but of the metropolitan/urban area in rotation. some communities still use the water for non-drinking purposes. The control system developed by NWSC is complex to implement as Of the latrines in use, many do not provide safe disposal of fae- it requires NWSC staff to open and close over 300 valves every day. ces; either they do not have proper pits at all, or the pits are The result is an inequitable distribution of water, particularly as the not sealed. Households also commonly build septic tanks which areas close to the water sources are very diffi cult to isolate. are improperly designed or other systems that discharge their effl uent directly into street drains or onto river banks. Open-fi eld There is no organised system of water rights or licenses to ensure defecation is still commonly practised in all urban areas. orderly allocation of the limited water resources of the Valley, and agency responsibilities for monitoring and allocating water resources IV. Environment and Legal Aspects are ill-defi ned. There is evidence that groundwater in the Kathmandu IV.1 Water and Wastewater Fundamentals Valley is being mined, and the dropping water table is endangering future supplies. Both surface and groundwater in Kathmandu Valley Nepal has less than 0.4% of the world’s population, but possess- are used for irrigation, and competition between the agricultural and es 2.3% of the world’s water resources. Despite the abundance municipal users is increasing. Deforestation in the Kathmandu Valley of water resources, however, the country’s mountainous terrain has led to rapid runoff of rainfall during the short wet season (June– makes the extension of networks for access to water supply cost- August) and hence, poor replenishment of aquifers. This, combined ly. Kathmandu suffers from serious water resource shortage. with over-abstraction of groundwater, has resulted in low river base Nepal is a land-locked and “upstream riparian” country located fl ows in the dry season.

321 Water Market Asia - Nepal

Water Resources Policy WSS services. The government has conducted a review of the water resources sec- - Department of Water Supply & Sewerage: Lead government agency tor and begun to develop a sector strategy. Policies in some areas for providing WSS services through 5 regional and 70 division and are being revised and adopted and the legal framework for water re- subdivision offi ces sources is undergoing review. Mechanisms for coordination between - WSS Division and Sub-Division Offi ces: Plan, implement, and op- government agencies exist but are weak or unused. Environmental/ erate some larger WSS schemes. Provide technical support to local social impact assessment and mitigation is conducted for new proj- bodies for planning and implementing WSS services ects and the government has taken steps to protect catchment areas and wetland environments. However, little is being done to monitor - Rural Water Supply and Sanitation Fund Development Board: Facili- water quality and wastewater discharges/non-point source pollution, tate implementation of WSS schemes mainly through mobilisation of and the use of both non-structural and structural fl ood mitigation mea- NGOs, community-based organisations and the private sector sures. Water allocation mechanisms are not widely applied, and the - Ministry of Local Development: Supports and strengthens local bod- information base needs to be extended. ies. Provides technical support and training to elected representatives A River Basin Planning Mechanism had been endorsed by the Nation- of local bodies. Assists communities in operation, maintenance, and al Water Resources Strategy, 2002 for the development of the water repair of WSS services. resources sector in Nepal. (ADB 2005) - National Water Resources Development Council (NWRDC) devel- The Water Resources Strategy has targeted to achieve within the next ops the national water resources strategy. fi ve years development and approval of Integrated National Water Re- - Water and Energy Commission (WEC) (and Secretariat): estab- sources Policy, harmonisation and amendment, as necessary, of con- lished in 1975 with the objective of developing the water and energy fl icting laws related to water resources development, amendment of resources in an integrated and accelerated manner. Consequently, a the Electricity Act and its regulation in harmony with newly approved permanent secretariat of WEC was established in 1981 Assists the Hydropower Development Policy, clarifi cation and establishment of government and other related agencies in the formulation of policies equitable water use rights, and improved public communication. and projects for water and energy. The objectives and mandates of Nepal has international water-sharing agreements with two down- WEC and WECS have been revised and modifi ed a number of times stream countries – India and China. since their establishment. Its area of responsibility includes water resources development and use including irrigation and hydropower. IV.2 Laws and Institutions The following agencies also play a role in the sector: There are at least 13 ministries and commissions involved in WSS development and regulation. Several more departments and agencies - Ministry of Water Resources (MOWR) are involved in planning and development programmes, often without - Ministry of Science and Technology (MOST) interagency consultation and coordination. - Ministry of Population and Environment (MOPE) The Water and Energy Commission is the designated Central Plan- ning Unit but lacks binding authority in terms of mandatory adminis- - Ministry of Forest and Soil Conservation (MOFSC) trative sanctions or statutory provisions. There is currently no strong central agency. VI. Sources EIU, ADB, World Bank, Interviews Key institutions - Ministry of Physical Planning and Public Works plays the lead role in WSS sector policy development. Ensures effective implementation of national policy. Establishes effective mechanism for coordination of WSS sector agencies. Oversees activities of agencies providing

Known PSP Projects in Nepal

Kathmandu Water Management

Kathmandu 6 -year O&M Total investment (USDm) n/a

Sector 1 Water Sector 2 Wastewater Management contract with a ﬁ xed fee and performance incentives. The contract is likely to be for six years, with a possible extension. Project status and schedule: One bid was submitted by the revised 5 December 2005 deadline. The procedure to evaluate the bid is being considered by the government.

Capacity Timeline Distribution 1,500,000 pop In tender 2004 July

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 322 Water Market Asia - Pakistan

Pakistan

Pakistan’s central government is now broadly supportive of PSP but plans for water projects in major cities have been abandoned in the past due to public opposition. The government is allocating US$1.2bn to water supply and sanitation projects over a 10-year period, including projects to raise wastewater treatment from the abysmally low level of 1%. Water policy is still focused on irrigation and vested interests will make it extremely diffi cult to redirect resources to domestic and industrial use. A few design build contracts each year may attract international companies like Veolia’s 2005 water treatment deal in Islamabad, but full-blown BOTs or utility O&M contracts still seem a long way off. A growing economy, large infl ow of foreign aid and increasing pressure on resources suggest opportunities for greater private sector involvement but these may be stifl ed by the country’s oppressive bureaucracy and corruption. A few design and build contracts are up for grabs every year but contractors might have to wait to get paid.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Non-existent Veolia signed the first PSP Future Opportunities Few contract in late 2005. Others will not risk it for a while. Local competition Negligible Equipment Markets Comments Future Opportunities Few Medium to large ADB-funded Local competition Negligible projects provide a number of opportunities.

Public Utilities Comments Track record Bad Corruption and inefficiencies are Sustainability Poor proving very hard to root out. Reliance on ODA High Government Comments Commitment to deliver service No Reforms have been slow and Fiscal Resources Limited difficult to implement. Economy & Finance Comments Recovery since Asian crisis 1997 Average A fast growing but volatile and Local capital market Basic unequal economy

323 Water Market Asia - Pakistan

I. General Information I.1 Macroeconomic Situation Pakistan’s large population, reform-minded government and large in- Pakistan’s macroeconomic situation has been improving steadily fl ows of foreign aid make its water and sanitation market a potentially since 2000 and the country is forecast to grow at 7-8% in the 2005- interesting one for international developers and suppliers, despite 2007 period, up from GDP growth of 6.4% in 2004 (chart 1.2). Unem- continued political instability in the country, but there has been little ployment is below 8%. The government’s budget defi cit came down activity so far. The government has successfully privatised large parts to 2.8% of GDP in 2004 (chart 1.6) as a result of an increase in rev- of the fi nancial services, power and telecommunications sectors since enues, although public expenditure on development also increased in reforms were begun in 2002 and intends to extend the scope for pri- 2004, up 25% on 2003. More effi cient tax collection and reforms of the vate sector involvement in infrastructure and utilities. sales tax will support further increases in government spending plans. Expenditure on the social sector is receiving a higher proportion of the Since 2003, the government has been increasing its development ex- government budget, up from 3.8% in 2002/3 to 4.7% in 2003/4. The penditures, part of which is directed towards the expansion of water government is expected to increase social and infrastructure expendi- and sanitation infrastructure. The expansion of basic service provision ture further, including the water and sanitation sector. is a central element of the government’s strategy to deal with insurgency in the tribal regions of the country. In the utilities sector, power and telecommunications performed strongly in 2004, partly as a result of favourable changes in the regula- Urban population growth is creating demand for the extension of tory environment and the introduction of PSP. Construction and large- networks and the improvement of service quality. A key area in need scale manufacturing are also contributing to the growth rate. of improvement is the level of service interruptions. Pakistani urban households typically receive water for only a few hours a day. Infl ation poses a potential threat to the stability of the economy (chart 1.7) but interest rates are at historic lows and real interest rates are Non-governmental and community-based organisations play an im- negative. This has led to a boom in private sector credit and the cen- portant and innovative role in bringing sanitation to the urban poor, tral bank is reluctant to raise rates for fear of stifl ing growth. Pakistan while the informal sector plays an important part in providing water to has a trade defi cit, and its current account surplus in 2004 was sharply poor communities. Around 20% of households in Karachi receive their down from 2003, but it is now expected to stabilise at less than 2% water from informal, small-scale water providers. In some areas, com- of GDP. However, foreign exchange reserves are adequate, external munities have organised to provide their own sewerage services. debt is declining and the exchange rate is stable. Overall, the state of Pakistan has a population of 154m people (2003), which grew by the Pakistani economy has improved greatly since the 1990s and the 2.1% in 2003. Population is expected to grow rapidly in the next two country has benefi ted from large aid infl ows since 2001. In 2003, the decades. The majority of Pakistan’s population is rural, with 34% of US forgave US$1bn of Pakistan’s debts. In August 2005, the World people living in cities but the population is concentrated in the Indus Bank committed to raise lending to Pakistan from an annual US$500m Plain, while the West and North of the country are sparsely popu- to US$1.5bn for at least the 2005-2007 period, making it the Bank’s lated. fi fth largest borrower. Loans are expected to go to the extension of services in water and sanitation, health and education, particularly in The urban population rose at the higher rate of 3.5% in 2003 (table the tribal regions. 3.2). As a result of strong economic growth and increased development spending by the government, poverty has been falling in recent I.2 Political & Investment Environment years, according to a survey of household expenditure conducted by Pakistan’s government faces numerous threats to its stability, despite the Government in early 2004. the strong support of external powers, especially the US. In the tribal This indicated a signifi cant reduction in poverty since 2001, compen- areas bordering Afghanistan, the central government has little control. sating to some extent for a rise in poverty in the 1990s. Troops there are engaged in efforts to track down Taliban and al-Qa-

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 8.00 2006 99,945 6.00 2005 90,131 4.00 2004 79,328 2.00 0.00 0 20,000 40,000 60,000 80,000 100,000 120,000 -2.00 1998 1999 2000 2001 2002 2003 2004 2005 2006

Pakistan Dev eloping Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean)

12.00 10.00 Chart 1.3: 2004 Sector Share of GDP 8.00 Agricult. 6.00 23% 4.00 0.82 0.85 1.40 1.20 2.00 0.50 0.65 0.80 Serv ices 0.00 53% 1998 1999 2000 2001 2002 2003 2004 Industry Pakistan Dev eloping Asia (mean) 24% High Income Asia (mean)

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 324 Water Market Asia - Pakistan

Table 1.1: Sovereign Risk Indicators Pakistan Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 234.00 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 59.30 59.60 50.84 Short Term Debt / Total Debt 2004 (%) 3.43 10.49 n/a Fitch Sovereign Rating (2004) n/a

Table 1.2: Legal Risk Indicators 2004 Pakistan Developing Asia High Income Asia Time to enforce a contract (days) 395.00 392.62 103.67 Time to register property (days) 49.00 62.82 16.50 Time to resolve insolvency (years) 2.80 4.45 1.15 Time to start a business (days) 24.00 67.08 14.33 Legal rights of borrowers and lenders (0=no credit access) 4.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Pakistan Developing Asia High Income Asia Political Rights 5.00 4.23 2.43 Civil Rights 6.00 4.69 2.14 Corruption Perception 2.10 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 Pakistan Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 26.47 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 44.18 185.54 1,281.59 Roads, paved (% of total roads) 56.00 44.75 75.32 Electric power consumption (kwh per capita) 363.39 717.46 7,505.93 Water supply failures (days) 4.50 10.00 n/a

Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%)

8 0.00 -1.00 2002 2003 2004 2005 2006 6 4.34 -2.00 4 -3.00 -2.82 2 -2.91 -3.10 -2.90 -4.00 0 -4.01 -5.00 2003 2004 2005 2006 -2 -1.60 -4 -2.80 -2.70 Pakistan Dev eloping Asia (mean) High Income Asia (mean) Pakistan Dev eloping Asia (mean) High Income Asia (mean) Chart 1.7: Inflation Rate 1999-2004 (%) eda insurgents. These areas are also a major route for smuggling drugs out of Afghanistan. The central government is trying to engage 16.00 the support of tribal leaders in suppressing the insurgency with prom- 14.00 ises of investment in medical and educational facilities and improving access to clean water. In the province of Baluchistan in the West of the 12.00 country, a low-level insurgency by Baluch separatists is ongoing but 10.00 escalated in 2004. Bombings and acts of sabotage directed against 8.00 gas infrastructure were followed by a large military deployment to de- 7.44 fend crucial gas facilities. The central government is also increasing 6.00 its permanent military presence in the area under pressure from the 4.37 US to strengthen the border with Afghanistan and the government 4.00 4.14 2.91 may need to demonstrate its ability to deal with the instability through 2.00 3.15 3.29 a military crackdown. 0.00 Relations with India are periodically infl amed by the Kashmir issue, -2.00 1999 2000 2001 2002 2003 2004 but there was a signifi cant improvement in relations between the two countries in 2004. Both governments have expressed willingness to continue the peace talks and confi dence building measures started in Pakistan 2004. However, India’s plans to dam the Chenab river that fl ows into Dev eloping Asia (mean) Pakistan may heighten tensions once again. In late 2005, the earthquake that hit Kashmir paved the way for limited cooperation to deal High Income Asia (mean) with the humanitarian emergency but did not fulfi l hopes that it would

325 Water Market Asia - Pakistan

Most households use shallow groundwater as their main source of Main Cities of Pakistan (2001) Population Mn water with hand or motorised pumps. In peripheral and underserved Karachi 10.10 areas of towns, water supply is totally missing. There, people use Lahore 5.60 shallow, brackish water, or take water from public standposts where Faisalabad 2.30 available. begin a new episode in relations between the two countries. The informal sector accounts for about 20% of supply in urban areas. In Karachi, for example, there are three main forms of informal provi- In 2002, the government began a far-reaching programme of econom- sion: tanker lorries, operators of donkey carts and manual delivery of ic reform including privatisation, deregulation and the liberalisation of small volumes (usually 30 litres). In low income areas and the cen- trade, which it continues to implement. In February 2005, a majority tral business district, drinking water is purchased and groundwater is stake in the Karachi Electric Supply Company was sold to a Saudi used for washing and cleaning. The main water outlets are the KWSB group and 20% of the shares of the Kot Addu Power Company have hydrants around the city. This water is below potable quality, and is been divested through a stock market issue. The Privatization Com- charged at a set rate (US$0.27). However, private vendors obtain wa- mission has initiated the process of selling off 26% of the Pakistan ter from these hydrants at much lower, illegal rates. Their profi tability Telecommunication Company Limited (PTCL) and transferring man- is therefore very high. About 30% of squatter settlements are served agement control to the private sector. This is expected to be the larg- with water by KWSB through tankers free of charge. est privatisation transaction so far. Telecoms deregulation began in July 2003 and since then, the Pakistan Telecommunication Authority The functioning and structure of the water sector has recently been has issued 12 licenses to various national and international compa- reviewed and a new National Water Policy has been developed and nies for long-distance international services, local loop licenses for was approved by the Cabinet in 2004. Currently, there is a large body urban and rural areas and licences for cellular operators. As a result, of law that needs revision and integration and no institutions exist for the telecoms sector has been growing extremely rapidly. The fi nancial the coordination of water policy across government departments and sector has already been largely privatized leading to greater effi ciency agencies. and the sector is now better able to withstand macroeconomic shocks The new policy provides for an integrated approach to water man- and is expected to grow strongly in the future. agement. In terms of water services, the policy recognises that water The government has introduced a series of measures to streamline and wastewater facilities are inadequate and that the quality of water the taxation system, including making it easier for businesses to pay supplied to consumers is poor as a result of contamination in the dis- taxes and shortening times for tax refunds. The sales tax system has tribution networks, leading to higher infant mortality rates. The policy already been reformed, reducing costs to businesses. assigns a high priority to making an adequate investment in the water and sanitation sector and to provide potable water to ‘most people’ II. Water by 2025. The policy outlines a plan to develop a framework for water II.1 Sector Policy & Structure rights, prioritizing drinking water and industrial use over agriculture. Coverage, quality and reliability of water supply services in urban ar- The policy also clarifi es the government’s support for: eas are poor. According to WHO fi gures, 95% of households in urban - Public-private partnerships in urban water supply. areas have access to an improved water source, but only half the urban population is connected to the piped network. Rural access is - Full fi nancial sustainability for urban water supply development (with- relatively high, given the country’s income level, at 87% but only 9% out a specifi c time frame) have a piped connection and this proportion has fallen since 1990. - Continued subsidies on tariffs to poorer communities and rural ar- The government’s fi gures, as presented in the Draft National Water eas Policy (2004) are somewhat lower: they estimate 85% urban water coverage, and 55% in rural areas. Coverage fi gures vary consider- - Rehabilitation and effi ciency improvements in existing water sup- ably across provinces, with Baluchistan and the North West Frontier ply systems, through justifi able investments, signifi cant reductions in Province, where population is sparse, very poorly served. non-revenue water, increased water metering and other initiatives and raising water quality. Responsibility for water resources and services is currently shared between provinces and the federal government. Irrigation and agricul- The government’s priorities for urban development are set out in the ture are provincial subjects but fl ood control is a federal subject. Drain- Ten Year Perspective Development Plan 2001–2011. The plan envisage is divided between the two levels, with the federal government in ages the decentralization of policy development and implementation charge of inter-provincial drainage. The provision of water and sanita- and prioritises the improvement of water supply and sanitation ser- tion services is the responsibility of the municipal level, known as the vices. The plan envisages providing water supply services to an ad- Tehsil Municipal Administration (TMA) under the Local Government ditional 55 million persons (28 million rural and 27 million urban), thus Ordinance of 2001. The TMA are now meant to provide, manage, op- increasing national service coverage from 63% to 84%. Private sector erate, maintain, and improve municipal infrastructure for water and participation in water supply for major cities is encouraged under this sanitation including the development of water sources and sewerage policy. and sewage treatment and disposal. In rural areas, responsibility for II.2 Financing the maintenance of water facilities lies with the union council. How- ever, TMA have inadequate resources to carry out the functions set In 2002, the government set out its Medium Term Investment Plan out in the law and they have little autonomy in their actions as staff for the water sector to accompany the revised sector policy. The plan are appointed by the provincial administration. TMAs have the status provides for US$3.35bn of ongoing investment projects and US$7.6bn of corporate bodies and in principle these bodies have the power to of investment for the period to 2011. Of this, the majority of the funding contract out the provision of services. will go to water resource management, storage and irrigation projects. A total of US$1.292bn will go to water supply and sanitation over the In the cities, water services are provided by their respective Water and 10 years. 44% of the funds will be spent by the central government Sanitation Agency (WASA) under the Development Planning Author- which will be directed entirely towards irrigation projects. The remain- ity (Lahore, Faisalabad, Rawalpindi, Gujranwala, Multan in Punjab, ing 56% will be spent by provincial governments on the projects de- Quetta in Baluchistan, Hyderabad in Sindh, Peshawar, Mardan and fi ned in the plan. Of the provincial spending, about one quarter of the Sarhad in the NWFP etc) and the Capital Development Authority in funds will be directed towards water supply and sanitation and a small Islamabad. The WASAs are semi-autonomous agencies that are able proportion to environment projects. The total WSS allocation by prov- to engage in co-fi nancing projects. Financing for capital investment is ince is US$735 for Punjab; US$195 for Sindh, US$208 for NWFP and provided through grants and loans from the federal government and US$154 for Baluchistan for ongoing and new projects. from donors. The exception is Karachi, where services are supplied by the Karachi Water and Sewerage Board. The KWSB became inde- Major WSS projects under the MTIP for urban areas include the Fais- pendent of the Karachi Municipal Corporation in 1996. The provincial alabad US$43m water supply and environmental project, a US$334m government has responsibility for the oversight of the Board. allocation for various WSS projects in cities in Punjab outside Lahore, the US$100m Greater Karachi Water Supply Scheme (Phase 4, Stage

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 326 Water Market Asia - Pakistan

Table 2.1: Income Level Pakistan Developing Asia High Income Asia GDP per capita 2004 (US$) 516.00 1,104.30 23,628.57 Population on less US$1 per day 2004 (%) 13.00 18.23 0.00 Unemployment 2004 (%) 7.00 6.73 4.89

Table 2.2: Area & Population Pakistan Developing Asia High Income Asia Population Growth 2003 (%) 2.10 1.67 0.64 Urban Population Growth 2003 (%) 3.47 3.48 1.18 Population Density 2002 (pop/km2) 188.30 231.45 2,335.17 Area (thousands Ha) 79,610.00

Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban 2000-2003 (cst 2000 US$) (millions) 153.69 Population (%) 155.00 34.50 150.69 34.12 405 399.13 150.00 147.66 34.00 33.78 400 144.62 33.44 395 391.03 386.96 145.00 33.50 390 141.55 33.10 385 381.23 140.00 33.00 380 375 135.00 32.50 370 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002 2003

Chart 2.4: Consumer Exp. on Water 1999-2004 (US$m) Chart 2.5: Consumer Exp. on Water Growth Forecast 2005-2009 (%) 283.69 300 268.10 240.93 7.00 250 224.15 6.00 188.25 5.79 5.74 6.04 200 168.59 5.00 5.40 4.57 150 4.00 100 3.00 2.00 50 1.00 0 0.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

2) and the US$55m for sewerage treatment in Peshawar. Pakistan Dev eloping Asia (mean) Operational costs should in principle be covered by utility revenues, but these are generally insuffi cient because of low tariff levels. WASAs High Income Asia (mean) are dependent on transfers from their respective municipal corporations to meet operational defi cits. The agencies are unable to gener- Major infrastructure is owned and managed by the state or by mu- ate investment funds internally. Instead, capital expenditure is funded nicipalities. Community participation has been introduced, but is so mainly through loans and grants from the provincial government. far limited. In rural areas, communities and individuals are widely in- WASAs have high levels of accounts receivable. In Karachi, in 2000, volved in the management of water infrastructure including through this reached almost 18 months of sales. Large portions of accounts Water User Associations. receivable are written off as doubtful debt. Capital expenditures have The Pakistan Poverty Alleviation Fund, established in 1997, fi nances normally been fi nanced by loans and grants from the provincial gov- community income-generating projects, microenterprises, and infra- ernment and utilities regularly fail to service their debts. structure projects, mainly through NGOs and the private sector. In Funds from the Annual Development Program (ADP) and Khushhal April 2000, the Government launched the National Poverty Alleviation Pakistan Program (KPP, federal/provincial grants) are distributed an- Program, with the objectives of stimulating employment and providing nually by the provincial governments to the district level (the level of basic infrastructure and services to rural and low-income urban areas. government below the province) and then redistributed between local The Government increased funding for a small public works program, governments. The allocation of development funds from the province the Khushal Pakistan Program (for informal settlements), which aims to the districts is based on the level of underdevelopment of the dis- to provide gainful employment for the poor, plus develop essential tricts. There are no criteria to allocate development funds to the mu- infrastructure such as farm-to-market roads, water supply schemes, nicipal level, although this is now being developed by a fi nance com- and school repair in rural and low-income urban areas. mission at the provincial level. TMAs also collect certain local taxes Many donors stopped lending to Pakistan after it conducted nuclear but these are totally insuffi cient for the provision of services. tests in 1998. They have now resumed lending and are keen to sup-

327 Water Market Asia - Pakistan port the reformist stance of the government. JBIC, for example, began KWSB provides water by tanker. lending to Pakistan again in 2005. Some utilities have introduced reforms to operational and fi nancial II.3 Private Sector Participation management, usually in the context of donor-funded projects. In Ka- rachi, the KWSB has been under new management since 2000, and There is very limited experience of PSP in the water sector in Pakistan, has introduced measures to improve human resource effi ciency, but despite the government’s policy of private sector involvement in other coverage is still only 50%. It has successfully reduced costs, elimi- infrastructure sectors, notably telecommunications and electricity. nating “ghost” employees and unauthorized allowances from KWSB’s Private sector involvement in water supply in Karachi was considered payroll, and through stricter application of administrative discipline to during the 1990s but it was not pursued. The KWSB instigated a 3- root out corrupt practices. These measures have reduced KWSB’s year O&M contract, renewable annually, for the operation of the Mauri- expenditures by about $1.5 million annually. On the revenue front, pur wastewater plant. The IFC advised the Government of the Punjab KWSB is actively negotiating with the federal and provincial govern- and the District of Lahore on the introduction of the private sector for ments over the payment of their outstanding bills. KWSB regularized water and sanitation services in Lahore through a possible long-term some illegal water connections and disconnected others and has ex- concession. This was envisaged as a model transaction that would panded the computerization of its customer service centres and up- prepare the way for rolling out PSP to other water and sanitation sys- dated its customer database. It is also investing more of its resources tems in Punjab. However, the PSP proposal was abandoned, partly to expand the water supply and sewerage systems into the poor areas as a result of public opposition to private sector involvement in the of Karachi. (ADB) provision of basic services. III. Wastewater At the end of 2005, a new project signed between the Government of Islamabad and Veolia for wastewater facilities suggests that PSP III.1 Sector Policy & Structure in Pakistan may fi nally be becoming a viable option for the structure Performance of the sector. In terms of sanitation, Pakistan’s performance has improved con- II.4 Tariffs siderably since 1990. 2002 fi gures show that 92% of urban dwellers and 35% of the inhabitants of rural areas have access to sanitation, Water services are heavily subsidized by the state and tariffs are low. up from 81% and 19% in 1990, but wastewater treatment is virtually In general, the public views water as a good that should be provided non-existent. Current estimates are that 1% of wastewater is treated. without charge by the state. Revenues of utilities do not come close The government recognises that sewerage infrastructure is highly in- to covering operations and management expenditure, let alone capital adequate and that those sewerage facilities that do exist are largely investment, except in a few cities. In Karachi, tariffs just cover O&M non-operational (Draft NWP 2004). Sewerage networks cover at most expenditure. Expenditure on maintenance is inadequate even to sus- 50% of the population of Pakistan’s major cities. tain existing facilities, resulting in the rapid deterioration of assets. Utilities generate no funds of their own to invest in the extension of In principle, all industries are required to treat their sewage to meet na- service provision. tional environmental quality standards before discharging. However, these standards are not enforced and few industries have put in place Tariffs are set by local or municipal governments given the availability facilities to treat discharges. One exception is the tannery industry in of resources, ability to pay and water conservation concerns. Inevita- Korangi, Karachi, which has installed a wastewater treatment plant. bly, there is public resistance to raising taxes or introducing new taxes Karachi produces about 1.4million m3/d of which 30% is treated by the to support the delivery of services. plants of the KWSB. The rest is drained into the sea untreated. In Karachi, currently tariffs paid by most consumers are charges based on the fl oor area or net annual rental value of their premises. Structure There is no metering, and the utility is reluctant to move to a per unit The sector structure is the same as for water. In the main cities, water charge which would lead to a decrease in its revenues. Tariffs had boards, fully owned by the municipal corporation, are responsible for been increased regularly during the 1990s, but have not been in- the provision of sewerage as well as water supply. creased since 1998. Independent provision in the form of household septic tanks covers II.5 Regulation between 5-20% of the population. NGOs and CBOs play an important role. Exceptionally, in the informal settlement of Orangi (Karachi), the WASAs are self-regulating, while tariffs are set by the provincial gov- community has organised to construct and maintain a piped sewerage ernment. system. The system is part-funded by donor contributions and partly Local government agencies are supervised by the provincial Local by user fees and is one of the most advanced examples of communi- Development and Rural Development Departments (LGRDs), which ty-run sanitation networks in the world. The high degree of civil society support and monitor progress of the transfer of responsibilities for wa- mobilisation in Karachi and elsewhere in Pakistan has also been the ter and sanitation service provision to local government, including all source of resistance to privatisation. required adjustments and improvements in institutional and organizational setups and fi nancial management. Policy The National Water Policy (2004) specifi es targets for hygienic sanita- II.6 Performance tion facilities of 80% coverage of the urban population by 2025 through Systems for water supply, sewerage, and solid waste collection suffer waterborne sewerage systems and wastewater treatment and 50% of greatly from poor operations and maintenance. The provincial govern- the rural population. ment often designed and constructed the water supply systems, then The Ten Year Perspective Development Plan (2001–2011) for urban turned them over to the local government for O&M. Local government development targets the extension of sanitation facilities to an addi- have had problems in dealing with the gaps between system design tional 54 million people (26 million rural and 28 million urban), thus and realised consumer demand, which was often greatly over-esti- increasing national sanitation coverage from 39% to 63%. mated. This has led to poor utilization of those systems, resulting in poor cost recovery and the need for permanent subsidies from local Currently, Pakistan’s regulations forbid the discharge of untreated government budgets. industrial effl uent. However, most effl uent is discharged into surface water bodies, including water courses and the Arabian Sea. The gov- Financial performance of utilities is weak as a result of below-cost ernment recognises the problems caused by the pollution of waters tariffs. High levels of accounts receivable is a chronic problem for the by discharges in the draft National Water Policy and sets out steps to WASAs and the federal government, provincial government and mu- remedy the situation, including encouraging industries to treat waste- nicipal government all fail to pay their bills promptly. Operating costs water on-site according to the new standards and legislation and the are infl ated by excessive staffi ng levels. However, operating costs can polluter pays principle and to enforce effective implementation of effl u- be driven up by diffi cult conditions: in Karachi, the Pakistan military ent disposal standards. However, the problem with the new standards assists the KWSB to ensure that the water is delivered to the intended will be implementation, which has been extremely weak until now. benefi ciaries and sold at the prescribed price in those areas where

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 328 Water Market Asia - Pakistan

Table 3.1: Water Service Coverage Indicators 2002 (%) Pakistan Developing Asia High Income Asia Population with Access to Improved Water 90.00 76.85 100.00 Households Connected 23.00 22.27 99.00 Urban Population with Access 95.00 86.17 100.00 Urban Households Connected 50.00 48.27 99.50 Rural Population with Access 87.00 71.42 100.00 Rural Households Connected 9.00 14.58 97.00

Table 3.2: Water Resources Pakistan Precipitation Volume 2002 (bn m3/yr) 393.30 Precipitation Depth 2002 (mm/yr) 494.00 Groundwater: produced internally 1998-2002 (bn m3/yr) 55.00 Surface water: produced internally 1998-2002 (bn m3/yr) 47.40 Overlap: surface and groundwater 1998-2002 (bn m3/yr) 50.00 Water resources: total internal renewable 1998-2002 (bn m3/yr) 52.40 Water resources: total external 1998-2002 (bn m3/yr) 170.30 Water resources: total renewable 1998-2002 (bn m3/yr) 222.70 Agricultural water withdrawal 1998-2002 (bn m3/yr) 162.70 Domestic water withdrawal 1998-2002 (bn m3/yr) 3.27 Industrial water withdrawal 1998-2002 (bn m3/yr) 3.47 Total water withdrawal 1998-2002 (bn m3/yr) 169.40

Table 3.3: Water Resources II Pakistan Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 349.50 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 1,485.00 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 1 130 507.25 544.73 Dependency ratio 1998-2002 (%) 76.47 33.33 1.39 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 73.05 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 76.07 16.19 13.19

Chart 3.1: Water Uses 2002 (%) Chart 3.2: Fresh Water per Capita 1999-2004 (m3/head) 1,609 Indus. 1,650 1,576 Dom. 1,548 2% 1,600 1,523 2% 1,550 1,495 1,465 1,500 1,450 1,400 1,350 1999 2000 2001 2002 2003 2004 Agricult. 96%

Table 3.4: Responsibilities of Government in Water Supply and Sanitation Provincial Government For schemes exceeding PRs20 million, technical sanction has to be obtained from the chief engineer of PHED at provincial level. District Government Under the devolved local government setup, district government does not have a role in the WSS sector. Tehsil Government Can sanction schemes up to PRs5 million. The WSS-related responsibilities include water supply; control and development of water resources, other than systems maintained by the union and village councils; sewage and sewage treatment and disposal ; storm water drainage; sanitation and solid waste collection and sanitary disposal of solid and liquid waste from domestic and industrial sources. Union Councils Provide and maintain public sources of drinking water including wells, water pumps, tanks, ponds; other works for the supply of water

329 Water Market Asia - Pakistan

III.2 Financing majority of water resources are used for agriculture with only 3-4% of withdrawals for domestic and industrial use combined. Industrial use As for the water sector, WASAs are reliant on transfers from the pro- is expected to treble by 2025. vincial government for capital works. Investments in sanitation in Ka- rachi in the 1997-2001 period have mainly been on rehabilitation and Most urban and rural domestic water supply is sourced from ground- expansion of existing trunk and interceptor sewers, upgrading of two water, and although overall groundwater use is approximately equal treatment plants and the installation of a new treatment plant in 1998. to the level of renewable groundwater sources, in some areas of the Total expenditure in 1997-2001 amounted to US$10.48m. The Punjab Indus plain, inadequate drainage of irrigation systems has led to seep- Government approved a major project costing PAR371 million for the age and raised the groundwater table, causing waterlogging and sa- improvement of Sewerage and Drainage in defi cient areas of Lahore linity. 36% of Pakistan’s groundwater is now highly saline (more than City in 2000. 3000mg/l TDS). Tube wells have been constructed to try to control the level of the water table, but their performance has deteriorated with III.3 Private Sector Participation time. In the 1980s, there was an increase in the number of private There is no restriction on PSP in the wastewater industry but so far tube wells which provide water in the dry season and have helped to there has been very little PSP. One exception is the Mauripur Sewage lower the water table. In rural areas where groundwater is saline, ir- Treatment Plant. This facility treats wastewater from Karachi. Recent- rigation channels are the most common source of water for household ly, at the end of 2004, the Capital Development Authority of Islamabad use. Most industrial water is sourced from privately owned wells and a signed a design-build contract for the rehabilitation and extension of substantial amount is taken from the irrigation canal system. wastewater treatment facilities in the capital city. The project is expected to take two years. Water Resources Policy The majority of water withdrawals in Pakistan are made by the agri- III.4 Tariffs cultural sector. Pakistan has the largest integrated irrigation system in In Karachi, a charge for sewerage, known as the conservancy charge, the world which functions effectively, and increasing salinity is being was introduced in 1990, set at 50% of the water charge. In other cities addressed by the government. However, the social and environmental where sewerage coverage is limited no specifi c charge is made for effects of projects, management of water quality and wastewater/ef- wastewater. fl uent discharges, protection and rehabilitation of forests, catchments and wetlands, and equitable allocation of water at all levels are not ad- III.5 Regulation equately dealt with. Because of inadequate reservoir storage capacity, The performance of sewerage networks is generally poor. This is due demand for irrigation waters exceeds supply. Tariffs for irrigation are to a number of factors: poor collection and removal of solid waste well below operations and maintenance costs, with resulting low qual- leads to the clogging of sewer lines, a major problem of urban infra- ity of operations and asset deterioration. The government has made structure systems. Blocked sewer lines make household sewage col- the reduction of waterlogging and salinity policy priorities. Tensions lection ineffective, and cause ponding of sewage in lanes and streets. have arisen in the use of water in reservoirs for hydroelectric and ir- This leads to damage to private and public property, disruption of traf- rigation purposes, although irrigation is given priority. fi c, breeding of mosquitoes and other pests, and infi ltration of sewage The Indus River System Authority (IRSA), with headquarters in La- into shallow groundwater—which leads to serious health problems. hore, provides continuing interaction and a resolution of any disputes Sewerage systems are nonexistent in peripheral and under-serviced among the four provinces on matters relating to sharing the Indus wa- areas of most towns, and sewage often fl ows uncontrolled into de- ters. The IRSA is comprised of one representative from each province pressions where it ponds. and a member from the federal Government. Pakistan shares water In Karachi, as in Pakistan’s other cities, only a small proportion of resources with India under the Indus Waters Treaty. Despite tensions wastewater is treated, the rest discharged into the Arabian Sea. Sew- between the two countries, this functions well, and is crucially impor- age volumes are in the region of 1280MLD. In the 1990s, the KWSB tant to Pakistan, as the downstream country. constructed a new 250MLD wastewater treatment plant (Mauripur) In 1994, the World Bank recommended the commercialization of the and extended the sewerage network to add to two existing treatment sector, introducing market-determined incentives for irrigation and plants in the city. However, the plant is only used at about 50% of its on-farm drainage and the establishment of Farmers Organizations; design capacity and inadequate maintenance has reduced the plant’s drawing up a system of enforceable property rights to water, and es- processing capacity. The KWSB was meant to adjust its tariffs to cover tablishing a framework for communal water rights, which would later part of the cost of O&M of the wastewater system and debt repay- be translated into enforceable individual rights; establishment on a ments on the loan, and to introduce a conservancy charge and to canal command basis of public utilities responsible for operation and extend metering. maintenance and future investment; and the legalization of water mar- IV. Environment and Legal Aspects kets. However, these steps were not implemented by the government. The new National Water Policy plans for legislation to formally allow IV.1 Water and Wastewater Fundamentals and defi ne the use of water abstraction licenses and water rates for Water Resources industrial use. Pakistan has a semi-arid climate, with an average annual rainfall of IV.2 Laws and Institutions 500mm. Rain falls unevenly over the provinces: the western part of The Water and Power Development Authority (WAPDA), created in the country is desert, while the northern region receives 1,500mm of 1958 as a semi-autonomous body, is responsible for planning and rain each year. The Indus Plan, where agricultural activity is concen- execution of schemes pertaining to generation, transmission and dis- trated, receives an average of 212mm in the monsoon season and tribution of power; irrigation, water supply and drainage; prevention of 53mm in the dry season. waterlogging and reclamation of waterlogged and saline lands; fl ood The most important source of water is the Indus River which supplies control; inland navigation. WAPDA decides on annual allocations of the inhabitants of the Indus Plain. The Indus drainage basis is shared water for irrigation purposes. between Pakistan, India, Afghanistan and China. The FAO estimated In water projects, WAPDA acts as the government agency for the im- 3 annual renewable water resource of 248km /year, compared to with- plementation of schemes (including drainage schemes), which upon 3 drawals of 156km for 1991. There is great seasonal variance in water completion are transferred to Provincial Irrigation Departments (PID) resource availability, because of run-off from the glaciers, which ac- for operation and maintenance. However, WAPDA remains respon- counts for 80% of riverfl ow in the Indus during the summer. Pakistan sible for the operation and maintenance of large multipurpose reser- 3 has surface water resources of 190km /year of which 68% is used for voirs and inter-provincial link canals. irrigation, 6% goes to system losses and the rest fl ows to the sea. Provincial Irrigation Departments manage allocations at the regional Hydroelectric power is an important source of energy for Pakistan, level and submit estimates of regional needs to WAPDA. The PIDs accounting for almost half the generation capacity, and Pakistan’s two have historically been responsible for all water-sector activities at the 3 3 largest dams, Tarbela (13.7km total capacity) and Mangla (7.2km provincial level, including planning, development, and the operation total capacity) are both equipped for electricity generation. The vast

Opportunities in the Water & Wastewater Sectors in Asia & the Pacifi c 330 Water Market Asia - Pakistan and maintenance of irrigation, drainage, fl ood control and reclamation tivities related to fl ood-control works. It acts also as the convertor and works. However, the role of WAPDA has progressively grown in rela- coordinator of the Dam Safety Council. tion to the PIDs. V. Sources The offi ce of the Chief Engineering Advisor provides advisory services EIU, ADB, World Bank, Interviews to the Ministry of Water and Power through its Water Engineering and Power Engineering sections, and coordinates the inter-provincial ac-

Table 3.5: Major ODA Projects for Water Supply 1990-2004 Project Donor Date Amount (US$m) Rawalpindi Urban Water Supply and Sanitation ADB 72 Karachi Urban Development Project ADB 55 Second Urban Development Project ADB 66 Punjab Rural Water Supply and Sanitation Project ADB 1995 46 (Second) Punjab Community Rural Water Supply and ADB 50 Sanitation project NWFP Urban Development Sector Project ADB 2001 30 Southern Punjab Basic Urban Services Project ADB 90 Sindh Basic Urban Services Project ADB 60 Decentralized Social Services Project in Sindh ADB 220 Decentralized Social Services Project in Punjab ADB 150 Karachi System Improvement Project World Bank - IDA 1993 92

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) Pakistan Developing Asia High Income Asia Population with Access to Improved Sanitation 54.00 54.64 100.00 Households Connected 24.00 7.22 99.29 Urban Population with Access 92.00 77.09 100.00 Urban Households Connected 52.00 18.11 99.00 Rural Population with Access 35.00 48.08 100.00 Rural Households Connected 10.00 2.57 90.00

Table 5.1: Useful Contacts Contact Name Managing Director: Brig. Mansoor Ahmad Ministry/Agency Karachi Water and Sewerage Board Address Block C, 9th Mile Shahra-E-Faisal, Karsaz Karachi 75400 Telephone No. 92 21 452 7079 92 21 454 5534 Fax 92 21 4546020 Email [email protected] Notes Basis for Appointing Head of Institution: appointed by the Provincial Government, Principal Funding Source(s): tariffs, donor agencies (IBRD, ADB, OECF, ODA, CDC)

331 Water Market Asia - Pakistan

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 332 Water Market Asia - Philippines

Philippines

International investors have been put off by the troubled West Manila concession. Filipino ﬁ rms will be the only ones to bid in the retendering of concession assets in 2006. Opportunities for contracting by foreign investors for wastewater projects sound promising on paper, and the new Clean Water Act provides a sound legal framework, but implementation will fall far behind, as usual. However, sewerage works will move ahead in East Manila under a World Bank project being implemented by the Manila Water Company. Regulation is too weak to support long-term private sector contracts. Even World Bank funds have not proved enough to compensate investors for the perceived risks. Water resources scares in Metro Manila will eventually prompt resource development, but not before a real crisis occurs.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Disappointing Foreign investors have been scared off Future Opportunities Few by the troubled west Manila project. Local competition Significant Equipment Markets Comments Future Opportunities Some New policies in place for wastewater but Local competition Negligible implementation will take time.

Public Utilities Comments Track record Mixed Outside Manila some good performers Sustainability Limited e.g. Davao, Cagayan de Oro, etc. Reliance on ODA High Government Comments Commitment to deliver service No Government actions consistently fails to Fiscal Resources Very limited live up to ambitious policy pronouncements.

Economy & Finance Comments Recovery since Asian crisis 1997 Average Government is helping utilities to access Local capital market Basic private finance.

333 Water Market Asia - Philippines

I. General Information I.2 Political & Investment Environment The Philippines has a population of 86 million (2004 estimate) which Democracy in the Philippines is characterised by shifting alliances grew at an average of 2.3% a year during the last decade. The urban between powerful political and business interests and is racked by population grew at 4% a year between 1960 and 2000. In 2000, 34% ongoing political crises. Incumbent President Gloria Macapagal-Ar- of the population was living in poverty. royo was re-elected in May 2004 to serve a 6-year term. She came to power in 2001 in a civilian coup, against her predecessor, Josef Es- The economy is characterised by great inequality, with assets and trada who was accused of corruption and impeached. Her party won income concentrated in a small proportion of the population and geo- majorities in both chambers of the legislature in 2004, but her authority graphically concentrated in the capital region. In 2000, the richest 10% has since been undermined by accusations of corruption and electoral of the population had an income 23 times that of the poorest 10%. In fraud and the resignation of half of the Cabinet members in mid-2005. 2003, 16% of the population was residing in the Manila metropolitan Initial high hopes that the Arroyo Administration would make rapid area, known as Metro Manila, and the rest in the provinces. 34% of the progress with economic reforms have been disappointed: the budget provincial population is classifi ed as urban defi cit has continued to balloon, and underlying social, economic and I.1 Macroeconomic Situation security problems have not been addressed. The Philippines was able to recover quickly from the effects of the The priority of the government is to stabilise the budget, raising rev- Asian crisis. Growth was positive in 1999, and has been sustained by enues and cutting spending. Several bills were passed in Congress consumer spending and workers’ remittances, despite diffi cult exter- in aid of this, including one to raise revenues from VAT, but this has nal conditions. Infl ation has been persistently high, at 6-8% in 2004-5, since been suspended pending constitutional review by the Supreme and after a delay the government increased interest rates in 2005 to Court. try to bring it under control, although real interest rates are still barely The security situation in parts of the Philippines continues to be un- positive. stable. In the Southern region of Mindanao, armed rebellion is ongo- The high level of the country’s external debt (Debt/GDP ratio of 81% ing despite the efforts of the US military to put down the rebellion in in 2003) has raised concerns about its sustainability. The Philippines’ connection as part of the “war on terror.” The US is providing military large fi nancing requirement in the past has traditionally been met assistance to the Philippines to eradicate terrorist group Abu Sayyaf mainly by borrowing, from both offi cial and private sources and by aid which periodically kidnaps foreigners in the area. In the North of the but the use of international fi nance to fund the budget defi cit makes country, armed insurgency by Maoist groups continues but their sup- the country more vulnerable to external shocks. port base has gradually been eroded by government policies. The Philippines also has a high incidence of violent crime, kidnapping and The most pressing economic policy issue is raising government rev- pervasive organised criminal networks, which successive govern- enue to allow for greater public investment in social and physical in- ments have failed to deal with. frastructure. The low rate of tax revenue to GDP has restricted the government’s ability to invest adequately in these areas, which has in Infrastructure has suffered from decades of underinvestment. How- turn held back economic growth. ever, progress has been made in the telecommunications have since the liberalisation of the sector in 1993. Similarly, the power sector has The other economic policy priority, pursued since 1986, has been the benefi ted greatly from opening up to private investment. In the 1990s, restructuring and liberalisation of the Philippine economy. However, a wave of independent power producers effectively addressed the proposals to ease restrictions on foreign ownership of land, foreign country’s power crisis. Further reforms to the power sector have taken involvement in the media and education and foreign control of utilities much longer. A new law to restructure and regulate the electricity sec- have made little progress due to political opposition. tor was passed after long delays in 2002, but its implementation is pro- ceeding very slowly. Transport networks are inadequate and private

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 8.00 2006 100,069 6.00 2005 92,543 4.00 2004 84,586 2.00 0.00 75,000 80,000 85,000 90,000 95,000 100,000 105,000 -2.00 1998 1999 2000 2001 2002 2003 2004 2005 2006

Philippines Dev eloping Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean) 12.00 10.00 Chart 1.3: 2004 Sector Share of GDP 8.00 Agricult. 6.00 3.51 15% 4.00 2.27 2.34 1.77 1.39 2.00 0.40 0.50 0.00 Serv ices 1998 1999 2000 2001 2002 2003 2004 53% Industry 32% Philippines Dev eloping Asia (mean) High Income Asia (mean)

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 334 Water Market Asia - Philippines

Table 1.1: Sovereign Risk Indicators Philippines Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 764.00 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 80.44 59.60 50.84 Short Term Debt / Total Debt 2004 (%) 9.86 10.49 n/a Fitch Sovereign Rating (2004) BB

Table 1.2: Legal Risk Indicators 2004 Philippines Developing Asia High Income Asia Time to enforce a contract (days) 380.00 392.62 103.67 Time to register property (days) 33.00 62.82 16.50 Time to resolve insolvency (years) 5.60 4.45 1.15 Time to start a business (days) 50.00 67.08 14.33 Legal rights of borrowers and lenders (0=no credit access) 5.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Philippines Developing Asia High Income Asia Political Rights 2.00 4.23 2.43 Civil Rights 3.00 4.69 2.14 Corruption Perception 2.50 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 Philippines Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 16.33 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 310.73 185.54 1,281.59 Roads, paved (% of total roads) 21.00 44.75 75.32 Electric power consumption (kwh per capita) 458.81 717.46 7,505.93 Water supply failures (days) 9.90 10.00 n/a

Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%)

8 0.00 2002 2003 2004 2005 2006 6 -2.00 -1.80 3.70 4 3.00 2.46 -4.00 -3.10 1.80 -3.93 2 -4.75 -6.00 -5.37 0 2003 2004 2005 2006 -2 Philippines Dev eloping Asia (mean) High Income Asia (mean) Philippines Dev eloping Asia (mean)

High Income Asia (mean) Chart 1.8: Reat Interest Rate 2000-2003 (%) Chart 1.7: Inflation Rate 1999-2004 (%) 10.00 16.00 8.00 14.00 12.00 6.00 10.00 5.68 5.59 8.00 4.00 4.29 4.08 6.71 6.00 6.11 5.89 4.00 2.00 4.36 3.00 2.00 2.97 0.00 0.00 2000 2001 2002 2003 -2.00 1999 2000 2001 2002 2003 2004

Philippines Philippines Dev eloping Asia (mean) Dev eloping Asia (mean) High Income Asia (mean) High Income Asia (mean)

335 Water Market Asia - Philippines sector involvement is also being encouraged in this sector. Main Cities of Philippines (2000) Population '000 II. Water Metropolitan Manila 9933.00 Davao 1147.00 II.1 Sector Policy & Structure Cebu 719.00 In the Philippines, improving access to potable water in rural and ur- Zamboanga 602.00 ban areas has been a priority since the 1980s. In 1987, the govern- Cagayan de Oro 462.00 ment developed a master plan for the sector with the aim of providing an adequate supply of potable water to urban and rural communities Bacolod 429.00 and improving public health conditions by controlling pollution and General Santos City 412.00 reducing waterborne diseases. President Arroyo’s inclusion of water Iloilo 366.00 supply in her 10-point agenda for the new Administration has given an extra push to the water supply and sanitation sector to meet targets able to set water and sanitation rates for the residents which may be by 2010. higher than those that would be charged to the customer directly by the water utility. Water and the environment are both covered in the Philippines 2000- 2004 Medium-Term Philippine Development Plan (MTPDP). Some In 2000, around 1 million people (a little more than 1% of the popula- of the on-going reforms in the country to provide an integrated and tion) were being served by these private utilities. Treated water is pro- systematic approach to water resources planning and management vided by the concessionaires (in Manila) or the WD (in the provinces) are as follows: and treated as a bulk connection. These utilities typically cover up to 5,000 households, mainly from high-income groups. In Metro Manila, - Create and strengthen an independent regulatory authority; around 80 small-scale private utilities serve 40,000 households, while - Improve data collection on water resources and use; more than 100 of these utilities serve 85,000 households in the provinces. Private facilities often end up deteriorating because of lack of - Create river basin organisations; proper fi nancial and technical support and result in higher costs as - Implement erosion and sediment control programmes in river basins, economies of scale are not exploited. mountain and volcanic areas; A large proportion of the population in urban and rural areas is served - Introduce economic pricing of raw water by small-scale informal providers. These providers are largely unregulated. In some areas in Metro Manila, the concessionaires are coop- - Protect and restore watershed areas erating with informal providers to extend access to water supplies. In some cities, like Cebu, access for the urban poor is extended through - Implement the Clean Water Act (2004) communal water associations (CWA). In these associations, set fees One of the key objectives in the MTPDP in the water supply sector is for users are collected at the community level. to provide water to about 200 municipalities (outside Manila) which have less that 50% coverage, which constitute about half of those II.2 Financing municipalities structured as water districts. Poor quality and low coverage levels in urban areas in the Philippines coupled with constraints on public spending prompted the government Water and sanitation services in Metro Manila were provided by a to review and rationalise the use of development funding for water state owned corporation, MWSS, until 1997. In 1997, two concessions sector. The government estimates that expansion of coverage to an contracts were awarded to domestic-foreign joint venture companies. additional 17 million people will require about US$258m of invest- Ownership by the foreign parties was limited to 40% in accordance ment. This fi gure does not include the investment requirements for with the Philippines Constitution but each JV was required to have a local government–operated systems or private utilities. designated foreign operator to offer water service management experience. The city was divided into two service areas, West and East. According to regulations, water district tariffs are meant to cover the The MWSS retains ownership of the assets and is responsible for the cost of operations and systems expansion, but in fact fi nancing for development of raw water sources. In other large cities and towns, capital investments comes from central government transfers as well water services are provided by public agencies known as water disas from user charges. A few water districts, including Cebu, have been tricts. These are corporate entities established at the discretion of the entirely self-fi nancing. Since the enactment of the Local Government relevant local governments to operate the water supply system in one Code (Republic Act 7160) in 1991, mayors have acquired the ability or more provincial cities and municipalities. 47% of the country’s 1,500 to fi nance water supply system expansions but most are still reliant on cities and municipalities are served by WDs. transfers from the central government. In small towns and rural areas, Local Government Units (LGUs) have In Metro Manila, before privatisation, internally generated funds cov- responsibility for the provision of water supply through Rural Water- ered operational expenditure but were not suffi cient to cover capital in- works and Sanitation Associations (RWSAs). Services are provided vestment. Since privatisation, the concessionaire for the Eastern part by LGUs through their engineering departments and by cooperative of the city, Manila Water, has successfully raised debt fi nancing from water associations, with government assistance from the Department IFIs and private banks, and secured equity investment from the Inter- of Interior and Local Government (DILG), Department of Public Works national Finance Corporation. In 2005, the company listed on the Ma- and Highways (DPWH), and the Local Water Utilities Association nila Stock Exchange, raising further funds. The West concessionaire, (LWUA). These utilities vary in size, ranging from 100- 5,000 connec- Maynilad, secured a bridge loan from a consortium of private banks at tions and mostly manage simple non-piped facilities. the beginning of the concession period but was unable to convert this to medium-term fi nancing due to doubts about the fi nancial viability of LWUA is a national level body that provides technical assistance and the project. Benpres, the Filipino company which owned the majority fi nance to the water districts and LGUs. LWUA offers advisory and stake in Maynilad, was itself in severe fi nancial diffi culties. Maynilad training services, evaluation of water district performance and instal- later declared bankruptcy and underwent corporate restructuring. The lation of uniform commercial practices system, public relations and central government offered the company a debt for equity swap and marketing assistance programmes and review of water rates. If water will now re-tender its stake the concession. [See Box 3: The Manila districts default on their loans, LWUA is empowered to take over the Concessions]. management of the concerned water district until it become ‘institu- tionally stable’. Local governments themselves have few revenue sources at their disposal to fund capital works. The credit status of most is very poor so Within residential developments, construction companies are often there is little prospect for LGUs to raise funds on the private fi nancial responsible for laying pipe networks for water supply and ensuring markets. The key fi nancing role is played by LWUA which lends funds adequate facilities for sanitation. Small-scale private utilities (created to water districts and LGUs. LWUA has approved PHP17bn in loans on the basis of Presidential Decree 957), are typically established of which PHP11bn have gone to 467 water districts. The loans were by developers during the construction of subdivisions. They are later used for the development of 1,431 water supply projects. On the loans transferred to homeowners associations, which assume responsibil- availed, LWUA generated an annual average of 86% collection ef- ity for their management. The manager of the development is then

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 336 Water Market Asia - Philippines

Table 2.1: Income Level Philippines Developing Asia High Income Asia GDP per capita 2004 (US$) 981.00 1,104.30 23,628.57 Population on less US$1 per day 2004 (%) 15.00 18.23 0.00 Unemployment 2004 (%) 11.83 6.73 4.89

Table 2.2: Area & Population Philippines Developing Asia High Income Asia Population Growth 2003 (%) 2.00 1.67 0.64 Urban Population Growth 2003 (%) 3.32 3.48 1.18 Population Density 2002 (pop/km2) 261.90 231.45 2,335.17 Area (thousands Ha) 30,000.00

Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban 2000-2003 (cst 2000 US$) (millions) Population (%) 88.00 86.24 62.00 60.97 734.77 86.00 84.62 740 61.00 60.16 83.00 84.00 712.67 60.00 59.36 720 81.37 699.00 82.00 79.74 59.00 58.55 700 689.71 80.00 78.00 58.00 680 76.00 57.00 660 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002 2003

Chart 2.4: Consumer Exp. on Water 1999-2004 (US$m) Chart 2.5: Consumer Exp. on Water Growth Forecast 2005-2009 (%) 2,648.01 2,769.06 3,000 2,502.79 5.00 2,276.72 2,500 2,239.09 2,221.39 4.39 4.00 2,000 3.00 1,500 1,000 2.00 2.08 1.88 1.63 1.71 500 1.00 0 0.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

fi ciency in 1998-2003. Philippines Dev eloping Asia (mean) LWUA receives funding from national government equity subscriptions High Income Asia (mean) and from local and international development fi nance institutions. Key sources of international funding for LWUA include: the World Bank, projects; restoration of facilities damaged by calamities; and initial or ADB, KFW and bilateral donors (Denmark, Japan, Australia, France). emergency operational requirements at a maximum of three months These funds come in the form of loans guaranteed by the national of operation and maintenance expenses. government, or as grants. Loans are on-lent to water districts through LWUA’s fi nancial assistance programme. Funds are then on-lent to - Commodity loans are intended to fi nance the purchase of materials water districts and RWSAs at concessional rates. LWUA offers both by WDs from LWUA stocks soft and regular loans, the former having a 5-year grace period. Loans LWUA’s access to capital has been signifi cantly reduced over time as are divided into 3 levels: the agency has fully utilised its original equity investment of PHP2.5bn - ‘Level 3’ loans are intended to fi nance the construction of a water from the national government. It also exhausted its borrowing cap of system which consists of individual household connections, reactiva- PHP11bn in 1991. A total of PHP1bn has been borrowed from local tion of a non-operational water system, expansion of water systems, banks, mostly from the Land Bank of the Philippines. Since 1991, fi - sewerage systems, and training. nancial support from the national government has taken the form of grants amounting to PHP2bn. As a result of efforts to reduce the pub- - ‘Level 2’ loans are intended to fi nance the construction of a com- lic sector defi cit, further subsidy from the national government looks munal tap system unlikely unless an increase in LWUA’s capitalisation is provided for by - ‘Special loans’ are intended to fi nance the construction of a WD ad- legislation. Access to foreign borrowing has been restricted by depre- ministration building; purchase or acquisition of service vehicles, com- ciation and the absence of counterpart funding from the national gov- munications equipment, computers and equipment or facilities which ernment. LWUA also has internally generated cash from its lending are not part of the major improvement loans; watershed management operations but available funds have declined as a result of increasing

337 Water Market Asia - Philippines expenditure on foreign debt servicing. The Land Bank of the Philip- In rural areas, service providers and community-based organisations pines has been the source of the Peso counterpart of LWUA’s foreign rely on local government support for capital outlays and to some ex- loan when no subsidy was released from the NG. In 2003, a PHP2bn tent operation and maintenance expenses. Communities also receive credit facility was established for direct lending to WDs. LWUA’s loan support from Congressional funds (e.g. the Priority Development portfolio is highly concentrated, with the 20 largest water districts ac- Assistance Fund). LGU-managed facilities may be found at the pro- counting for 80% of its outstanding loans. vincial, municipal and Barangay levels. The original facilities were in most cases constructed by government agencies, using both national Private fi nancing for the water sector is held back by the nature of and international donor funds, and NGOs, and provided as grants to LWUA fi nancing. In order to maintain its own fi nancial viabiltiy, LWUA the communities on the condition that they form, and register as, legal is obliged to provide its concessional loans to fi nancially viable proj- entities. Several studies have demonstrated the low levels of sustain- ects, mostly carried out by the larger and fi nancially stronger WDs. ability of both the BWSA and RWSA systems, as a result of poor in- Thus those utilities that would be able to attract commercial fi nancing vestments and low O&M cost recovery. (Source: Castalia) for projects have no incentive to use this, as concessional fi nance is being made available to them by LWUA. Presidential Decree 957 requires subdivisions to develop their own water supply system, it is assumed that capital expenditures for such In a small number of cases, WDs have approached development facilities are refl ected in the pricing of the lots. A private utility in any banks directly. Tagum and Nasugbu WDs have successfully secured given subdivision is therefore required to initially operate on a break- debt fi nance from the Development Bank of the Philippines (DBP). In even basis. this case, the DBP provides a credit facility (initially PHP2bn) directly to the WD. LWUA continues to play a role by reviewing the projects to II.3 Private Ssector Participation be funded under the facility in order to compensate for the low level The government’s water policy calls for agencies to ‘expedite socially of expertise in the water sector among banks. In order to make com- responsive private sector participation and enhance public-private mercial funding viable, it may be necessary to increase the water tariff. partnership’ but steps will have to be taken to reduce risks and im- In these cases, LWUA takes the lead in conducting a public hearing for prove the investment environment before private investors will be will- the proposed increase before offi cially endorsing the project to DBP ing to engage in water and sanitation projects once again. for funding. In case of default, LWUA takes over the management and the DBP may sit on the board of the WD. Private sector involvement in infrastructure in the Philippines took off in the early 1990s when power generation was successfully opened LWUA is targeting domestic capital funds for provincial water supply up to private investment, resolving the country’s power crisis. PSP projects and is considering the possibility of a bond issue. In order to was therefore seen as an attractive option for Manila’s water sector improve access to these domestic funds, LWUA is classifying WDs in which required heavy capital investment in rehabilitating and extend- the country according to their creditworthiness with the aim of gradu- ing the network. By far the largest and most high profi le PSP proj- ating the fi nancially capable ones out of the government assistance ects in the Philippines are the Manila water concessions (see Box programme and into the credit or loan-lending programmes of other 1). The concessions were structured and successfully tendered in a government and private fi nancial institutions. Under this scheme, wa- short timeframe, and became operational in 1997. Initially, the conces- ter districts classifi ed as credit-worthy will be eligible to source fi nanc- sions were seen as a great success as the winning bidders offered ing from government and private sources; semi-credit worthy utilities substantial reductions in consumer tariffs. However, the concessions will be eligible to source concessional fi nancing from LWUA or other soon encountered problems when the value of the currency collapsed institutions; pre-credit worthy water districts will be eligible to source during the Asian fi nancial crisis. Arguably, the West concessionaire, grants from donors and deep concessional fi nancing from LWUA while Maynilad, was never able to recover from the impact of the devalu- the noncredit worthy water districts will be eligible for fi nancing under ation on the project’s fi nancial structure, despite several rounds of LWUA but with funding and operational support from their respective negotiation. local government units. LWUA is also looking into bundling projects to spread risks for lenders. In 2006, LWUA announced a PHP3bn fund The fi rst example of private sector activity in the water sector is the for small WD capital works on the back of good fi nancial performance concession contract for Subic Bay, a former US Airbase converted and a PHP400m contribution to counterpart funds for foreign loans. into a Special Economic Zone and the neighbouring city of Olongapo (see Box 3). The plan for PSP was developed by the local authorities LWUA is increasingly reluctant to take on foreign currency risk. In- in the mid-1990s, although it was not until 1997 that the lease became ternational fi nancial institutions are now experimenting with local cur- operational. No other PSP contracts for large cities have been signed. rency issues but discussions between the ADB and the Philippines Several companies have over time expressed an interest in Cebu and government about a peso-denominated bond issue fell through due to have engaged the local government in discussions, but no deal has the reluctance of the government to agree to the IFI conditions.

Box 1: The Manila Water Concessions Concession contracts were awarded for two service zones in Manila in an international tender in 1997. The winning consortia were Maynilad (60% owned by the Filipino business group Benpres, 40% by Suez), and the Manila Water Company, originally majority owned by the Ayala Corporation, with stakes held by United Utilities and Bechtel. The concessions were greeted very positively because the tariffs offered by the private operators were signifi cantly lower than the prevailing tariffs. However, the concessions soon ran into trouble when the currency plummeted in the Asian Financial Crisis, doubling the Peso-cost of concession fees due which were set to cover the utility’s historic US$800m debts. The fi nancial situation was critical for Maynilad which had assumed 90% of debt service. Under these conditions, it proved impossible for Maynilad to close fi nancing for the project. The West concession has been through several rounds of renegotiation which have failed to restore fi nancial balance. In 2001, an amendment was agreed which provided for tariffs to be raised for the fi rm to recoup its foreign exchange losses. However, agreement could not be reached on some issues and in 2003, the parties went to arbitration. To everyone’s surprise, the international arbitration panel found both sides at fault and ordered them to continue negotiations to try to resolve outstanding issues. The concessionaires subsequently fi led for bankruptcy and the government drew down the company’s performance bond in order to pay off part of the backlog of concession payments owed. In a debt- for-equity swap, the government eventually took back a share in the company, Suez reduced its stake and Benpres fully exited Maynilad. The government will re-tender its stake in 2006. The operating performance of Maynilad has been abysmal. NRW stayed around the 60% level and supply fell well short of contracted levels. The East concession has been much more successful. In 1998, it secured a favourable renegotiation of the contract terms which allowed it to raise tariffs. It has performed well both operationally and fi nancially and listed on the Manila Stock Exchange in 2005. Manila Water Company is now planning to expand in domestic and international markets.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 338 Water Market Asia - Philippines

Table 3.1: Water Service Coverage Indicators 2002 (%) Philippines Developing Asia High Income Asia Population with Access to Improved Water 85.00 76.85 100.00 Households Connected 44.00 22.27 99.00 Urban Population with Access 90.00 86.17 100.00 Urban Households Connected 60.00 48.27 99.50 Rural Population with Access 77.00 71.42 100.00 Rural Households Connected 22.00 14.58 97.00

Table 3.2: Water Resources Philippines Precipitation Volume 2002 (bn m3/yr) 704.40 Precipitation Depth 2002 (mm/yr) 2,348.00 Groundwater: produced internally 1998-2002 (bn m3/yr) 180.00 Surface water: produced internally 1998-2002 (bn m3/yr) 444.00 Overlap: surface and groundwater 1998-2002 (bn m3/yr) 145.00 Water resources: total internal renewable 1998-2002 (bn m3/yr) 479.00 Water resources: total external 1998-2002 (bn m3/yr) 0.00 Water resources: total renewable 1998-2002 (bn m3/yr) 479.00 Agricultural water withdrawal 1998-2002 (bn m3/yr) 21.10 Domestic water withdrawal 1998-2002 (bn m3/yr) 4.73 Industrial water withdrawal 1998-2002 (bn m3/yr) 2.69 Total water withdrawal 1998-2002 (bn m3/yr) 28.52

Table 3.3: Water Resources II Philippines Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 6,096.00 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 6,096.00 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 362.90 507.25 544.73 Dependency ratio 1998-2002 (%) 0.00 33.33 1.39 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 4.41 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 5.95 16.19 13.19

Chart 3.1: Water Uses 2002 (%) Chart 3.2: Fresh Water per Capita 1999-2004 (m3/head) Indus. 8,000 6,332 6,504 6,555 6,720 6,785 5,232 9% 6,000 4,000 Agricult. 2,000 Dom. 74% 0 17% 1999 2000 2001 2002 2003 2004

Box 2: Water Supply to Manila – the Angat Dam The P1.3-billion Umiray-Angat Transbasin Tunnel Rehabilitation Works (under the scope of the MWSS) is funded by the ADB. The tunnel is the main source of water for the Manila conurbation and is in a state of advanced disrepair. The project aims to make the tunnel fully operational and to secure this source of supply through short and long-term restoration works. Funding from the Emergency Assistance Program of the ADB allows MWSS to apply for retroactive ﬁ nancing scheme that will cover expenses already incurred from immediate post-disaster works on the tunnel. The project is expected to be completed in 2007.

339 Water Market Asia - Philippines been struck. not necessarily distinguish between households users and other users, relying on the increasing block to cross-subsidise away from high BOT projects for bulk water supply have been successfully imple- volume industrial users. The regulations stipulate that water rates may mented by Veolia in Fort Bonifacio (a private commercial and residen- only be implemented after they are presented in a public hearing. tial development within Metro Manila) and for Clark Special Economic Zone, another former US Airbase. Further projects of this kind will be Like most other countries in the region, the Philippines operates a ris- tendered in the future. Initial approval has been given to the MWSS by ing block tariff structure with a ‘lifeline’ block that is charged at very low the Cabinet for a new 400 million liters per day Laguna Lake Treated rates. Tariffs for communal water associations (CWA) are subsidised. Bulk Water Supply Project under a BOT scheme. The project is valued In Cebu, for example, the tariff for the CWA programme was approxi- at US$67 million. The BOT will last 25 years after a three year period mately 65% of the regular tariff. for the development and construction period. Responsibility for approving tariffs has now been transferred from Private involvement in small-scale projects has been encouraged by LWUA to the National Water Resources Board. The NWRB has imple- donors, in particular the World Bank. However, an attempt to roll out mented the guideline allowing private utilities to earn no more than private participation in smaller towns encountered several set backs 12% on invested capital. Section 12 of the MWSS charter provides and was not able to attract enough interest from the private sector. that rates and fees fi xed by the board of trustees of the metropolitan The projects’ fi nancial structure privileged the repayment of debts to system and by local governments for local systems “shall be of such the World Bank in the early years of the project over returns to the magnitude that the system’s rate or net return shall not exceed 12%, investment of the private sector and companies considered the risks on a rate base composed of the sum of its assets in operation as re- involved in these long-term projects were not commensurate with valued from time to time plus two months’ operating capital.” likely returns. In Manila, the winning companies in the tender for the concession The World Bank LGU project was the fi rst lending programme for small offered tariffs that were much lower than the public sector tariffs, al- towns and included a PSP element and the Development Bank of the though water tariffs had been raised substantially in the year leading Philippines has no previous experience in lending to small towns. In up to the tender. In the Western part of the city, tariffs were reduced fact, credit risks of the LGUs proved to be too high and it was not by around 50 per cent, while tariffs in the Eastern part of the city fell possible to attract much private sector interest in the projects. The by around 70 per cent. However, these reductions were short-lived. project provided loans for the construction of systems that would then After renegotiation, the contract provided for the concessionaires to be managed by private fi rms or for construction and management recoup foreign exchange losses through immediate tariffs increases, contracts to be combined in a design-build-lease arrangement. Nine and prices escalated to levels far exceeding the original public sector water systems were built, of which one, (Kalilangan Bukidon) actually tariffs. went into commercial operation by a private sector operator, while an- In Cebu, the water district increased tariffs by about 275% between other (Lantapan, Bukidon) is due for takeover by a private operator. 1990 and 1995, and then moved to an annual average tariff increase In the second phase of the project, 12 further municipalities are in- of about 4% between 1995 and 2002. The fi nancial position of the util- volved: Tabuk, Lopez Jaena, Calamba, Castilla, San Mariano, Sigma, ity improved signifi cantly, allowing it to service a US$24m loan from San Fernando City, San Gabriel, Bacnotan, San Juan, Bauang, and the ADB for system improvements. Tariffs in Cebu are some of the Santo Nino. Implementation is substantially completed in three LGUs; highest in the Philippines. There is a rising block tariff system with a construction i s underway in three others; and in the remaining cases, lifeline volume of 10m3 (provided free when the user pays a service bids were expected in August 2005. charge) but no distinction between user types (domestic and others) Funds used in the project were much lower that those provided for In practice, small town and rural urban tariffs for water services are in the loan. Upon cancellation of the remaining balance of the World generally low, below cost recovery levels for the utilities. Bank loan in March 2003, the total project cost amounted to US$8.65 Residential development utilities’ rates in Manila are currently about million, or 27% of the estimated cost at appraisal. The water supply 10–20% higher than those charged by the network operator, while in- component that had been given the highest allocation fell far short formal providers generally charge rates much higher than offi cial rates of its target of constructing 35 LGU water systems, undertaking only for piped water supply. 10 in the fi rst phase. As a result, this component accounted for only US$6.63 million or 28% of the estimated cost. The two other compo- II.5 Regulation nents for drainage and sanitation facilities did not materialise at all and In Manila, the MWSS has statutory responsibility for the water and the allocation of US$2.4m for these two components went unspent. sanitation sector. Outside Manila, the sector is coordinated by the Na- II.4 Tariffs tional Water Resources Board, which performs regulatory and advisory functions. The NWRB has little enforcement power. Presidential Tariffs for the Manila concessionaires and water districts are meant to Decree 1206 gives the National Water Resources Board the mandate provide for full cost recovery and a 12% return on assets. Initial tariffs to regulate and control the operation of public water supply services for the Manila concessions were determined in the tendering process outside the jurisdiction of MWSS, the LWUA and water districts. The and are reviewed by the Regulatory Offi ce of the MWSS. Under the Local Government Code, however, lists water supply systems as one concession contracts, the tariffs are adjusted to take account of infl a- of the responsibilities of autonomous and self-regulating local govern- tion and exchange rate fl uctuations. The tariffs are reviewed every ments. fi ve years in the rate rebasing process and adjusted to take account of changes in the overall operating environment and expected effi - LWUA has played the regulatory role for water districts in the past. It ciency improvements of the concessionaires. The treatment of foreign developed and institutionalised guidelines on water tariffs, commercial exchange fl uctuations under the contract was the subject of a dispute practices systems, water quality, engineering design and construction between the West concessionaire (Maynilad) and the MWSS. In 2001, and organisational structures and monitored public hearings on water the contract was amended to provide for tariffs to be adjusted to com- rates adjustments and cash-fl ow requirements for capital expenses pensate the concessionaire for forex losses immediately, rather than and systems expansion of water districts are judiciously studied. over the life of the concession. The function of regulating water rates was transferred from LWUA to For water districts, LWUA guidelines state that rates should be set the NWRB in 2002 but the principles applied in tariff-setting have re- to allow for cost recovery, including debt service. Specifi cally, water mained the same. LWUA may still review the rates of WDs to which rates should cover the costs of operations and maintenance and sys- it is a creditor and WDs are obliged to submit monthly fi nancial and tem expansion, debt service obligations and 10% reserves. Under the operational reports to LWUA. regulations, new water customers have to cover expenses for install- Since the enactment of the Local Government Unit Code in 1991, wa- ing new services and meters. However, tariffs are also meant to take ter districts have been given the option to self-regulate their water into account affordability. To ensure that an average water user in the tariffs and to design, construct, and operate and maintain standards province can afford the water service provided by the water district, once they repay all obligations to LWUA. there should be cross-subsidisation from big water users such as industries and commercial establishments to domestic users. Tariffs do The economic regulator for the Metro Manila area is the MWSS Regu-

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 340 Water Market Asia - Philippines

Table 3.4: Water supply entity Type of water supply entity Number % of population served Public agencies: Rural Waterworks and Sanitation 1000 small towns 50 (rural) Associations / Local Government Units Public agencies : Water D istricts 594 cities and towns 34 (non Manila urban) (2005) Publicly owned companies (national government), 1 – Metro Manila 16 (Manila) Metropolitan Waterworks and Sewerage System (MWSS) Private companies : Concessionaires 2 – Manila Water, Maynilad Private companies: residential developments Appx. 200 1 NGO/CBO/Cooperatives NA

Table 3.5: Urban Water Supply Urban Su pply % of p op . served Urban d istribution % of p op . served Water Districts 30 Piped Wat er Supply with House Connections 30 LGUs/CBOs 40 Piped Water Supply with House Connections 25 Private Utilities 10 Communal Faucets 5 Households 5 Point Sources 10 Informal providers 15 Piped Water Supply with House Connections 10 Total 100% Bulk supply - Private wells 5 Piped Water Supply with House Connections 10 Tankered supply 5 Total 100% Source: World Bank. Philippines Meeting Infrastructure Challenge Study (2004, draft)

Table 3.6: Assets & Liabilities of Major Water Districts Debt (PHP m) Total Assets (PHP m) Long-term debt (PHP m) Davao (2003) 937 139 Tagum (2004) 92 32 Cagayan de Oro (2003) 1,001 510 Butuan City (2003) 608 508 Zamboanga (2004) 419 172 Metro Cebu (2003) 2,011 1,288 Metro Iloilo (2004) 841 672 Bacolod (2004) 248 190 Leyte Metro (2002) 775 23 Baguio (2004) 732 563 Nasugbu (2003) 35 14 Batangas (2004) 176 75 San Jose City (2004) 32 10

Table 3.7: Water District Credit Ratings (LWUA) Classsification Very Large Large Big Medium Average Total Creditworthy Davao (1) Angeles City, Tarlac City, Daraga (1) 14 Metro Kalibo, Nasugbu, Cagayan de Tabaco, Oro City, Camarines Digos (4) Norte, Metro Roxas, Surigao Metro, Cotabato City, Tagum (8) Semi Quezon Baguio City, Dagupan City, Ilocos Norte, Marilao, 26 Creditworthy Metro, Metro San Jose del Metro Santiago, GMA, Guimba, Iloilo, Metro Monte, Tuguegarao, Dumaguete City, Obando, Cebu (3) Bacolod City, Concepcion, Gen. Santos City, Tandag (4) Zamboanga Laguna, Polomolok (6) City (4) Calamba, Morong, San Pablo, Butuan City, Misamis Occ. (9) Precreditworthy Calbayog City (1) 1 Total 4 8 17 8 4 41

341 Water Market Asia - Philippines latory Offi ce. The RO has limited autonomy and its decisions must Rules and Regulations (IRRs) that are necessary for the law to be be approved by the MWSS Board of Trustees. It was created on the translated into action. basis of the concession contracts signed in 1997. The RO monitors The Clean Water Act requires the Department of Public Works and performance targets set down in the contract and adjusts targets at Highways (DPWH), to prepare a national programme for wastewater, the 5-yearly review in consultation with the companies and according including a priority listing of sewerage and septage projects for lo- to the principles set down in the contract. The RO is fi nanced through cal government units based on population density and growth and a levy on the concessionaires. It is adequately resourced for day-to- the degradation of water resources. The law then provides for these day monitoring activities, but engaged consultants to conduct the 5- projects to be funded by the national government while LGUs are able year review. The contract provides for the companies and regulator to to raise funds to subsidize necessary expenses for the operation and appoint an independent dispute settlement panel in the case of either maintenance of sewerage treatment or septage facility servicing their a minor or major dispute. The decisions of the RO can be appealed area of jurisdiction through local property taxes and enforcement of a through this route and in the event that no resolution is found, the service fee system. contract provides for the parties to proceed to international arbitration. The RO has introduced a Public Performance Assessment to provide The Act sets out clear targets for the extension of wastewater collec- an additional information source for the regulator. tion and treatment systems. By 2009, all large cities are required to connect sewers to all households, commercial and industrial build- There is also an economic regulator for the Subic concession con- ings. In smaller cities, the DPWH, guidelines and standards are to be tract. This was set up several years after the commencement of the clarifi ed for the collection, treatment and disposal of sewage. These contract, the result of renegotiations in which the company sought to new requirements could point to new opportunities for the private sec- reduce political infl uence in the tariff review process. The regulator is tor in the environmental sector, but given the Philippine Government’s independent but tariffs require further approval by Subic Bay Metro- record, implementation is likely to be partial and delayed. politan Authority (SBMA) Board. Two new funds, the National Water Quality Management Fund, and As the agency responsible for coordinating the water resource devel- the Area Water Quality Management Fund, have been set up. Waste- opment, the National Water Resources Board is supposed to issue water charges and discharge permits will be paid into the funds. The water permits and certifi cates of public conformance to local govern- Act tightens up the prohibition of pollutant discharge and allows for ments operating water supply systems. In practice, most local gov- fi nes of PHP 10,000-200,000 per day of violation. Higher fi nes are ernments started developing water resources and operating water possible for very serious violations of the Act. supply systems without obtaining permits or certifi cates of public conformance. Many systems operated by local governments were cre- The law streamlines procedures for the involvement of concerned na- ated during the water crisis in the early 1990s, when the government tional government agencies and local governments in the preparation supported the establishment of water systems whether or not local of frameworks, action plans and strategies, and in the defi nition of pol- governments held certifi cates of public conformance. icies for setting standards on water quality and determining the governance structure that would oversee enforcement and monitoring. II.6 Performance Urban residents are meant to be served by individual piped connec- III.2 Financing tions, while rural consumers are served by a variety of water systems Finance for the sector comes largely from central government grants, ranging from wells to communal taps. The vast majority of piped water on-lent from IFIs and bilateral donors. systems in Metro Manila and other urban areas have coverage rates of less than 50%. Most users do not receive continuous supply. III.3 Private Sector Participation Sanitation is a much lower priority for the Philippines than water sup- See table 3.8. ply and no efforts have been made to engage the private sector in the III. Wastewater construction and fi nancing of wastewater treatment plants. The only exceptions are treatment facilities in industrial zones. Government III.1 Sector Policy & Structure policy allows for PSP but there are few opportunities in commercial The structure of the sector is similar to that for water. Responsibility terms. for the provision of sanitation lies with LGUs in rural areas and small At the time of the MWSS privatisation in 1997, there were only 90,000 towns, with district agencies in provincial cities and with the MWSS in sewer connections in MWSS service area in Greater Manila, serving Metro Manila. about 8% of the city’s population. This compared to 850,000 water Untreated domestic wastewater, industrial effl uent, and agricultural supply connections. The concession agreements required the two run-off are major sources of water pollution and threaten to contami- concessionaires, Manila Water Services and Maynilad Water Com- nate clean water sources. Only six cities in the Philippines have sew- pany, to rehabilitate the existing sewerage system and extend the sys- erage systems, and all have low levels of treatment. This is connected tem to provide coverage to 95% of the urban population and to treat with a high incidence of water-borne diseases in the country. Overall, 100% of the sewage produced by the end of the 25-year contract. In 65% of Filipinos lack adequate sanitation and water-borne diseases the initial investment programme for MWSS (primarily investment by accounted for about 31% of reported illness from 1996-2000. The the concessionaires), 80% was earmarked for sewerage and sanita- Philippine Environment Monitor 2003 reported that about 90% of do- tion, although investments in the sewerage system were scheduled mestic waste was not properly collected, treated or disposed of. At the for later in the contract term. national level, it is estimated that around 50% of organic waste being While the formal network is being expanded, the concessionaires are discharged to water bodies comes from domestic sources. required to offer cleaning and servicing for septic tanks and to treat The national government launched several initiatives during the the wastewater collected to specifi ed standards. Only a small portion 1990s: the Philippine National Urban Sewerage and Sanitation Sector of existing customers currently use this service (about 10%) due to Study and Action Plan in 1993, including the preparation of feasibility problems of access and an unwillingness to pay for the service. The studies for seven cities; the National Economic and Development Au- concessionaires are also constructing a number of large community thority (NEDA) Board Resolutions No. 4 and 5 of 1994, which provided septic tanks, as an alternative to sewerage services in new condo- for the decentralisation of sector activities to LGUs. Enforcement of minium developments. the resolutions is ongoing. Targets set under the concession contracts for Manila have been de- The Clean Water Act was passed in February 2004 with support from layed and reduced during rounds of renegotiations and in the fi ve-year the US and Japan ODA and technical assistance. It provides a new review. However, the concessionaires have invested in new wastewa- policy framework that should clarify processes and procedures in the ter treatment facilities and in the expansion of the collection network. prevention, control and abatement of pollution of the country’s water This programme will now be rolled out by East zone concessionaire resources. However, the implementation of the Act will continue to Manila Water Company with a $US64m loan from the World Bank be a serious challenge. The DENR in consultation with other bodies, approved in 2005. including the NWRB, are in the process of drafting the Implementing IV. Environment and Legal Aspects

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 342 Water Market Asia - Philippines

Table 3.8: Access to improved water supply (2000) 2000 Actual (%) 2000 Actual (pop m) 2004 Target Metro Manila 47 6.2 90 Provincial Urban 88 18.3 89.6 Rural 85 35.8 90.4 Total 79 76.3 90.5 Source: LWUA. Data: Medium-Term Philippine Development Plan (2001-2004)

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) Philippines Developing Asia High Income Asia Population with Access to Improved Sanitation 73.00 54.64 100.00 Households Connected 7.00 7.22 99.29 Urban Population with Access 81.00 77.09 100.00 Urban Households Connected 10.00 18.11 99.00 Rural Population with Access 61.00 48.08 100.00 Rural Households Connected 2.00 2.57 90.00

Box 3: Subic Water Service Concession The Subic Bay project is considered unique because it involved well-maintained and commercially operational infrastructure, which had been put in place by the U.S. Navy. It was also unique because the ability of local industrial customers to pay cost-recovering tariffs was relatively certain at the time of privatisation. The service area combines the former U.S. Naval base, which had been operated by the Subic Bay Metro- politan Authority (SBMA), a government-owned and -controlled corporation, since the departure of the U.S. Navy, and the towns of Olongapo and Subic, which had been served by the Olongapo water district. Subic Water & Sewerage Inc. is a joint venture among Biwater International (a U.K.–based water supply ﬁ rm, which owns 30%); DMCI (a Philippine construction ﬁ rm, which owns 40% ); the Olongapo water district (which owns 10%); and the Subic Bay Metropolitan Authority (which owns 20%). The company was awarded a 25-year concession contract through competitive bidding that grants it the exclusive right to provide water supply services. The company took over the operation of the water system in April 1997 and is now responsible for water resource development, treatment, collection of tariffs, and distribution to industrial customers in the Subic Bay Free Port and to city residents in the adjacent municipality of Olongapo.

Table 4. 2: Major ODA P ro j ects for Sanitation 1990 - 2004 Project Donor Amount Manila Third Sewerage Project (MTSP). Beneficiaries: World Bank (2005) US$64m (loan) three million Filipinos will benefit from improved sewerage coverage and sanitation services; project supports the Government’s 2004 Clean Water Act which aims to reduce water pollution and its harmful effects on people’s health and the environment. Aims to increase coverage from almost zero to 100% in sanitation services, and from about 8% to 30% in sewerage coverage, in the East concession area of Metro Manila. Implementing authority: Manila Water Company, Inc. (MWCI)

Water Districts Development Project (WDDP): hel ps LGUs World Bank (2004) US$38.6m (loan) and water districts to plan and implement sewerage and sanitation investments and assist the Philippine government in developing transparent regulatory mechanisms in water utilities. There are two components: to finance the Public Performance Audit (PPA), comprising technical assistance designed to pilot and field- test a privatized public performance audit system; second, to finance the constructing sewerage, sanitation and drainage infrastructure.

LGU Urban Wat er & Sanitation (LGUUWSP) Project 1 & 2 World Bank (2006) US$ 30m

343 Water Market Asia - Philippines

IV.1 Water and Wastewater Fundamentals rently, raw water pricing levels remain low, undermining market demand for water service suppliers, but the NWRB is making concerted Overall, the Philippines has adequate water resources. However, in efforts to raise charges. the Metro Manila area there are regular shortages. In the mid-1990s this developed into a crisis, when the El Nino weather phenomenon The NWRB plays an important role in the collection and dissemina- led to a drought and to severe water rationing in the city. The metro- tion of data. It has been involved in groundwater resource monitor- politan area is heavily reliant on a single source of water, the Angat ing (under a UNDP-funded programme), the National Water Data Dam, and the transmission infrastructure from the dam to the city has Coordination Centre and the NWRB Information Centre as well as been poorly maintained, reducing the raw water available for distribu- the National Water Information Network. It has also conducted stud- tion in Manila (see Box 2). Elsewhere, available water resources are ies, for example on water rights, and supported a campaign for water depleted by uncontrolled extraction of groundwater, silting, and dis- conservation. A river basin organisation is envisaged but has not yet charge of untreated industrial and domestic wastewater. been implemented. There is growing competition among water users: water supply, hydro- There are two functioning river basin organisations: the Laguna Lake power, environment, fi shing and watershed management are compet- Development Authority and Agno Rover Basin Commission. ing with irrigation for water resources. The NWRB was established in order to coordinate the use of water for the different purposes, but its IV.2 Laws and Institutions action is hampered, in part, by a lack of reliable data on present water Institutions resources and water use. Erosion and siltation of the canals have re- - National Water Resources Board (NWRB): coordinating body for the sulted in high costs for the O&M of irrigation schemes, and many are sector; regulates tariffs for water and sanitation services and raw wa- thus in need of frequent rehabilitation. ter extraction Water Resources - Metropolitan Waterworks and Sewerage System (MWSS): respon- Groundwater resources are estimated at 180 km3/year, with total in- sible for water and sanitation services in Manila ternal water resources amounting 479 km3/year. The total water with- - Local Water Utilities Administration (LWUA): provides support, regu- drawal was estimated on the basis of the water rights issued by the lation and fi nance for water districts NWRB to 55.4bn m3 (FAO estimate 1995), of which 88% is for agricultural purposes. Production of wastewater in the national capital region - Department of Public Works and Highways (DPWH) Coordinating and nearby provinces is estimated at 74m m3. Ministry for waterworks. MWSS and LWUA report to the Secretary of DPWH Water Resources Policy - Department of Environment and Natural Resources (DENR): re- A Master Plan on Water Resources Development has been developed sponsible for developing and monitoring environmental standards un- but not yet implemented. Government policy recognises the need for der the Clean Water Act cooperation with non-state actors like non-government organisations, ‘people’s organisations’ and women’s groups in the development and - Department of Health (DOH): responsible for developing and moni- implementation of water resources policy. toring water quality standards The Philippines has longer experience with coordinated water policy - Department of Agriculture (DOA): responsible for water use for agri- than most other countries in the region through the NWRB. Water cultural purposes through the National Irrigation Administration resource management has recently been strengthened by the introduction of primary legislation setting a foundation for integrated policy - Sectoral Committee on Infrastructure Development: reviews infra- development and implementation under the Clean Water Act (2004). structure programmes for water resources sector with Regional De- However, implementation of the law is likely to proceed slowly. Ad- velopment Council. ditionally, the authorities have not made much progress in controlling See table 5.1. groundwater extraction through abstraction charges, or in controlling pollution through fi nes and penalties. V. Construction & Equipment Markets The NWRB is the national water apex body, created in 1974 as the Investments in the country’s construction industry expanded during government coordinating and regulating agency for all water resourc- the period. With the sustained infrastructure projects of the national es management development activities. The NWRB was reorganised government, investments in public construction did a signifi cant turn in 2002 to ensure its independence from Ministries with a direct stake around as it posted a positive growth rate of 5.1% in the fi rst quarter of in the water sector. Its board is made up of heads of departments and 2005, from a decline of 11.4% in 2004. agencies with no direct claims on water resources. Good market opportunities exist in the water and wastewater treat- It is tasked with the formulation and development of policies on wa- ment chemicals subsector and growth is expected to be spurred on by ter utilisation and appropriation, the control and supervision of water the soon to be signed Clean Water Act of 2004. The water and waste- utilities and franchises, and the regulation and rationalisation of water water chemical market in the Philippines ha san estimated value of rates for local utilities. The NWRB supervises and control all water US$29.8m. The two primary government buyers of water and waste- utilities and their franchises and water assets and sets tariffs charged water chemicals are the Metropolitan Waterworks and Sewerage Sys- by waterworks operators except those falling under the jurisdiction of tem (MWSS) and Local Water Utilities Administration (LWUA). There the MWSS and LWUA. are an estimated US$1.3 billion worth of projects from MWSS and LWUA that are planned and have funding and which should increase The NWRB sets abstraction tariffs. These are currently considered to demand for water and wastewater chemicals. be too low to encourage water conservation and the NWRB intends to raise these and to increase collection effi ciency, tackle illegal extrac- VI. Sources tion of water and to coordinate with LGUs in the monitoring of water EIU, ADB, World Bank, PPIAF, Interviews resource use. Revenues from raw water tariffs will be used for infrastructure investment. Raw water pricing will initially be implemented in areas that are already experiencing water stress like Metro Manila and other cities. This is due to start in 2006. Since there is a lack of infrastructure to measure the water utilised by farming communities, any implementation for this sector may take several years. The Philippines has begun raising raw water tariffs to cost recovery levels. As many Filipino households and businesses use groundwater extraction as their source of water, even where piped water supplies are available, the issue of raw water pricing has an important impact on the fi nancial viability of private sector water supply projects. Cur-

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 344 Water Market Asia - Philippines

Chart 4.1: Daily organic water pollutant emissions 1999- 2004 (kg)

400,000 289,335 305,095 261,074 274,813 300,000 231,248 246,262

200,000

100,000

0 1999 2000 2001 2002 2003 2004

Chart 4.2: Daily organic water pollutant emissions / 1000 people 1999-2004 (kg) 10.00

8.00

6.00

3.34 3.45 3.56 3.69 4.00 3.09 3.22

2.00

0.00 1999 2000 2001 2002 2003 2004

Philippines Dev eloping Asia (mean) High Income Asia (mean)

Table 5.1: Laws and Regulations Constitution Specifies that private corporations engaged in the extraction or sale of water to the public must be at least 60 % Filipino owned but does not impose nationality restrictions on water treatment, allowing for fully foreign owned BOT projects 1973 Provincial Water Utilities Act: created LWUA and provided for the formation of Water Districts 1974 Presidential Decree 424: created the Water Resources Council, now the NWRB 1976 Water Code: establishes the basic principles governing appropriation, control, and conservation of water resources. It gives the National Water Resources Board the authority to issue permits to source, use, and develop water. 1977 Environmental Code 1987 Executive Order defines LWUA’s responsibility to include provision of Level II (communal faucet system) service to small towns and RWSAs 1987 Executive Order No. 124- A: assigned the residual functions of the Board of Waterworks and the defunct Public Service Commission to NWRB 1994 BOT Law: Specifies nine BOT variants and a catchall provision that allows other contractual arrangements, including concessions and lease agreements; distinguishes between solicited and unsolicited projects and specifies application processes for each type of project; prohibits “direct” guarantees, or guarantees of the private company’s debt obligation for unsolicited projects, but it allows for indirect guarantees, or guarantees of minimum off - take. 1995 Water Crisis Act: gave government special powers to reorganize sector agencies, induce greater private sector participation and improve the overall institutional environment 2004 Clean Water Act: Framework law for water resources sector

345 Water Market Asia - Philippines

Known PSP Projects in the Philippines Baguio Water

Concession Total investment (USDm) n/a

Sector 1 Water Sector 2 No data Biwater lost a water concession in Baguio, Philippines, before it even started. The concession was awarded in 1997, but Biwater asked to increase its winning rate bid of P8.40/m3. because of the continuing currency crisis: Baguio responded by cancelling the concession.

Capacity Timeline

Production 50,000 m3/d Contract awarded 1997

Early termination 1998 August Termination!

Equity investor Biwater

Baguio Water II

Baguio 25 -year BOT Total investment (USDm) 70.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 50,000 m3/d Contract awarded 2005 August

Equity investor Benguet Corp (Philippines) 100.00%

Bulacan Central Water

BOT Total investment (USDm) 150.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 280,000 m3/d Announced 1995 November

Contract awarded 1999 September

Equity investor Sumitomo 20.00%

Equity investor Veolia Environnement 20.00%

Carmen Water

Carmen Cebu BOT Total investment (USDm) 33.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 15,000 m3/d Preferred bidder 2005 Opportunity!! Equity investor Unknown

Cebu Water

Cebu BOT Total investment (USDm) 160.00

Sector 1 Water Sector 2 No data In January 1999, Veolia and local partner Aboitiz Equity Ventures (AEV) submitted an unsolicited P9.2-billion BOT proposal to rehabilitate and expand the water distribution system in Cebu City, a premier city in the central Philippines, run by the Metro Cebu Water District

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 346 Water Market Asia - Philippines

(MCWD). In May 2002, the Aboitiz Group dropped the proposal saying they believed the MCWD privatisation might not proceed as planned. The MCWD employees union was vehemently opposed to the proposed BOT contract. The Manila Water Company has since been discussing the take over of the project with the municipality.

Capacity Timeline

Production n/a m3/d Announced 1999 January

Cancelled 2001 May Termination! Calapan Water

Calapan Mindoro 25 -year BOT Total investment (USDm) 4.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2003 January

Equity investor Jolliville Holdings Corp (Philippines) 100.00%

Clark Economic Zone

25 -year Concession Total investment (USDm) 20.00

Sector 1 Water Sector 2 No data In April 2000, Veolia won a 25-year concession to provide water and wastewater services for the Clark economic zone in the Philippines, a 4,400 hectare site that was once one of the biggest US Air Force bases in the world. Clark Water Corporation (CWC), a Veolia subsidiary, promised to invest Euro25m over the next three years to rehabilitate existing networks and extend facilities on what is now a duty free zone; total net sales from the contract are estimated at Euro350m. Today, business locators at the economic zone complain about high water costs.

Capacity Timeline

Production n/a m3/d Contract awarded 2000 April

Equity investor Veolia Environnement

Fort Bonifacio Water

Manila 25 -year Concession Total investment (USDm) 40.00

Sector 1 Water Sector 2 Wastewater In November 1998, Veolia signed a 25-year concession with Fort Bonifacio Development Corp (FBDC) to construct and operate water and sewage treatment facilities within Fort Bonifacio, the new business district on the outskirts of Manila. FBDC is the developer of a 214-hectare, US$10 billion “Global City,” a mixed-use residential, industrial and commercial complex. Under the agreement with FBDC, Veolia is meant to invest US$35 million in the water supply and sewerage system in Fort Bonifacio. This was Veolia’s ﬁ rst contract in the Philippines. Two years after, Veolia had reportedly spent Euro40m completing the ﬁ rst phase of work, including the construction of one drinking water plant and another for wastewater treatment.

Capacity Timeline

Treatment n/a ton/d Contract awarded 1998

Production n/a m3/d

Equity investor Veolia Environnement 100.00%

Kalilangan Water

Kalilangan Bukidnon 15 -year DBO Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Distribution 142,000 pop Contract awarded 2003 n/a

347 Water Market Asia - Philippines

Equity investor Benguet Corp (Philippines)

Lantapan Water

Bukidnon 15 -year DBO Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Distribution 30,000 pop Contract awarded 2002

Operator Benguet Corp (Philippines)

Lima Water Corp

Lima 20 -year BOT Total investment (USDm) 26.10

Sector 1 Water Sector 2 Wastewater

Anglian sold its 10% to its partners in 2004.

Capacity Timeline

Treatment n/a ton/d Contract awarded 1999 June

Production 6,000 m3/d

Equity investor Alsons Consolidated Resources Inc 33.00%

Equity investor All Asia Capital Group 33.00%

Equity investor Marubeni Corp 33.00%

Magdalena Laguna Water

15 -year Lease Total investment (USDm) 1.60

Sector 1 Water Sector 2 Wastewater

Capacity Timeline

Distribution 4,600,000 connections Contract awarded 2001 August

Early termination 2002 Termination! Equity investor Montgomery Watson

Equity investor Benpres Holdings

MWSS Bulk Water Supply Project

Manila BOT Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 400,000 m3/d Announced 2004 September Opportunity!!

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 348 Water Market Asia - Philippines

Subic Bay

Subic 25 -year concession Total investment (USDm) n/a

Sector 1 Water Sector 2 Wastewater

Capacity Timeline

Treatment n/a ton/d Contract awarded 1997

Production n/a m3/d

Equity investor Cascal (Biwater)

Equity investor SBMA

Maynilad (West)

Manila 25 -year concession Total investment (USDm) n/a

Sector 1 Water Sector 2 Wastewater

Capacity Timeline

Treatment n/a ton/d Contract awarded 1997

3 Production n/a m /d Early Termination 2004 Termination! Equity investor Suez

Manila Water Company (East)

Manila 25 -year concession Total investment (USDm) n/a

Sector 1 Water Sector 2 Wastewater

Anglian sold its 10% to its partners in 2004.

Capacity Timeline

Treatment n/a ton/d Contract awarded 1997

Production n/a m3/d

Equity investor Ayala Corporation

Equity investor United Utilities

Equity investor IFC

349 Water Market Asia - Philippines

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 350 Water Market Asia - Sri Lanka

Sri Lanka

Like in many countries in the region, water and sanitation responsibilities have been decentralised but access to funds has not. As a consequence, many systems are dilapidated or unusable. The government has taken steps to introduce PSP as part of donor funding programmes but the legislation has not been enacted. There is no concrete interest from water investors.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Non-existent PSP is stil to become a reality in Sri Future Opportunities None Lanka. A long stream of reforms will have to preceed it. Local competition Negligible Equipment Markets Comments Future Opportunities Few Medium to large ADB or World Bank- Local competition Negligible funded projects provide a number of opportunities. Public Utilities Comments Track record Very bad Corruption and inefficiencies are proving Sustainability Poor very hard to root out. Reliance on ODA Very High Government Comments Commitment to deliver service No Reforms have been slow and difficult to Fiscal Resources Very limited implement. Economy & Finance Comments Recovery since Asian crisis 1997 Below average A weak economy that is still disrupted Local capital market Non-existent by civil war.

351 Water Market Asia - Sri Lanka

I. General Information The government plays a central role in the Sri Lankan economy. Al- though privatisation has reduced the role of the public sector in manu- Sri Lanka is a low income country, but has managed to reduce poverty facturing, the state dominates the utilities sector, the fi nancial sector, levels signifi cantly in recent decades. Human development indicators health and education and owns 90% of land on the island. It is also by – health, education, etc – are comparatively high given the country’s far the largest employer with more than 1 million people working in the GDP. The proportion of poor households fell during the 1990s in both civil service and government agencies. Expenditure on civil servants rural and urban areas. However, access to improved water and sanita- and the huge political establishment accounts for 27% of the govern- tion is limited in low income areas in cities and in the countryside and ment’s recurrent expenditure and accounted for 6% of GDP in 2004. in recent years, water-related diseases and child malnutrition have worsened. Slow economic growth has led to high rates of unemployment, above 8%, and underemployment, particularly among young people, a phe- Twenty-eight percent of the population does not have access to safe nomenon which is only partly mitigated by labour migration. drinking water and 24% does not have access to safe sanitation. Con- ditions are worst in the North-East of the country, where fi ghting be- I.2 Political & Investment Environment tween the Government and Tamil separatists has been taking place The Sri Lankan political situation is dominated by the civil war that for decades. With the progress of the peace process, Sri Lanka faces has been going on for the last 20 years in which 70,000 people have the challenge of reconstruction efforts, including improving the access died. The divisions between the Sinhalese and Tamils constitute the to water and sanitation in areas of the country where no investment deepest political cleavage in Sri Lankan politics. The Tamil Tigers are in basic infrastructure has taken place in the last 20 years. Poor living fi ghting for an independent Tamil state in the Northern and Eastern conditions in this region were exacerbated by the tsunami in 2004 regions of the country. The government has acknowledged the need but the Government has pledged reconstruction fi nancing to improve to consider some form of autonomy for the Tamils but negotiation and infrastructure in the North, East and South of the country. compromise is virulently opposed by the nationalist and communal- Sri Lanka has a low level of urbanisation, with over two-thirds of the istic political parties. Along with the infl uential Buddhist clergy, these population living in rural areas. 44% of the population earns less than groups are strongly opposed to any kind of federalism. US$2 per day. Poverty is predominantly rural, with 60% of the popula- Since the late 1980s, the Tamil Tigers have controlled the city of Jaff- tion in rural areas classifi ed as poor. na and the Northern peninsula. Violence escalated in the late 1990s I.1 Macroeconomic Situation when the government stepped up its military offensive and the Tigers retaliated by increasing terrorist attacks on economic and civilian tar- The country’s security situation has skewed government spending to- gets on the rest of the island. Targets have included the Central Bank wards defence expenditure and the huge public sector has held back of Sri Lanka in 1996, hotels and offi ce complexes, power stations, a productive investment and growth. However, Sri Lanka has good Buddhist temple in Kandy and, in 2001, the international airport at achievements on social development indicators including education Colombo. This attack destroyed 13 aircraft and caused damage of and health. more than US$300m. In the 1980s, India intervened disastrously in Sri Lanka began to introduce economic liberalisation measures in the the confl ict. Negotiations between the parties have been held inter- late 1970s but implementation of reforms has been patchy and subject mittently since the 1990s, with intervention and facilitation from for- to political reversals. Reform was given new impetus by slow growth in eign governments. A ceasefi re has now held for roughly three years 1996, and signifi cant reforms then took place, including the privatisa- but the Tigers have exploited the relaxation of security checks in the tion of the telecoms company, a development bank and the national post-ceasefi re period to infi ltrate major cities, recruit more fi ghters and airline. The telecoms, power-generation and port sectors were opened amass additional weapons and ammunition, and given the infl uence to private participation at this time. of nationalist parties, a negotiated solution still looks distant. In August 2005 the foreign affairs minister was assassinated. The government

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 8.00 2006 22,535 6.00 2005 20,946 4.00 2004 19,500 2.00 0.00 17,000 18,000 19,000 20,000 21,000 22,000 23,000 -2.00 1998 1999 2000 2001 2002 2003 2004 2005 2006

Sri Lanka Dev eloping Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean)

12.00 10.00 Chart 1.3: 2004 Sector Share of GDP 8.00 Agricult. 6.00 4.00 19% 1.28 1.07 1.19 1.26 2.00 n/a 0.52 n/a 0.00 Serv ices 1998 1999 2000 2001 2002 2003 2004 55% Industry Sri Lanka Dev eloping Asia (mean) 26% High Income Asia (mean)

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 352 Water Market Asia - Sri Lanka

Table 1.1: Sovereign Risk Indicators Sri Lanka Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 564.00 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 106.76 59.60 50.84 Short Term Debt / Total Debt 2004 (%) 4.60 10.49 n/a Fitch Sovereign Rating (2004) n/a

Table 1.2: Legal Risk Indicators 2004 Sri Lanka Developing Asia High Income Asia Time to enforce a contract (days) 440.00 392.62 103.67 Time to register property (days) 63.00 62.82 16.50 Time to resolve insolvency (years) 2.20 4.45 1.15 Time to start a business (days) 50.00 67.08 14.33 Legal rights of borrowers and lenders (0=low) 3.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Sri Lanka Developing Asia High Income Asia Political Rights 3.00 4.23 2.43 Civil Rights 4.00 4.69 2.14 Corruption Perception 3.50 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 Sri Lanka Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 18.11 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 121.71 185.54 1,281.59 Roads, paved (% of total roads) n/a 44.75 75.32 Electric power consumption (kwh per capita) 296.63 717.46 7,505.93 Water supply failures (days) 12.00 10.00 n/a

Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%)

8 0.00

6 -2.00 2002 2003 2004 2005 2006 4 -4.00

2 -6.00

0 -8.00 -7.10 -7.30 -7.20 -7.10 -8.00 -2 2003 2004 2005 2006 -10.00 -0.88 -1.90 -4 -3.10 -3.80 -6 Sri Lanka Dev eloping Asia (mean) High Income Asia (mean) Sri Lanka Dev eloping Asia (mean) High Income Asia (mean) Chart 1.8: Real Interest Rate 2000-2003 (%)

Chart 1.7: Inflation Rate 1999-2004 (%) 10.00 8.28 16.00 8.00 14.00 14.16 12.00 6.00 5.07 10.00 9.55 4.63 4.00 5.04 8.00 7.58 6.18 6.00 6.31 2.00 4.00 4.69 2.00 0.00 0.00 2000 2001 2002 2003 -2.00 1999 2000 2001 2002 2003 2004 Sri Lanka Sri Lanka Dev eloping Asia (mean) Dev eloping Asia (mean) High Income Asia (mean) High Income Asia (mean)

353 Water Market Asia - Sri Lanka blamed the Tamil Tigers, who denied responsibility, but nevertheless Main Cities of Sri Lanka (2004) Population '000 agreed to continue with peace talks. Colombo 2342.00 The political parties distinguish themselves in their attitude towards Gampaha 2099.00 negotiation with the Tamil Tigers and in their approach to economic Kurunegala 1486.00 reform. The United National Party is supported by wealthier, urban Kandy 1325.00 voters and is generally supportive of economic liberalisation. It has Kalutara 1085.00 implemented reform measures since it came to power in 2001. The Peoples Alliance, the party of President Kumaratunga, is traditionally Ratnapura 1049.00 socialist but has supported some liberalisation measures since 1994. - Mechanisms and infrastructure development for water marketing in- The Marxist Janatha Vimukthi Peramuna (JVP) has strong support is cluding rehabilitation and renewal of irrigation systems and improving rural areas. It wields considerable power over trade unions, which it the measurement and monitoring of irrigation water has used to voice its outright opposition to any form of privatisation. The nationalist parties do not hesitate to mobilize their supporters in - Introduction of a system for water rights trading and transferable demonstrations against the peace process and further liberalisation water entitlements of the economy. These parties have been gaining support as a result - Full cost pricing of domestic water supplies of high rates of youth unemployment and growing resentment against liberalisation in rural areas, where people have not seen the benefi ts The new policy was intended to be supported by primary legislation of economic reforms. The rising cost of living and the slow rehabilita- in the form of a National Water Resources Act but this has not gone tion of the tsunami-affected population have contributed further to civil ahead as a result of fi erce political opposition to privatisation. unrest. Demand management has been given special attention in recent gov- The judiciary, police, armed forces and bureaucracy are all highly ernment policies. In the domestic water supply sector, targets include politicised. The credibility and independence of the judiciary has often minimizing unaccounted for water and introducing demand manage- been called into question and it is the President who appoints judges ment measures. to the Supreme Court. Structure In Sri Lanka, the December 2004 tsunami claimed over 60,000 lives Most of the piped water in Sri Lanka is supplied by the National Water in the country and displaced one million people. The worst-affected Supply and Drainage Board (NWSDB). NWSDB manages 181 piped areas were the coastal regions of the Tamil-claimed Northern and water schemes. Budgetary support for construction of new piped Eastern Provinces. However, the opportunity for the warring parties schemes is limited and NWSDB does not have the capacity to fi nance to come together in responding to the disaster was missed: the gov- new investments through tariffs. As a result, the sector depends on ernment was unable to broker an agreement with the Tigers on the external funding to increase coverage. The fi nancial and operational distribution of aid in the face of virulent opposition from the opposition effi ciency of NWSDB defi nes the quality of service in Sri Lanka and party and Buddhist clergy. the sector’s capacity for new investments. The NWSDB has a major The physical infrastructure in Sri Lanka is inadequate across all trans- role in implementing new policies and starting the decentralisation of port and utilities sectors. Budgetary constraints have curtailed pub- service provision to local authorities, the private sector, and commu- lic investment, and the lack of suitable pricing policies has deterred nity-based organisations (CBOs). private-sector entry. The government is promoting private investment As a result of decentralisation, municipal authorities have become re- in infrastructure, largely on a build-own-operate or build-own-transfer sponsible for the provision of water and sanitation services but they basis. currently have little capacity to implement this mandate. Most local Sri Lanka’s power situation is particularly weak and high costs and governments do not have the fi nancial capacity to invest in water and poor performance have held back both domestic and foreign invest- sanitation, and many do not even have the fi nancial and technical ment in the country. Three-quarters of urban businesses own their capacity to operate and maintain the existing ones. NWSDB manages own generators, even though this is more expensive than drawing 99 water schemes with less than 1,000 connections and although it power from the grid. Restructuring of the power sector has been held has tried to transfer them to local authorities, they have not accepted back by fi erce opposition from the Marxist JVP party. the responsibility. Small schemes have a higher O&M cost than large ones due to lack of economies of scale and higher cost of manage- The telecoms sector, on the other hand, has undergone restructuring ment if run by NWSDB, and are meant to be transferred to local au- and has achieved strong growth since 1998. thorities, CBOs, or the private sector. II. Water Rural II.1 Sector Policy & Structure Where no piped systems exist, most people rely on groundwater for Policy drinking purposes. Although groundwater quality in most parts of the country is good and relatively constant throughout the year, biologi- The Government recognised the importance of safe water in the 2002 cal contamination, high levels of fl uoride and salinity intrusion in wells Poverty Reduction Strategy (PRSP) which states “the provision of and water intakes is a common problem in the project areas. In ad- safe drinking water, and adequate sewage and sanitation systems, dition, urban growth has increased pressure on the already scarce is frequently cited as the single, highest social service priority by poor groundwater resources, making the need for piped water supply more households” and it identifi es access to safe water and appropriate urgent. sanitation as one of its priorities. National targets for water supply in Sri Lanka are ambitious: the target for access to safe drinking water is Much water-related infrastructure is provided and operated by the set at 85% of the population by 2010 and 100% by 2025. Similarly, the state or local government, although there are many village-owned ir- target for adequate sanitation is 100% by 2035 (Wickramage, 2002). rigation systems and NGOs/IOs have provided extensive support for (largely non-piped) rural water supply facilities. Users generally con- Proposals included in the new PRSP clearly say that public - private sider that the government is responsible for service delivery; since sector partnership in water, sewerage and sanitation services should fi nancial resources are inadequate, many systems are dilapidated or be promoted. Based on these agreements, the Government adopted unusable. However, the need for benefi ciary participation and contri- a new National Water Resources Policy in 2001. The policy provides bution to costs in order to ensure system sustainability is recognised for: in government policy and is built into projects funded by IFIs. - PSP in water supply projects in all urban areas, with the involvement The national policy, approved in 2001, indicates that rural sector ac- of international companies tivities should be based on participatory approaches. The role of Gov- - Issuing of water entitlements by the National Water Resources Au- ernment, provincial councils, and local government authorities should thority to manage the allocation of water resources between agricul- be to regulate and facilitate the implementation of the sector activities tural and other uses while CBOs and the private sector should be the providers of services. Non-government organisations are recognised as facilitators of water

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 354 Water Market Asia - Sri Lanka

Table 2.1: Income Level Sri Lanka Developing Asia High Income Asia GDP per capita 2004 (US$) 1,010.00 1,104.30 23,628.57 Population on less than US$1 /day 2004 (%) 8.00 18.23 0.00 Unemployment 2004 (%) 8.55 6.73 4.89

Table 2.2: Area & Population Sri Lanka Developing Asia High Income Asia Population Growth 2003 (%) 0.85 1.67 0.64 Urban Population Growth 2003 (%) 2.62 3.48 1.18 Population Density 2002 (pop/km2) 288.20 231.45 2,335.17 Area (thousands Ha) 6,561.00

Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban 2000-2003 (cst 2000 US$) (millions) Population (%) 19.40 19.27 24.00 23.80 710.89 19.20 19.07 23.46 720 18.91 23.50 682.97 19.00 23.13 700 18.75 22.80 680 18.80 18.59 23.00 660 638.29 643.62 18.60 22.50 640 18.40 620 18.20 22.00 600 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002 2003

Table 3.1: Water Service Coverage Indicators 2002 (%) Sri Lanka Developing Asia High Income Asia Population with Access to Improved Water 78.00 76.85 100.00 Households Connected 10.00 22.27 99.00 Urban Population with Access 99.00 86.17 100.00 Urban Households Connected 35.00 48.27 99.50 Rural Population with Access 72.00 71.42 100.00 Rural Households Connected 4.00 14.58 97.00

Table 3.2: Water Resources Sri Lanka Precipitation Volume 2002 (bn m3/yr) 112.30 Precipitation Depth 2002 (mm/yr) 1,712.00 Groundwater: produced internally 1998-2002 (bn m3/yr) 7.80 Surface water: produced internally 1998-2002 (bn m3/yr) 49.20 Overlap: surface and groundwater 1998-2002 (bn m3/yr) 7.00 Water resources: total internal renewable 1998-2002 (bn m3/yr) 50.00 Water resources: total external 1998-2002 (bn m3/yr) 0.00 Water resources: total renewable 1998-2002 (bn m3/yr) 50.00 Agricultural water withdrawal 1998-2002 (bn m3/yr) 12.00 Domestic water withdrawal 1998-2002 (bn m3/yr) 0.30 Industrial water withdrawal 1998-2002 (bn m3/yr) 0.31 Total water withdrawal 1998-2002 (bn m3/yr) 12.61

Table 3.3: Water Resources II Sri Lanka Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 2,644.00 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 2,644.00 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 666.80 507.25 544.73 Dependency ratio 1998-2002 (%) 0.00 33.33 1.39 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 24.00 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 25.22 16.19 13.19

355 Water Market Asia - Sri Lanka provision. Local authorities are also recognised as service providers public protests against private involvement prompted the Minister to when required. The policy recognizes water as an economic good and delay the proposed legislation. The Prime Minister subsequently said indicates that users should bear the full responsibility of the sustain- in a public statement that he was against introduction of the Water able O&M of facilities and assets and be encouraged to share the Policy Bill in Parliament, announced that the government would not initial capital investment comply with some aspects of the agreement made with the World Bank and criticised the Water Minister for attempting to introduce the Some progress is being made in promoting government-community Water Bill. Given the high degree of political opposition against privati- partnership and the participation of civil society in water management, sation in the country, it seems unlikely that the government will choose and NGOs and CBOs play a signifi cant role in many cases. Participa- to pick up this legislation again in the near future. tory principles are taking time to become fully functional, particularly because of delays with establishing the legal base. Capacity building II.4 Tariffs is undertaken at all levels through IFI-funded projects; international In April 2002, the Government of Sri Lanka approved a tariff increase networking similarly is largely limited to IFI-funded activities. that allows the National Water Supply and Drainage Board (NWSDB) II.2 Financing to fi nance operation and maintenance (O&M) and debt service from tariffs. The Government estimates that the investment requirements in the water sector will be as much as US$1.125m during the 2001–2010 To reduce personnel ratios, no new staff have been hired. NWSDB period. is now in a better position to take over the O&M and rehabilitation of existing urban schemes, and it has gained signifi cant experience with In the year 2000, national investments in agriculture and irrigation implementing participatory approaches in rural communities. remained at about 8.5% of the total capital expenditure. The corresponding fi gure for the energy and water supply sectors was about Tariffs for irrigation water are too low to encourage effi cient use and 16.5% (Central Bank, 2001). there is signifi cant wastage as a result of heavy subsidies. Tariffs for domestic water are more in line with costs, but there is heavy cross- The main investors in urban water supply and sanitation have been subsidisation of domestic users by non-domestic users. the public sector, including the central government, the NWSDB, Provincial Councils and local authorities. Investments by community- II.5 Regulation based organisations and private individuals are signifi cant in rural ar- Regulatory systems were to be revised under the abandoned Water eas. Additionally, a substantial portion of irrigation and water supply Act. Existing present regulatory mechanisms for monitoring and en- projects are foreign-funded. forcing water standards are variable and ineffective. Cost recovery mechanisms for urban water supply focus on recov- The establishment of an independent regulatory structure was cov- ery of operation and maintenance costs of the services. The level of ered under the Public Utilities Commission Bill, which has been ap- recovery is lower in water supply schemes managed by local authori- proved by Parliament at the end of 2002. The Commission will imple- ties. Private investment by individual families for the construction of ment the regulations to be developed by the Ministry of Housing and protected wells and latrines is considerable (Wickramage, 2002). Plantation Infrastructure. In 2002, all regional centres served by the NWSDB rely on the Great- er Colombo Region to generate a surplus suffi cient to meet NWSDB II.6 Performance overhead costs, including debt service and some modest capital ex- Overall, the performance of the NWDSB has been poor, with low fi - penditure for rehabilitation and replacement. The NWSDB is review- nancial and operational effi ciency indicators, low coverage and fre- ing its tariff strategy to transfer responsibility of smaller water schemes quent service interruptions. Low tariffs and reliance on government (with less than 1,000 connections) to local government institutions, transfers for maintenance and capital expenditure has inhibited the private sector, or CBOs. utility’s ability to improve service quality. NWSDB’s fi nancial performance has improved as a result of increased The water distribution network covers the central urban area of Co- customer numbers and improved technical performance. Revenue, lombo but network deterioration and the growth of informal settlements since 1966, has been suffi cient to meet actual O&M costs and debt means that the utility only supplies two-thirds of the population. Others service; and from 1997 through to 2001, NWSDB has achieved a cost receive water supplies from illegal connections and public taps. recovery ratio of 1.0 as covenanted under its existing ADB loan. Raw water for Colombo is mainly supplied by surface water sources. These achievements recognise necessary adjustments to refl ect the Although the river fl ow is currently suffi cient to meet water supply impact of certain accounting policies. Despite NWSDB’s improved fi - needs, low tide and low fl ow levels may cause the river water level nancial performance to date, O&M is not regarded as adequate in to fall below the intake level and high tide may bring saline water into many towns and debt-service obligations remain highly subsidised, the system. Raw water shortages for the Greater Colombo area are with a high level of grant funding provided to NWSDB. imminent. Moreover, except for some modest rehabilitation, revenues from water III. Wastewater sales remain inadequate to make any real contribution to future capital expenditure out of tariffs and NWSDB continues to be heavily reliant III.1 Sector Policy & Structure on the Government and offi cial development assistance funding for Responsibilities are shared as for the water sector: the NWSDB is the major capital works. main provider of sanitation services as well as the regulator across the country. In rural areas where there is little sanitation coverage, local II.3 Private Sector Participation authorities are responsible for the provision of services but in practice The Government has taken some small steps towards introducing pri- sanitation is often ignored. Government targets for the sanitation sec- vate sector participation in the operation of water schemes. In 1998- tor are 70% access by 2010 and 100% by 2025. 2002 years, a number of activities such as meter reading and billing and collection have been out-sourced to the private sector. III.2 Financing The sector is mainly fi nanced by donor grants and loans onlent by the The National Policy on Private Sector Participation in Water Supply central government to the NWSDB and local authorities. and Sanitation (1999) stated eight urban water supply schemes would be selected as pilot projects for private sector participation, and de- III.3 Private Sector Participation marcated potentially profi table service areas for the Government to enter into partnerships with the private sector for O&M and to extend There is no PSP in the wastewater sector in Sri Lanka. water systems. None of these projects has been successful. III.4 Tariffs PSP is therefore recognised in policy but not enabled by legislation. There are no direct charges for wastewater given the low level of cov- In 2003 the Minister for Water Resources had prepared to present the erage and treatment. new Revised National Water Resources Policy and the Act for discussion by the Parliamentary Committee. However, the fear of massive III.5 Regulation

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 356 Water Market Asia - Sri Lanka

Chart 3.1: Water Uses 2002 (%) Chart 3.2: Fresh Water per Capita 1999-2004 (m3/head) 2,964 Indus. 2,893 3,000 2,797 Dom. 2,723 2% 2,800 2,642 2% 2,527 2,600 2,400 2,200 1999 2000 2001 2002 2003 2004 Agricult. 96%

Table 3.4: Financial Performance of NWSDB Item 1996 1997 1998 1999 2000 Est. 2001 Net Profit (312) 88 182 359 221 371 Cost recovery ratio 1.0 1.2 1.2 1.3 1.2 1.2 Adjusted* Net Profit (341) (57) 27 125 (34) 96 Tariff ratio (Nondomestic : 12.6 7.3 6.0 5.5 7.3 6.2 Domestic) * Adjustments involve adding back depreciation on grant-funded assets, and reducing capitalization of overheads by 50%. Source: ADB

Table 3.5: Water tariffs 2001 Colombo SLR Domestic <10m3 1.25 11-15m3 2.5 16-20m3 6.5 21-25 20 >25 45 Connection fee (domestic) SLR 12,000 Monthly fixed charge (domestic) 50 Commercial/Industrial/m3 42 Monthly fixed charge (non domestic) 70-1,400

Table 3.6: Performance Indicators NWSDB (2001) Average water tariff /m3 US$0.216 Average water consumption lcd 119 Coverage 69% Number of connections 86,586 Interruptions to service (proportion with 24-hour availability) 60% Non-revenue water 55% Employees/1000 connections 7.6 Working ratio 0.52 Connections with meters 70% Collection efficiency 95%

Housing Schemes. The efﬂ uent collected from all other places includ- The NWSDB is self-regulating, while the Ministry of Environment sets ing CMC, Dehiwala/Mt.Lavinia and Kolonnawa is not treated and dis- and monitors wastewater standards. However, there is little enforce- posed of through two sea outfalls at Wellawatta & Madampitiya, 2km ment of these regulations. from the coast. III.6 Performance IV. Environment and Legal Aspects The Colombo municipal sewerage system has 250km of sewerage IV.1 Water and Wastewater Fundamentals pipes and 13 large pumping stations. The system was constructed Annual water resources amount to 2,460m m3. Almost all water re- between 1900-1920 and is need of renewal. There are around 35,000 source use is surface water; groundwater accounts for only 3% of connections, giving a coverage level of approximately one third of the withdrawals. However, water resources are under increasing stress urban population. due to growing demand and competition, especially in the Dry Zone. This sewerage system is owned by NWSDB and the operation and Irrigation accounts for 80% of water consumption and has always maintenance is done by Colombo Municipal Council. Annual O&M been provided free of any signiﬁ cant charge. The overuse of irriga- cost is nearly SLR90m, and a portion of this cost is borne by NWSDB. tion water is common and paddy is sometimes grown on unsuitable, There are 3 treatment plants at Seethawaka, Soysapura & Mattegoda

357 Water Market Asia - Sri Lanka sandy soils. The formation of the NWRC was based in part on a public sector reform agenda of the Ministry of Finance and Planning and the secre- Water Resources tariat of the Council was initially located in that Ministry’s Department Although Sri Lanka’s total water supplies are abundant, water stress of National Planning. However it was later moved to other locations is now being experienced, and regional and seasonal variations in within water related agencies during a series of government reorgani- supply and demand already create problems. This is due to very high sations. The NWRC was able to maintain a neutral and balanced role year-to-year rainfall variability as well as high locational and seasonal during its early history but lacks high level political backing. variation. High growth in water demand over the past 30 years has Despite somewhat limited support from the major water related agen- been far greater than that envisaged during the planning of each indi- cies, the Council was able to prepare a national water resource policy, vidual water development project or scheme. a proposal for a permanent institutional arrangement and draft water The country’s vulnerability to water shortages was seen in 1996 when resource law. drought conditions caused a substantial shortfall in paddy production, The Council recommended the creation of a National Water Resourc- disrupted hydropower production, leading to island-wide power cuts, es Authority which would be responsible for: and forced several urban water supply systems to shut down. Stress on the country’s water supplies is also seen in the increasing salinity - Water resource management policy – formulation of policy propos- intrusion into rivers emptying into the sea, the number of urban water als, coordination with catchment and environmental management. supply systems suffering from chronic, and occasionally acute, wa- - River basin planning and other water resource planning – national, ter shortages, and delays in new domestic water supply investments regional and long-term river basin planning and involvement in sea- because of uncertain water availability. Water resource management sonal planning. has not adjusted to these changes in supply conditions. - Coordination and collection of water-related data – including moni- Water Resources Policy toring, evaluation and commissioning of research. Some progress has been made in water resources policy, including - Water allocation – issuing of water entitlements to bulk and large assessment and mitigation of environmental and social effects of water users, monitoring and enforcement. projects, and incorporation of water quality management into project design. However, legislation addressing water allocation mechanisms - Drought and fl ood management – advice on response to disasters. has not been implemented and river basin level institutions are not - Control of riverine activities – policy guidelines, advice and monitor- fully operative. Plans for the completion and restructuring of the Ma- ing of implementation. haweli Authority have been discussed for years and continuously delayed. A further serious problem for Sri Lanka’s water resources is the - Public information and awareness – education and dissemination of degradation in river environments as a result of sand extraction and information. gem mining. Sand mining alters river morphology to such an extent that high and low fl ow patterns completely differ from historical pat- The Council did not interfere in operational and single-sector issues terns and saline water increasingly intrudes into river mouths. Con- and was able to keep its focus on issues which were both policy ori- trols on these activities are either insuffi cient and ineffective. ented and practical. The Council’s institutional recommendations included the formation of “National Water Resources Authority” and river Hydropower reservoirs now provide a major part of the country’s elec- basin committees for planning and implementation of IWRM functions tricity needs, yet the timing of hydropower releases does not neces- at the national and basin level. There has not been a lot of progress sarily coincide with the peak requirements for agriculture or domestic in implementing these recommendations, due primarily to political fac- use. In 2001-02, Sri Lanka faced a major power crisis resulting in na- tors. The Council showed a good deal of interest in discussing and tionwide power cuts for up to eight hours a day for several months developing consensus on general water resource policy issues, but as a result of drought (65%). The national targets relevant to power was not as successful in ensuring passage of legislation and imple- generation specify that a reliable electricity grid should be provided to mentation of its provisions. Vested powerful political interests have at least 80% of the population at affordable prices and that the share prevented the implementation of these recommendations. of hydropower is to be reduced to about 32% by 2013. Environmental Policy There has been no restriction on withdrawals of groundwater so urban water supply schemes and new industries extract groundwater with- Sri Lanka has a well-defi ned environmental policy, including manda- out any control or consideration of the recharge capacity. Water bod- tory environmental impact assessments for all infrastructure and in- ies are commonly used for dumping solid and liquid waste from fac- dustrial projects but implementation is very weak. tories or for domestic sewage discharge. There is no effective control An estimated 15,000 wells were salinised as a result of the tsunami, over the release of effl uents into drainage ditches and water bodies. making them unsuitable to provide drinking water. Beyond the tsu- Consequently, domestic water supply facilities are endangered. nami, Sri Lanka’s biodiversity has been affected by land degradation, The ineffi cient use of water resources has been exacerbated by the coastal erosion and depletion of total forest cover, while industrial fact that the resource has been exploited by a variety of government waste and sewage run-off are polluting its freshwater resources. The agencies, each pursuing its own mandate, with no single agency play- dumping of solid waste on open land (owing to inadequate disposal ing a role in coordinating water use. facilities) is a growing health hazard. The NWRC was created to fi ll this gap at least in part. It was estab- IV.2 Laws and Institutions lished as a an interim body, based only on a decision by the National Water management responsibilities in the basins lie with institutions at Cabinet. The Council was intended to play a key role in the develop- the national and local levels: approximately forty agencies exist with ment of recommendations for policy, legislation and permanent insti- responsibility or interest in water. These include the sector agencies tutional co-ordination, reorganisation and strengthening. In order to do dealing with domestic water supply, health and sanitation, agricultural this the NWRC was charged with: and irrigation services, hydropower generation, groundwater develop- - Forwarding policy and legislative proposals to government for ap- ment and ecosystem management. proval/action and advising government on water management and In addition, provincial councils, established after the thirteenth amend- responding to requests from government. ment to the constitution in 1987, have devolved powers for water re- - Receiving and responding to recommendations forwarded by gov- lated functions. The chief secretary of the province, district secretary ernment ministries and agencies and by the public. and divisional secretary are key government offi cers that make decisions regarding the management of water resources at the respective - Promoting the coordination of water-related activities of donor agen- levels. cies. Such a multitude of institutions requires effective coordination at dif- - In general, promoting the coordination of inter-sectoral and intra-sec- ferent levels. At the national level, the Central Coordinating Commit- toral issues relating to water resources management. tee on Irrigation Management provides a forum for policy issues in

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 358 Water Market Asia - Sri Lanka

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) Sri Lanka Developing Asia High Income Asia Population with Access to Improved Sanitation 91.00 54.64 100.00 Households Connected 1.00 7.22 99.29 Urban Population with Access 98.00 77.09 100.00 Urban Households Connected 4.00 18.11 99.00 Rural Population with Access 89.00 48.08 100.00 Rural Households Connected n/a 2.57 90.00

Table 4.2: Water Pollution 2001 (% of total BOD Emissions) Sri Lanka Developing Asia High Income Asia Water pollution, chemical industry 6.45 9.94 8.81 Water pollution, clay and glass industry 0.21 0.46 0.15 Water pollution, food industry 52.32 43.27 42.73 Water pollution, metal industry 0.52 7.62 4.84 Water pollution, other industry 1.51 6.08 13.17 Water pollution, paper and pulp industry 6.99 9.38 26.14 Water pollution, textile industry 31.00 21.17 8.17 Water pollution, wood industry 1.00 2.67 2.17

Chart 4.1: Daily organic water pollutant emissions 1999- 2004 (kg)

84,000 83,058 82,000 79,847 79,242 79,110 80,000 78,267 77,618 78,000 76,000 74,000 1999 2000 2001 2002 2003 2004

Chart 4.2: Daily organic water pollutant emissions / 1000 people 1999-2004 (kg) 10.00

8.00

6.00 4.52 4.31 4.24 4.20 4.12 4.06 4.00

2.00

0.00 1999 2000 2001 2002 2003 2004

Sri Lanka Dev eloping Asia (mean) High Income Asia (mean)

359 Water Market Asia - Sri Lanka irrigation management. A similar forum is the Steering Committee on Development, Housing and Construction are responsible for major Water Supply and Sanitation. urban water supply projects and fl ood control and drainage projects, respectively. The formation of the NWRC addresses the need for coordination of water resource issues. Moreover, the proposed formation of river ba- - Central Environmental Authority (CEA) in the Ministry of Forestry and sin committees would rectify the existing inadequacy in dealing with Environment is responsible for water quality. issues of IWRM. - The provincial councils and local authorities are also responsible for Non-governmental organisations make a signifi cant contribution to water resources management issues at a local level. water resource management. Several NGOs have invested in minor - Two national agencies are responsible for recommending water irrigation projects and signifi cant numbers play a vital role in protecting quality standards for drinking, bathing, irrigation and other uses: the ecosystems and rainwater harvesting activities. Better coordination of Sri Lanka Standards Institute and the Central Environmental Agency NGOs and government agency action is essential and could be of (CEA). great benefi t. Some large water users, including government agencies, allocate wa- Over fi fty Acts of Parliament have been established to manage water ter to themselves and thus play the role of both regulator and user of resources (Ratnayake, 2002). A large number of agencies, each deal- the resource. Although they may take other users into account, they ing with different aspects (such as irrigation, water supply, sanitation, have no legal obligation to allocate water in an impartial manner. industries and environment), are charged with implementing these acts. The abandoned Water Resources Act would have addressed V. Sources gaps and implementation problems in the existing legislation. EIU, ADB, World Bank, Interviews - Irrigation Department (ID), the Water Resources Board (WRB), and the Ceylon Electricity Board (CEB) of the Ministry of Irrigation and Power are responsible for irrigation development, fl ood control, groundwater development, and hydropower development (outside of the Mahaweli area). - Mahaweli Authority of Sri Lanka (MASL) in the Ministry of Mahaweli Development is responsible for the overall development of the Ma- haweli River, the longest river in the country, and its surrounding basin areas. - National Water Supply and Drainage Board (NWSDB) and the Sri Lanka Land and Reclamation Corporation in the Ministry of Urban

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 360 Water Market Asia - Thailand

Thailand

Thailand introduced PSP in the mid-1990s through several BOT projects and began negotiations for concession projects. Thames Water was an early participant in the Thai market and secured the major West Bangkok BOT project which it saw as a step towards winning an integrated treatment and distribution contract which never materialised. The performance of Thai water utilities has been above average compared to its “developing Asia” peer group but in the wastewater sector a lot remains to be done. Utilities manage to fund a signifi cant part of their expenditures through tariffs and the government has been reasonably committed to funding the gap. In the wake of the Asian crisis, the IMF recovery plan included extensive requirements for privatisation of Thailand’s state-owned companies, including the MWA and PWA which provide water services in Bangkok and the provinces respectively. Consultants proposed a concession model but this proposal was ultimately rejected by the government which confi rmed instead that the companies would be fl oated on the Bangkok exchange and that the government would retain a majority stake in each. Plans to privatised the Thai water industry have effectively been shelved under great pressure from Unions and even certain Thai businessmen. Almost a decade after the Asian crisis, the promised IPOs have still not taken place, pushed into the background by telecoms and power sector reform. However, the Thai market looks considerably more interesting for foreign EPCs, who should be able to pick up opportunities under the government’s infrastructure mega-projects initiative, details of which were announced in January 2006. Thailand is unusual in this respect, as it is the only country in the region planning large increases in public spending on infrastructure.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Disappointing Privatisation was meant to happen in the Future Opportunities Few late 90s but never did and looks as unlikely today. Very strong union Local competition Negligible opposition exists.

Equipment Markets Comments Future Opportunities Numerous Local competition Negligible Public Utilities Comments Track record Acceptable Partial cost recovery and high Sustainability Limited connection rates by developing Asia standards. Reliance on ODA Limited Government Comments Commitment to deliver service Yes Fiscal Resources Limited Economy & Finance Comments Recovery since Asian crisis 1997 Average Local capital maket Basic

361 Water Market Asia - Thailand

I. General Information the Government has run into stiff opposition from powerful public sector unions. Plans to list the electricity distribution company, EGAT and I.1 Macroeconomic Situation state telecommunications companies CAT and TOT were developed The Thai economy has been struggling to overcome the effects of the in 1997, but the listings had still not taken place by the end of 2005. tsunami, drought, avian fl u and high oil prices. The economy grew by Attempts to restructure and privatise the energy sector have been 6.7% in 2004, but is expected to grow more slowly, at 4-5% in 2005 called off several times after mass rallies and protests led by the and 2006. Drought and disease have hit the agricultural market, high unions, most recently in 2004. The Government is now likely to re- oil prices have reduced demand and raised costs in manufacturing, tain majority ownership even if the divestitures go ahead. Infl uential while the tsunami has had a major impact on tourist revenues. members of the business community have also been involved in the Macroeconomic indicators are starting to show signs of imbalance. In protests, taking the opportunity to press the Government to tackle cor- 2004, the government had an overall budget surplus, but increased ruption and to withdraw cumbersome legislation that had been intro- spending by 12% over the course of the year; consumer price infl ation duced during the Asian Crisis. in 2004 was below 3% in 2004, but up from 1.8% in 2003. Interest Privatisation was also mooted for the water sector in 1997, but this rates were low, with a prime lending rate of 5.5-5.7%, but have been plan has since been delayed and modifi ed, again, partly as a result of edging up. strong union opposition. Developments in the structure of the water Thailand had a current account surplus in 2004, but this reversed into sector are discussed further below. a defi cit at the beginning of 2005. Gross international reserves rose Government measures aimed at assisting the economic environment to a comfortable $49.8bn in December 2004, but have since started for privatisation include enactment of the Joint Venture Act in 1992,18 to decrease. However, the external debt ratio is manageable, and de- which allows state owned enterprises (SOEs) to enter into joint-ven- clining. The Baht depreciated against the US$ in 2004 and is on a ture agreements with private investors. As part of an agreement with downward trend. the International Monetary Fund in 1997, the Government committed I.2 Political & Investment Environment to promote private participation in key SOEs and improve the legal framework for private sector participation, including a law on corpora- Thailand is governed by the Thai Loves Thai Party (TRT), led by Prime tization. The Corporatization Act is designed to facilitate the transfer of Minister Thaksin Shinawatra. The party was re-elected in February SOE operations into a corporate entity for eventual listing on the stock 2005 with a clear majority in the legislature, making Thaksin the fi rst exchange of Thailand. Thai premier to stand successfully for a second term. TRT has been in power since 2001 with coalition partners. However, an armed struggle In keeping with the Government’s position at that time to privatize all continues in the South, where Muslim insurgents are involved in regu- key SOEs, the Government formulated a Master Plan that was fi rst lar clashes with the army. In March 2005, a royal decree was signed approved in January 1998 and subsequently updated in September giving the Prime Minister extensive powers to take decisions in ‘emer- 1998. gency situations’ or on matters of national interest without the consent The Master Plan sets out the Government’s programme, institutional of the Cabinet. structure for privatising SOEs and a timetable for the privatisation of The Government introduced tax breaks in 2005 in order to spur pri- MEA, PTT, and PWA. There have been long delays in the implementa- vate investment, including a reduction on the corporate income tax tion of the timetable due in part to strong union opposition to privatisa- rate for small and medium-sized businesses (registered capital below tion and the privatisation plans have been modifi ed to minority share THB5m). offerings that leave the Thai government with majority ownership of key enterprises. Privatisation has been on the policy agenda since the Asian Crisis, but

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 10.00 2006 193,350 5.00 2005 176,462 0.00 2004 160,684 -5.00 1998 1999 2000 2001 2002 2003 2004 2005 2006 -10.00 0 50,000 100,000 150,000 200,000 250,000 -15.00

Thailand Dev eloping Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean)

12.00 10.00 Chart 1.3: 2004 Sector Share of GDP 8.00 6.54 Agricult. 4.98 6.00 9% 3.37 4.00 2.74 0.75 1.36 1.20 2.00 Serv ices 0.00 47% 1998 1999 2000 2001 2002 2003 2004 Industry 44% Thailand Dev eloping Asia (mean) High Income Asia (mean)

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 362 Water Market Asia - Thailand

Table 1.1: Sovereign Risk Indicators Thailand Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 792.00 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 38.00 59.60 50.84 Short Term Debt / Total Debt 2004 (%) 21.05 10.49 n/a Fitch Sovereign Rating (2004) BBB

Table 1.2: Legal Risk Indicators 2004 Thailand Developing Asia High Income Asia Time to enforce a contract (days) 390.00 392.62 103.67 Time to register property (days) 2.00 62.82 16.50 Time to resolve insolvency (years) 2.60 4.45 1.15 Time to start a business (days) 33.00 67.08 14.33 Legal rights of borrowers and lenders (0=low) 5.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Thailand Developing Asia High Income Asia Political Rights 2.00 4.23 2.43 Civil Rights 3.00 4.69 2.14 Corruption Perception 3.30 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 Thailand Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 7.26 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 499.07 185.54 1,281.59 Roads, paved (% of total roads) 98.50 44.75 75.32 Electric power consumption (kwh per capita) 1,625.85 717.46 7,505.93 Water supply failures (days) n/a 10.00 n/a

Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%)

8 2.00 -1.47 0.28 0.10 -1.20 -1.70 5.56 6 0.00 4.45 2002 2003 2004 2005 2006 -2.00 4 -4.00 2 -0.30 -1.50 -6.00 0 2003 2004 2005 2006 -2 Thailand Dev eloping Asia (mean) High Income Asia (mean) Thailand Dev eloping Asia (mean) High Income Asia (mean) Chart 1.8: Real Interest Rate 2000-2003 (%)

Chart 1.7: Inflation Rate 1999-2004 (%) 10.00

16.00 8.00 14.00 6.08 12.00 6.00 6.40 10.00 5.05 4.00 8.00 3.82

6.00 2.00 4.00 1.80 2.77 2.00 0.30 1.57 1.64 0.62 0.00 0.00 2000 2001 2002 2003 -2.00 1999 2000 2001 2002 2003 2004 Thailand Thailand Dev eloping Asia (mean) Dev eloping Asia (mean) High Income Asia (mean) High Income Asia (mean)

363 Water Market Asia - Thailand

II. Water Main Cities of Thailand (2000) Population Mn II.1 Sector Policy & Structure Bangkok 5.68 Water services are provided by two state-owned enterprises, the Met- Nakhon Ratchasima 2.54 ropolitan Waterworks Authority (MWA), responsible for the provision Ubon Ratchathani 1.77 of water services to domestic and industrial customers in Bangkok, Chiang Mai 1.59 and the Provincial Waterworks Authority (PWA), responsible for all Nakorn Srithammarat 1.52 areas outside the capital. The PWA was established in 1973. It was Udon Thani 1.52 reorganized in October 2002, and under the chairperson, there are fi ve vice chairpersons, each in charge of their regions of jurisdiction low the MWA and PWA to raise private fi nance. However, access to (with two region offi ces). preferential lending from international fi nancial institutions and donors makes private fi nance less attractive. Evidence of an emerging pref- The restructuring of the water sector has been under discussion since erence for domestic capital was also seen in the step taken by the 1997 but restructuring has not yet taken place. In the context of the Thai Tap Water Supply Company to use onshore debt to fi nance the IMF adjustment loan, the Thai government committed to opening up 320Ml/d Nakorn Pathom-Samot Sakhon water treatment and supply the water sector to PSP. However, compared to many other utilities project in Bangkok. Thai Tap Water, which comprises Thames Water in the region, the MWA is relatively effi ciently run in operational and and Ch. Karnchang, successfully achieved a 14-year fi xed rate fi nanc- fi nancial terms and the rationale for its privatisation was not obvious. ing in Thai baht in 2001. The government has considered various strategies for restructuring, and has moved towards a minority public listing on the Bangkok Stock II.3 Private Sector Participation Exchange to raise fi nancing for the enterprises without surrendering In 2000, the Thai Government commissioned a study by consultants control to the private sector. on the options for private sector participation and regulation in the The corporatization of the MWA took place in 2003 with the Ministry water sector. The main PPP options recommended by Tasman Con- of Finance (MOF) to hold 100% equity. Since 2003, the Ministry of sulting in 2001 for consideration by the government’s State Enterprise Interior (MOI) has been developing a Law and Regulations related to Policy Commission (SEPC) included: Waterworks Business. In September 2004, the National Water Supply - Retain the monopoly of the MWA over the capital’s water service. Regulatory Board (NWSRB) approved plans for a transitional water Create a corporation covering the major assets of the Bangkok water regulatory offi ce as well as a drafting committee for the new Water system (treatment plants, pumping stations, bulk transmission and Industry Act. However, the Water Industry Act has not passed into law pipe network). Divestiture (through IPO) of 40% of its shares. as of December 2005. In March 2005, the government established a transitional regulatory committee for MWA, chaired by the Permanent - Create several new corporations based on a Bangkok Bulk Water Secretary of the Ministry of Interior. Corporation and between two and four distribution businesses serving the capital. PWA established East Water, a fully owned subsidiary, in 1992 to solve the severe water shortages in the Eastern region resulting from its - Amalgamation of the existing 224 PWA waterworks into at least four, rapid industrial development. East Water manages four routes of raw but possibly up to six, vertically integrated regional water businesses, water pipelines in Chonburi and Rayong provinces, and provides 188 each of which would initially have in the region of 250,000-350,000 million m3 per year. A raw water charge by East Water contributes to connections. PSP in these corporations under concession model with effi cient water resources management. For example, PWA pays East capital investment requirements Water B6.15 per m3 for raw water, which refl ects investment costs, After lengthy consideration, these options were rejected by the Gov- and is much higher than BPR’s charge of B0.50 per m3. (ADB 2002) ernment, which decided to retain the MWA and PWA as state-owned Policy enterprises and to consider public listing. The State Enterprise Policy Committee set up a further sub-committee to look into water privatisa- The Government’s Seventh Five-Year National Economic and Social tion later in 2001 and the government announced that privatisation Development Plan (1991–1996) aimed to provide clean and adequate through IPO would take place in 2003. The IPO had still not taken water to support urban and industrial growth by (i) increasing effi cien- place by end-2005. cy and effectiveness in the public sector, (ii) adjusting water tariffs to refl ect production costs, and (iii) involving the private sector. “Reliev- The private sector has been involved in a number of bulk water treating water shortages” is a goal of the Ninth National Economic and ment projects and management/technical/advisory contracts. PWA Social Development Plan (2002-2006). has awarded 10 contracts for water production projects on the basis of build-own-operate and/or transfer or lease, including schemes of (i) II.2 Financing (See table 3.4) Pathum Thani-Rangsit, (ii) Ratchaburi and Samut Songkram, and (iii) MWA and PWA have been able to cover operating costs from tariff Phuket. The Phuket project was subsequently cancelled. revenues and to use internally generated funds to cover a portion of Thames signed a 4-year NRW reduction contract for the MWA service maintenance. Capital investment is fi nanced through equity investment area in 2000. PWA also awarded a contract to Thames for an NRW by the central government. In 2001, the Ministry of Finance (MOF) es- reduction program in Pathum Thani, which successfully decreased timated that $90-115m investment was needed for emergency repairs NRW from 60% in 1999 to 30% in 2001. and US$580-690m needed for maintenance of the MWA system. In the same year, PWA had immediate investment requirements esti- The other Thames project in Pathum Thani was a bulk supply BOT mated at US$180m. (see part 4). After the experience with the Pathum Thani BOT, which had a capacity well above demand, and a take-or-pay contract for Public investment forms a central element of the government’s strate- the PWA, the government stopped the PWA from making any more gy to restore economic growth after a series of shocks. The water sec- contracts. The Pathum Thani contract was renegotiated. When con- tor will be one of the sectors that benefi ts from these spending plans. sumption levels reached 90,000 cubic metres per day, well below the In 2004, the government announced a huge THB1.7trn infrastructure output of 140,000 cubic metres, the two parties agreed to renegotiate investment programme. Within this plan, water sector investment was the deal. Thames Water wanted to be allowed to bypass the PWA prioritised and is set to receive 12 % of the total fi nancing, along with system and sell directly to the consumers. However, the government the mass transit system and gas pipelines. The mega-projects were rejected this proposal. Thames sold its stake to its local partner in due to begin in 2005, but have mostly been delayed until 2006, with February 2005 for US$90m in cash. Bangkok Expressway PCL took only about 4% of the spending taking place in 2005. Large-scale proj- a 5% stake in the project in August 2005. ects, each costing more than THB3 billion, account for more than half the total. Planned funding sources for these projects are the govern- II.4 Tariffs ment budget (39%), domestic loans (24%), international loans (18%), Under the government’s policy, agricultural water fees should cover and income from state-owned enterprises (13%). only O&M costs, while for the other sectors (domestic and industrial) Their corporate status and relatively strong fi nancial performance al- the fees should also take account of the construction and maintenance costs of water distribution systems.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 364 Water Market Asia - Thailand

Table 2.1: Income Level Thailand Developing Asia High Income Asia GDP per capita 2004 (US$) 2,490.00 1,104.30 23,628.57 Population on less than US$1/day 2004 (%) 2.00 18.23 0.00 Unemployment 2004 (%) 2.10 6.73 4.89

Table 2.2: Area & Population Thailand Developing Asia High Income Asia Population Growth 2003 (%) 0.79 1.67 0.64 Urban Population Growth 2003 (%) 1.64 3.48 1.18 Population Density 2002 (pop/km2) 121.20 231.45 2,335.17 Area (thousands Ha) 51,312.00

Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Share of Urban 2000-2003 (cst 2000 US$) (millions) Population (%) 65.00 64.55 20.60 20.42 64.50 64.00 1,350 20.40 20.22 1,295.91 64.00 63.50 1,300 20.20 20.03 1,225.46 63.50 62.90 1,250 63.00 62.42 20.00 1,172.20 19.83 1,200 62.50 1,134.25 19.80 62.00 1,150 61.50 19.60 1,100 61.00 19.40 1,050 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002 2003

Chart 2.4: Consumer Exp. on Water 1999-2004 (US$m) Chart 2.5: Consumer Exp. on Water Growth Forecast 2005-2009 (%)

500 421.87 5.00 382.35 346.04 4.14 400 332.08 335.49 315.12 4.00 3.62

300 3.00 3.41 200 2.00 100 1.00 0.72 0.89 0 0.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

In 2000, the PWA sought an amendment of the law to give it the power Thailand Dev eloping Asia (mean) to set and approve tariff increases and allow regional offi ces to imple- High Income Asia (mean) ment their own tariffs to refl ect cost differences in water supply. The amendments were passed by the Lower House of Parliament but did not gain approval from the Upper House before the general election on 6 January 2001. II.5 Regulation Decisions on tariff revisions were politically infl uenced, since Cabi- Tariffs are proposed by the MWA and PWA and must be approved by net approval was required. Although the average water tariff was in- the NWSRB and the Cabinet. creased from B8.17 to B11.75 per m3 in 1998, net internal cash generation was able to fi nance more than 20% of capital expenditures II.6 Performance only in 1995 and 1999, and less than 14% in other years. A proposal to MWA increase the tariff to B15.45 per m3 was approved by PWA’s board in In 2001, MWA had NRW of over 40%, and the utility was having trou- 2001 and is waiting for approval of the National Water Supply Regula- ble meeting increased demand in the service area. Bangkok faces tory Board (NWSRB) and Cabinet. This proposed tariff revision should problems of both too much and too little water. Flooding occurs fre- be implemented in 2002 to strengthen PWA’s fi nancial position. quently in the wet season due to low average ground level, high tides PWA’s water tariff has a number of shortcomings: (i) a need for Cabi- and inadequate drainage. The Metropolitan Waterworks Authority is net approval of each revision, which lost fl exibility of PWA’s decision; unable to supply water to meet all domestic and industrial demand. As (ii) uniform tariff across the country; (iii) a too-large lifeline block, which a result, in the outskirts of Bangkok, private and industrial abstraction allowed middle-income earners to benefi t from the subsidized rate; of groundwater exceeds the safe yield of the aquifer. This accelerates and (iv) little attention to demand management. Through the tariff revi- the rate of land subsidence (5-10 cm/year), which in turn aggravates sions, the lifeline block has been reduced and demand management the problem of fl ooding. Indeed, subsidence has caused some parts strengthened.

365 Water Market Asia - Thailand of the drainage systems to be below the normal water level and has schemes in association with the local provincial and municipal govern- rendered them ineffective. ments. PWA III.5 Performance The PWA has nearly 40,000km of pipelines, mainly asbestos-cement According to Wijarn Simachaya, director at the bureau of water quality and mostly more than 25 years old, in a service area which extends management at the Population Control Department, in 2003, Bangkok over 5800km2. A three-year plan to reduce NRW by 5% was initiated in generated approximately 200 million m3 of wastewater a day, of which 1996 at a cost of around 33 billion baht ($761 million). The target was 20% was treated, and the rest discharged into the Chao Phraya river not achieved, however, because a delay in implementation caused that runs through the city. initial NRW levels to rise. Pressure in the network was also raised where capacity was augmented, causing further pipe bursts. A new IV. Environment and Legal Aspects fi ve-year programme (2001- 2005) for the PWA aims to reduce NRW IV.1 Water and Wastewater Fundamentals from 30% to 25% and includes major rehabilitation work for 14-15 Thailand has a monsoon climate, with heavy rainfall from May to Octo- large waterworks per year and minor rehabilitation for 30-40 smaller ber and average annual rainfall of 1,485mm, although there is signifi - waterworks. cant variation across regions. Annual rainfall is 4,000mm parts of the The total number of PWA employees (as of the end of 2002) was southern peninsula. As of yet, there is no use of desalination or reuse 6,139 persons, a fi gure of approximately 1,000 less than the 7,210 of treated wastewater in Thailand. persons who were employed there at the close of 1999. This reduction Groundwater is an important source of water in Thailand. Public water is due to the fact that PWA is implementing an early retirement system supply for 20% of towns and cities and for half of the 700 sanitary as it shifts toward privatization. (It was decided at a Cabinet meeting districts is derived from groundwater. The FAO estimates that 75% of on August 20, 2002, that PWA’s stock will be listed on the exchange domestic water is obtained from groundwater sources (FAO). in mid-2004.) Meanwhile, during this period the number of PWA’s customers has been increasing, with the number of customers per staff The Eastern part of the country suffered a long drought in 2004-5 member growing from 219 customers/staff member in 1999 to 301 which has depleted reserves and has severely reduced water avail- customers/staff member in 2002. Henceforth, PWA plans to consign ability for both domestic and commercial uses. The levels of two major operation and management activities to outside private companies. dams, Dokkrai and Nog Pla Lai, are down to less than 20% of capacity. The government calmed fears of an imminent crisis, by assur- III. Wastewater ing that there is suffi cient water until August 2005. The government III.1 Sector Policy & Structure adopted multiple strategies to avoid a crisis: cloud seeding, artesian wells, recycling of water, pipelines, and tankers from sources outside In Bangkok, the Wastewater Management Authority, created by Royal the drought-hit region. Decree to operate wastewater systems in the Bangkok Metropolitan Region, is progressively being established. The system was greatly Water Resources expanded under the World Bank-fi nanced BMR Wastewater Manage- FAO estimates that the total surface water resources of the country ment Action Plan. It is actively engaged in dialogue with private sector 198.8 km³/year, while total internal water resources are 210 km3/year. companies to determine the most suitable form of corporate arrange- In 1990, the total water withdrawal was estimated at 33.13 km3. With- ment for the future operation of wastewater systems. drawals for domestic and industrial purposes have been increasing Wastewater treatment is not common. Industrial wastewater is gen- substantially every year, so the proportion going to agriculture has erally discharged into rivers and canals. About 833 million m3 of decreased, although it remains by far the biggest user by sector. Ag- wastewater were produced in 1992. In 1995, some 35 million m3 of riculture consumes about 80% of the water supply and water demand wastewater were treated. Numerous wastewater treatment projects for irrigation is expected to increase to 62 million m3 by 2006, up from are being developed in the Bangkok metropolitan area. There is no 58million m3 in 1993, an increase of about 6%. During that period, the re-use of treated wastewater in Thailand. irrigated area will have increased by 45%, but the share of irrigation water in the total water supply will have declined from 74% in 1993 to III.2 Private Sector Participation 68% in 2006. There is no restriction of PSP in wastewater and there have been Total demand for domestic water was 3,118 million m3 in 1993, and several PSP projects for the treatment for industrial wastewater in expected to grow to 6,593 million m3 by the year 2006: an increase of Thailand. more than 100% and far exceeding population growth for the period. III.3 Tariffs Per capita water demand, which was of 153 litres per day in 1993, is projected at 262 litres per day in 2006. Finally, water consumption by Existing Government legislation and policies support the implemen- industry and tourism is estimated to increase by 64% over the period. tation of user charges that refl ect the full cost of wastewater collec- (FAO) tion and treatment services. The polluter pays principle is incorporated into the National Environmental Quality Act, the Government’s Uneven distribution of water resources and water demand has ne- Eighth National Economic and Social Development Plan (FY1996/97- cessitated a strategy of inter-regional distribution. There is a great FY2000/01), and the National Policy and Plan for the Enhancement need for water in the central region for both irrigation and urban water and Conservation of Environmental Quality (FY1996/97-FY2015/16). supply. Most of the water used in the central region comes from the Good progress in the implementation of the polluter pays principle in northern region. This follows a set of rules established when the main the sector is being made, and the recent economic downturn has ac- needs were in the central region. In the last few years, there has been celerated this effort. an increasing demand for water, especially in the irrigation sector, in the northern region. In the national master plan, the RID has identifi ed Agreements to establish and implement specifi c wastewater user 463 projects to be carried out in the period 1997-2006, to increase the charges in Pattaya were made in 1997 between the Government irrigated area at a total estimated cost of US$3,600m. If the observed and the local authority, and will be a condition for the provision of demand trend continues, and if all projects are implemented, a point Government funding for a major expansion of the city’s wastewater will be reached in the near future where water released from the north- management system. In May 1998, PCD announced a proposed plan ern region, after satisfying requirements there, will not be suffi cient to to rehabilitate and bring back into operation some 26 existing waste- meet the irrigation water demand in the central region. water management facilities that are either not functioning, or are only partially effective. An integral component of this plan is the develop- To address this problem, the Government has launched many pro- ment and implementation of cost recovery mechanisms by each local grammes to both reduce demand and increase the resources avail- authority. able. Water fees are to be introduced under the new water law to encourage farmers to reduce wastage. The ongoing national economic III.4 Regulation and social development stresses the need for a more effi cient use of The Pollution Control Department (PCD) is the Government agency water, and in particular the importance of collecting water fees in ir- responsible for identifying, developing, and implementing wastewater rigated agriculture to avoid wastage.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 366 Water Market Asia - Thailand

Table 3.1: Water Service Coverage Indicators 2002 (%) Thailand Developing Asia High Income Asia Population with Access to Improved Water 85.00 76.85 100.00 Households Connected 34.00 22.27 99.00 Urban Population with Access 95.00 86.17 100.00 Urban Households Connected 80.00 48.27 99.50 Rural Population with Access 80.00 71.42 100.00 Rural Households Connected 12.00 14.58 97.00

Table 3.2: Water Resources Thailand Precipitation Volume 2002 (bn m3/yr) 832.30 Precipitation Depth 2002 (mm/yr) 1,622.00 Groundwater: produced internally 1998-2002 (bn m3/yr) 41.90 Surface water: produced internally 1998-2002 (bn m3/yr) 198.80 Overlap: surface and groundwater 1998-2002 (bn m3/yr) 30.69 Water resources: total internal renewable 1998-2002 (bn m3/yr) 210.00 Water resources: total external 1998-2002 (bn m3/yr) 199.90 Water resources: total renewable 1998-2002 (bn m3/yr) 409.90 Agricultural water withdrawal 1998-2002 (bn m3/yr) 82.75 Domestic water withdrawal 1998-2002 (bn m3/yr) 2.17 Industrial water withdrawal 1998-2002 (bn m3/yr) 2.14 Total water withdrawal 1998-2002 (bn m3/yr) 87.06

Table 3.3: Water Resources II Thailand Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 3,377.00 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 6,591.00 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 1 400 507.25 544.73 Dependency ratio 1998-2002 (%) 48.77 33.33 1.39 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 20.19 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 21.24 16.19 13.19

Chart 3.1: Water Uses 2002 (%) Chart 3.2: Fresh Water per Capita 1999-2004 (m3/head) Indus. 6,800 6,714 6,702 Dom. 6,637 2% 6,700 6,571 2% 6,600 6,495 6,527 6,500 6,400 6,300 1999 2000 2001 2002 2003 2004 Agricult. 96%

Table 3.4: Thai Government Infrastructure Investment Programme (US$m) 2005 2006 2007 2008 2009 2005- 2009 % of total Water - 38.1 54 54 54 200 12% Total 67.3 255.4 427.5 486.2 464.4 1700.8 100% Source: Ministry of Finance/DBS 2004

367 Water Market Asia - Thailand

To increase the available resources, inter-basins transfer projects are Environmental Policy being studied and implemented. One such project already exists, di- Thailand’s three-decade long rapid economic expansion was accom- verting water from the Mae Klong River to the Chao Phraya central panied by serious environmental problems. According to the Thailand plain. Other more politically sensitive projects, such as diversion of Environment Monitor 2000, nearly 50% of the forest cover is lost, ap- water from the Mekong, Mae Kok and Mae Ing rivers to the Yom and proximately 37% of surface water is considered unsuitable for human Nan rivers, are still at the level of feasibility studies. Groundwater use consumption or agricultural use, particulate matter constantly exceeds for irrigation is also a possibility. However, the experiments carried out ambient standards in Bangkok and over-harvesting of marine fi sheries by the RID have not yielded satisfactory results to date, except in the has reduced fi shing yield tenfold. Sukhotai region where the aquifer has an important yield. Desalination or re-use of treated wastewater have still not been envisaged. The Government enacted its fi rst environmental legislation - National Environmental Quality Act (NEQA) in 1975, which established the Water Resources Policy policy, institutional and regulatory framework. The accelerated pace The Ministry of Natural Resources and Environment (MoNRE) is the of growth throughout the 1980s further exacerbated environmental lead institution in the sector. Within the Ministry, the Department of degradation. This compelled the Government to amend the NEQA in Water Resources, formerly the Offi ce of the National Water Resources 1992. The major amendments included: upgrading the National En- Committee (NWRC) under the Offi ce of the Prime Minister is respon- vironmental Board (NEB) into an apex policy-making body headed sible for the development of sector policy. The aim of the NWRC is to by the Prime Minister; the executive arm of the NEB was spun-off coordinate the different governmental institutions relating to the water into three separate agencies and placed under MoSTE (Ministry of sector and to plan an integrated resource management strategy for the Science, Technology and Environment); enforcement authority was sector. The Royal Irrigation Department (RID), the largest and most widened; long-term environmental planning was made mandatory; powerful water service agency, was not brought into the MoNRE, and and the EF (Environmental Fund) was established. However, these there is therefore still a separation between MoNRE and water service changes have not brought about the desired environmental improve- ministries. The government is, however, now considering bringing RID ments. The economic downturn in 1997-98 brought to the surface ex- into MoNRE, although focusing it on regional operational functions isting problems in environmental governance in Thailand in a more rather than national policy development. The NWRC has high level pronounced manner. political support and is chaired by the Deputy Prime Minister. As many as ten agencies across six ministries have responsibility for In order to solve the problem of competition between sectors, some environmental oversight and this to a large extent has contributed to studies have been carried out in order to establish a water rights mar- weak implementation of policies, plans and laws, under-investment in ket where all parties would be able to trade water rights. This would environmental improvements and lack of opportunities for local level stabilize water demand but would have important negative conse- participation. quences on agriculture. Water resources development lacks a com- Since 1988, the law has required that the most polluting categories prehensive planning and coordination of all the actions carried out in of industrial wastewater be treated before discharge, but few meet the sector by the different agencies. As proposed in the draft water effl uent standards because of previously weak enforcement of pollu- law, the promotion of the NWRC as the leading agency in terms of wa- tion control regulations. Consequently, the quality of receiving waters, ter policy defi nition would address this issue. Furthermore, a commit- particularly in urban and industrial areas, has been rapidly declining. tee on water allocation by river basin should be established as a forum Statistics of reported waterborne diseases show a rising trend in such for all water users to develop seasonal water allocation plans. The areas. Dissolved oxygen levels are reaching zero, waterborne patho- master plan for water resources development will provide a framework gen and toxic substance concentrations far exceed public health stan- for all activities carried out by the various agencies. dards, fi shery yields have declined, and the country’s tourism industry International water sharing agreements has been adversely affected. The severely degraded water quality and aquatic ecological conditions in the lower Chao Phraya River basin Thailand shares three rivers with its neighbours: The Mekong River, and upper Gulf of Thailand, which are caused by the massive water the Salawin and the Kolok. Thailand has been a member of the Me- pollution loads from the BMR, affect millions of people. kong River Commission since its inception in 1957. The latest international agreement concerning the lower Mekong River was signed IV.2 Laws and Institutions in April 1995 by Thailand, Lao PDR, Cambodia and Vietnam. This At present, 38 ministerial departments under ten Ministries, one inde- agreement provides a framework for cooperation between the coun- pendent agency and six national committees are involved in different tries for basin development but does not propose any sharing of water aspects of water and sanitation including water resources develop- between the riparian countries. The Salawin River is on the northwest- ment, water policy, irrigation, domestic and/or industrial water supply, ern border with Myanmar. No agreement has yet been signed, but a fi sheries, fl ood alleviation, hydropower generation, navigation or water working group is assessing the irrigation and hydropower potential quality. of the Salawin River and its tributaries. The Mekong and Salwin rivers constitute an additional external water resource for Thailand of an See table 5.1 estimated 199.9 km3/year, giving Thailand total renewable resources of 410km3/year. V. Sources EIU, ADB, World Bank, Interviews

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 368 Water Market Asia - Thailand

Table 3.5: Performance Indicators Water Urban Areas MWA, PWA, Municipalities Industrial Areas Eastern Provinces – East Water Industrial zones - IEAT Rural Areas – Piped PWA, Local authorities Rural Areas – Non-piped PWD, DOH, ARD, DMR Sewerage Bangkok BMA Other urban areas PCD, PWD, WMA, Municipalities PWA Provinces 73 Municipal Areas 647 Area 6,946km2 Population 10 m Coverage 78% Total population in service area 12m Capacity 3.09 Mm3/day MWA Population 6m Coverage 75% Total population in service area 8m Capacity 3.2 Mm3/day Other providers Coverage 70% Total population in service area 2 m Capacity 0.2 Mm3/day BMA Coverage 90% Capacity 1 Mm3/day

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) Thailand Developing Asia High Income Asia Population with Access to Improved Sanitation 99.00 54.64 100.00 Households Connected n/a 7.22 99.29 Urban Population with Access 97.00 77.09 100.00 Urban Households Connected n/a 18.11 99.00 Rural Population with Access 100.00 48.08 100.00 Rural Households Connected n/a 2.57 90.00

369 Water Market Asia - Thailand

Table 5.1: Relevant Institutions Agency/Dept/Ministry Date Responsibility ‘Location’ National Water Resources 1989 Responsible for setting a policy to develop Office of the Prime Committee (NWRC) water resources throughout the country Minister Has extensive authority on paper but has not emerged as a prominent coordinating body.

NWSRB 1998 NWSRB is chaired by the deputy prime minister, with the deputy minister of interior responsible for PWA as vice chair, and has four technical specialists from the private sector and eight high-level representatives from concerned agencies, including PWA.

Office of the NWRC 1996 Created to provide support to the NWRC but Office of the Prime has a limited budget Minister

National Economic and Economic planning Social Development Board Department of Energy Monitors surface water resources Ministry of Science Development and Promotion Department of Mineral Monitors groundwater resources Ministry of Industry Resources Royal Irrigation Department Responsible for irrigation planning, licenses, (RID) Monitors surface water resources; responsible for some large dams

Metropolitan Waterworks Responsible for the provision of water Ministry of Science, Authority services to domestic and industrial customers Technology and in Bangkok Environment Provincial Waterworks 1973 Responsible for the provision of water Ministry of Science, Authority services to domestic and industrial customers Technology and throughout the country outside Bangkok Environment

EGAT Electricity distribution authority is responsible for some large dams

Harbour Department In charge of protecting inland waterways

LAWS Groundwater Act 1987 defines the responsibilities, rights and duties of each of the various parties involved

National Water Resources 1998 This act should establish the NWRC as the Act coordinating agency for water resources development

National Water Resources Work on this document started during the Master Plan 1990s but was not finalized due to lack of funds

Constitution 1997 Provided for extensive decentralization, supporting the changes that had occurred in the previous decade with regard to water resource management

National Water Vision 1997 including the goal of sufficient water of good quality for all users through efficient management and an organizational and legal system that will ensure equitable and sustainable use of water resources by 2025 National Water Policy 2000

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 370 Water Market Asia - Thailand

Known PSP Projects in Thailand

Amata Nakorn Water

20-year DBO Total investment (USDm) 5.60

Sector 1 Water Sector 2 Wastewater Ranhill Utilities’ 70% owned subsidiary Ranhill KWI Sdn Bhd is setting up a JV with the Amata Quality Water Co. Ltd. for a water treatment and reclamation plant project for the Amata Nakorn Industrial Estate in Thailand worth RM21m (US$5.6million). The JV has a 20-year DBO contract for two water treatment plants with capacities of 10,000m3/d and 16,000m3/d. The concession company will also construct and operate a water reclamation treatment plant for the estate with a capacity of 10,000m3/d.

Capacity Timeline

Treatment 10,000 m3/d Contract awarded 2005 November

Production 26,000 m3/d

Equity investor Amata Quality Water 30.00%

Equity investor Ranhill Utilities (Malaysia) 70.00%

Bang Pakong

Chachoengsao 25-year BOT Total investment (USDm) 8.50

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2000

Equity investor Egcom Thara (Thailand)

Bangkok Industrial Zone Water Services

Bangkok 5-year O&M Total investment (USDm) n/a

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2001

Equity investor S Napa (Thailand)

Investment vehicle Global Utilities Services (Gusco - Thailand)

Equity investor Veolia Water

Bangkok NRW Reduction Programme

Bangkok 4 -year O&M Total investment (USDm) 40.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 2000

Operator RWE Thames Water

371 Water Market Asia - Thailand

Chachengsao Waterworks

Chachengsao 25-year BOT Total investment (USDm) 16.50

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 69,000 m3/d Contract awarded 2001

Equity investor Samcon Engineering (Australia)

Equity investor United Infrastructure

Changmai Wastewater

Changmai DBO Total investment (USDm) 55.00

Sector 1 Wastewater Sector 2 No data

Capacity Timeline

Treatment n/a m3/d Contract awarded 2000 March

EPC contractor Purac (Anglian Water)

Operator Purac (Anglian Water)

Pathum Thani Water & Wasterwater

Bangkok 25 -year BOT Total investment (USDm) 145.00

Sector 1 Water Sector 2 No data Since 1995 the company has experienced some problems, being able to supply only half the 220,000 m3/d it had agreed with the local water authority. Thames Water’s Pathum Thani Water Supply Project was the country’s fi rst privately fi nanced water supply scheme. The aim of the project was to secure the supply of drinking water for Pathum Thani and Rangsit, two rapidly expanding industrial districts in north Bangkok. The Provincial Waterworks Authority (PWA) awarded the US$152 million contract in 1995. Thames was responsible for fi nancing, designing and, along with local partners CH Karnchang, constructing the water infrastructure, which included a major water treatment works, trunk mains and three bulk storage reservoirs, as well as a new local distribution network. Raw water for the scheme is abstracted from the Chao Pahaya river, and is pumped into the works before treatment. Once treated, the water is then supplied via three primary trunk mains to the service reservoirs, one of which, the Thammasart Reservoir, was built to supply water for the Asian Games in 1998. The water is treated to Thai Industrial Standards, which are in line with World Health Organisation requirements. Thames Water sold its stake to its local partner for US$90m in February 2005. Bangkok Expressway PCL took a 5% stake in the project in August 2005.

Capacity Timeline

Production 200,000 m3/d Contract awarded 1995 October

Equity investor CH Karnchang Company Limited 95.00%

Provincial Waterworks Authority

Nationwide Divestiture Total investment (USDm) 1,000.00

Sector 1 Water Sector 2 No data The options for PWA include unbundling the authority into ﬁ ve separate companies. Concession agreements would then be let for each region with PWA acting as contract manager. The future of this project is very uncertain.

Capacity Timeline

Production n/a m3/d Announced 2003

Metropolitan Waterworks Authority IPO Opportunity!!

Bangkok Bangkok Divestiture Total investment (USDm) 1,000.00

Sector 1 Water Sector 2 No data There has been little progress and the new transitional regulatory committee has still to meet. The key to ﬁ nalising its corporatisation

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 372 Water Market Asia - Thailand

is the regulatory issue. Under the most likely scenario, MWA will be partially ﬂ oated to form an MWA company which will be granted a concession. The new company might then seek a strategic partner for O&M. The decision by the Supreme Administrative Court to stop the IPO of the Electricity Generating Authority of Thailand (EGAT) in Nov 2005 could affect investors’ appetite for state enterprises, including MWA. MWA was next on the list for corporatisation, probably at some point during 2006. The share offer could be delayed and may be put off until a regulator is set up.

Capacity Timeline

Production n/a m3/d Announced 2003

Sattahip Water Opportunity!! Sattahip Chonburi 10 -year Lease Total investment (USDm) 7.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 12,000 m3/d Contract awarded 2000

Equity investor Egcom Thara (Thailand)

Nakhon Pathom Water

Nakhon Pathom & Samut 30 -year BOT Total investment (USDm) 240.00

Sector 1 Water Sector 2 No data Thames Water International Thailand, in a 50/50 partnership with a Thai construction company, was awarded a BOT contract worth US$240 million to provide water to the cities of Nakhon Pathom and Samut Sakorn. Once it is complete in 2004, it will be one of the largest treatment plants in Asia. More than half of the funding came from local ﬁ nancial institutions and the rest from the World Bank’s International Finance Corporation. Thai Tap Water Supply Co has a take-or-pay contract with the Provincial Water Authority, for 300,000m3 of water per day from the ﬁ fth year of operation, slightly less in the earlier years. In February 2005, Thames sole its stake to its local partner for US$91m.

Capacity Timeline

Distribution 400,000 pop Contract awarded 2001 July

Production 320,000 m3/d

Equity investor CH Karnchang Company Limited 99.00%

Nakorn Sawan Water

Nakorn Sawan 25 -year BOT Total investment (USDm) 11.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 62,400 m3/d Contract awarded 2000

Equity investor Samcon Engineering (Australia)

Equity investor United Infrastructure

Equity investor Veolia Water

Northern Bangkok Water Project

Northern Bangkok 5 -year ROT Total investment (USDm) 25.00

Sector 1 Water Sector 2 No data

Pilot Project

Capacity Timeline

Production 320,000 m3/d Contract awarded 1999 June

373 Water Market Asia - Thailand

Equity investor RWE Thames Water

Pathum Thani Rangsit UFW Reduction Programme

Pathum Thani Pathum Thani 5 -year Divestiture Total investment (USDm) 24.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 1999

Operator RWE Thames Water

Equity investor RWE Thames Water 15.00%

Phuket Water

Phuket Phuket 10 -year BOO Total investment (USDm) 2.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production n/a m3/d Contract awarded 1999 n/a

Equity investor Require Construction (Thailand)

Ratchaburi & Samut Songkram Waterworks

Ratchaburi & Samut 30 -year BOO Total investment (USDm) 16.00

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 36,000 m3/d Contract awarded 1999

Equity investor Egcom Thara (Thailand) 100.00%

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 374 Water Market Asia - Vietnam

Vietnam

Vietnam’s objective needs for water and sanitation treatment are huge, with a soaring urban population and steady, export-led economic development. As a consequence, demand for water services is increasing along with disposable income. Poverty has been decreasing rapidly. Responsibility for service delivery remains with the public with poor performance especially in sanitation. Doing business in Vietnam can be diffi cult, with strong underlying sentiments against foreign investors. Past experiences with PSP have been disastrous, with over-sized projects that never got fi nanced. In general, Vietnamese authorities remain at odds with ideas of privatisation and tend to impose strict conditions on foreign players. This is despite increasing levels of budget defi cit. New options for PSP–type projects have been explored recently by Malaysian water and construction companies. Despite signifi cant IFI funding, Vietnam has proven unable/ unwilling to address health and sanitation issues and ambitious offi cial coverage and service targets remain unachieved. Industrial growth is the fastest and represents the best and most sizeable opportunities for water and sanitation equipment makers, especially in the southern economic zone. Water and sanitation projects serving households will only develop under pressure form IFIs (and pre- sumably with IFI money), but these have had little impact on the course of water and sanitation affairs so far. Corruption is also a serious problem and an impediment to business.

Water & Sanitation Sector Score Card Private Sector Participation Comments Track record Failure A series of large BOTs failed to be financed Future Opportunities Very limited in the late 90s. Local competition Negligible Equipment Markets Comments Future Opportunities Limited In-house public provision remains frequent. Local competition Negligible Public Utilities Comments Track record Mediocre Recent improvements but major network Sustainability Limited extention work remains to be done. Reliance on ODA Limited Government Comments Commitment to deliver service No The Vietnamese government is focused on Fiscal Resources Very limited delivering enough electricity to the economy. Water and sanitation are secondary targets.

Economy & Finance Comments Recovery since Asian crisis 1997 Above average A fast going economy with increasing Local capital maket Basic demand for water

375 Water Market Asia - Vietnam

I. General Information 1.8). Supported by buoyant consumption and investment, growth maintained its rapid rate in 2004, reaching 7.5%. Private consumption Vietnam is the 12th most populous country in the world, with a total grew by 12.9% and government consumption by 8.0%. Total invest- population of 82.5 million in 2004, of which about 25% live in urban ment climbed by 24.6% to reach 35.5% of GDP. A little more than half areas. The population is concentrated in two large river deltas. The of the investment, 56%, originated from the state sector, while the Mekong River Delta is the most populous region, with 16.1 million domestic private sector contributed 27% and foreign investment 17%. people, or 21% of the total, followed by the Red River Delta, where Around 27,000 new private enterprises were registered during the fi rst Hanoi is located, with a population of 14.8 million or 19% of the total. 10 months of the year, with a total capital of $3.4 billion, representing a The population grew at an average annual growth rate of 1.7% during year-on-year increase of 24% in number and 25% in capital value. the past decade. The regional distribution of population varies from 62 and 67 people per km2 in mountainous provinces in the north and On the supply side, industry and services, together accounting for the central highlands, respectively, to 408 and 1,180 people/km2 in the nearly 80% of GDP, were the main sources of growth. The industry Mekong and the Red River Deltas, respectively, and 2,883 and 2,410 sector, which covers manufacturing, mining, construction, and utilities, people/km2 in the major urban cities of Hanoi and Ho Chi Minh City grew by 10.2% and contributed 3.9 percentage points to GDP growth. (HCMC), respectively. Within this sector, the GDP of the domestic private and foreign-invested subsectors grew faster (22.8% and 15.7%, respectively) than Vietnam’s health indicators compare favourably with those of other the state-owned subsector (11.8%). countries at a comparable level of income. The average life expec- tancy is 67 years: 65 years for men and 70 years for women. Maternal Much of that growth has come about as a result of surging exports, mortality is offi cially 3,100 per 100,000 live births with infant mortal- particularly to the USA. In 2004, exports to the USA rose by 15.4%, ity at 37 per 1,000 live births. Disparities exist between geographical with the lead textiles and garments sector seeing a 54.5% increase. regions, with the central highlands and northern mountainous regions Meanwhile, industrial exports rose 8.1% in the fi rst quarter of this year having an infant mortality rate of 56 per 1,000 live births. Child mal- according to offi cial fi gures released at the end of March. nutrition is very high at 39% as a result of poor nutritional intake, food Much of the export growth so far has been achieved on the back of shortages, and diarrhea caused by unsafe water and poor sanitation. foreign direct investment. So far, this is continuing to grow strong- Approximately 93% of the urban population and 67% of the rural ly, reaching a record US$2.1 billion in the fi rst four months of 2005, population have access to water supply, and only 84% and 26% re- equivalent to 45% of the target set for the whole of 2005. According to spectively have access to sanitation. Even those with access to the the Ministry of Planning and Investment, the fi rst quarter total included facilities may not use them properly and hygienically. In effect, these US$1.45 billion in investment capital registered by 177 newly-licensed WHO fi gures will seem over-estimated to anyone visiting Vietnam. projects and the additional capital of the operational ones. Hanoi led other localities in terms of attracting FDI, with US$841.45 million or The urban population has been increasing by 3% per year on average 58% of the total. in recent years. The Vietnamese Government estimates that the rate of urbanization will increase to 45% of the population by 2020. Urban However, the economy will bump up against constraints in the longer centres in Vietnam are divided into six classes. Currently there are term unless the Government accelerates reforms among SOEs and four centrally governed cities, 61 provincial towns and 537 other urban banks. Avian fl u may become a serious risk factor. townships. (See table 2.6) Strong economic growth helped reduce the number of households in I.1 Macroeconomic Situation: dynamic and stable poverty by 300,000 to 1.4 million. This is as measured by the national poverty standard, which puts households below the poverty line if they Over the last fi ve years, Vietnam has enjoyed enviable GDP growth, have consumption spending of less than D80,000-D150,000 (depend- while infl ation has remained in the low single fi gure range (see table ing on the location) per person per month. The poverty rate was con-

Chart 1.1: GDP 2004-2006 (Current US$m) Chart 1.2: GDP Growth Rates 1998-2006 (%) 8.00 2006 50,874 6.00 2005 47,701 4.00 2004 44,364 2.00 0.00 40,000 42,000 44,000 46,000 48,000 50,000 52,000 -2.00 1998 1999 2000 2001 2002 2003 2004 2005 2006

Vietnam Dev eloping Asia (mean) Chart 1.4: FDI Net Inflows as a share of GDP 1998-2004 (%) High Income Asia (mean)

12.00 10.00 Chart 1.3: 2004 Sector Share of GDP 8.00 6.14 4.92 Agricult. 6.00 4.16 3.98 3.99 4.10 4.40 4.00 21% Serv ices 2.00 38% 0.00 1998 1999 2000 2001 2002 2003 2004

Vietnam Dev eloping Asia (mean) Industry High Income Asia (mean) 41%

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 376 Water Market Asia - Vietnam

Table 1.1: Sovereign Risk Indicators Vietnam Developing Asia High Income Asia External Debt Per Capita 2004 (US$) 215.00 522.45 7,948.33 Public Debt as a share of GDP 2004 (%) 66.20 59.60 50.84 Short Term Debt / Total Debt 2004 (%) 8.15 10.49 n/a Fitch Sovereign Rating (2004) BB-

Table 1.2: Legal Risk Indicators 2004 Vietnam Developing Asia High Income Asia Time to enforce a contract (days) 404.00 392.62 103.67 Time to register property (days) 78.00 62.82 16.50 Time to resolve insolvency (years) 5.50 4.45 1.15 Time to start a business (days) 56.00 67.08 14.33 Legal rights of borrowers and lenders (0=low) 4.00 4.17 8.33

Table 1.3: Political Risk Indicators 2003 (1=high, 10=low) Vietnam Developing Asia High Income Asia Political Rights 7.00 4.23 2.43 Civil Rights 6.00 4.69 2.14 Corruption Perception 2.40 2.93 7.53

Table 1.4: Infrastructure Indicators 2004 Vietnam Developing Asia High Income Asia Electric power transmission and distribution losses (% of output) 14.00 16.13 8.06 Fixed line and mobile phone subscribers (per 1,000 people) 87.79 185.54 1,281.59 Roads, paved (% of total roads) 25.10 44.75 75.32 Electric power consumption (kwh per capita) 373.87 717.46 7,505.93 Water supply failures (days) n/a 10.00 n/a

Chart 1.5: Current Account Balance Chart 1.6: Budget Balance as a share of GDP 2002-4 (%) as a share of GDP 2003-2006 (%) 0.00 8 6 -1.00 2002 2003 2004 2005 2006 4 -2.00 -1.90 -2.10 2 -3.00 0 -3.00 -4.00 -2 2003 2004 2005 2006 -3.90 -5.00 -4.20 -4 -2.20 -6 -4.20 -4.70 -5.70 -8 Vietnam Dev eloping Asia (mean) High Income Asia (mean) Vietnam Dev eloping Asia (mean) High Income Asia (mean) Chart 1.8: Real Interest Rate 2000-2003 (%)

Chart 1.7: Inflation Rate 1999-2004 (%) 10.00

20.00 8.00 6.91 7.33

15.00 6.00 4.89 10.00 4.00 3.86

6.00 2.00 5.00 4.20 4.00 3.20 0.00 0.00 -1.60 -0.40 1999 2000 2001 2002 2003 2004 2000 2001 2002 2003 -5.00 Vietnam Vietnam Dev eloping Asia (mean) Dev eloping Asia (mean) High Income Asia (mean) High Income Asia (mean)

377 Water Market Asia - Vietnam sequently reduced from 11.0% in 2003 to 8.3% in 2004. The poorest program has so far been a failure, new ventures have recently been regions continued to be the Northwest (16.4% poor), the Central High- initiated with regional investors from Malaysia (see table 7.1). lands (13.6%), and the Northern Central Coast (12.7%). II.1 Sector Policy & Structure Credit growth accelerated to 28% year on year at end-2003, and was Urban water supply systems are unable to meet the demand of the estimated to have picked up further to 36% in July 2004. The State country’s growing urban population for safe drinking water. Estimates Bank of Vietnam kept the prime lending rate steady at 7.5%, and the indicate that only around 150 of the country’s 600 urban centres have dong depreciated by less than 1% against the dollar. Real interest piped water supply systems, which serve some 51% of the urban rates have been decreasing steadily for the past three years. population. Service coverage has risen only slightly since 1990, from GDP growth is projected at around 7.5% annually over the next 3 an estimated 44% of the urban population. Apart from piped water years, supported by domestic demand that is forecast to increase by supply, many urban residents rely on untreated water from shallow 8.0%, 8.7%, and 8.5%, and export growth of 11.4%, 8.9%, and 8.6% wells, rainwater collection, streams, canals, or ponds. These sources in 2005, 2006, and 2007, respectively. Infl ation will stay moderate at (except for rainwater) are potentially subject to serious pollution and 5.7% in 2005 and 5.2% in 2006-2007. therefore present a major health risk to the urban populations. A signifi cant proportion of the urban population purchase water for drinking I.2 Political & Investment Environment: more supportive but very and cooking from vendors at prices often 5-20 times existing tariffs for corrupt public water supply. The Government continued to pursue an expansionary fi scal stance. Average per capita water consumption in the larger urban centres var- In 2005, the last year of the current 5-year socioeconomic develop- ies from 50 to 180 litres per capita per day (lpcd). Shortages of water ment plan, it is aiming for 8.5% growth to achieve the 7.5% annual av- and intermittent supply, usually 6-18 hours per day, are common in erage growth envisaged in the plan. At the same time, the authorities urban areas, although exact levels are diffi cult to establish because of recognize the increasingly important role and potential of the private poor metering systems. sector. The physical conditions of urban water supply systems are generally Among the improvements, the Government started to prepare a uni- poor, due to inadequate maintenance. Many water treatment plants, fi ed law for all types of enterprises and one investment law for all even those built recently, suffer from design and construction faults. types of investments by 2006. These changes are expected to sim- Some urban centres have no treatment facilities and raw water is plify procedures, enhance transparency, and promote good corporate pumped directly to the distribution network, with suspended solids, governance. Legislation on competition issues, bankruptcy, and land iron, or high levels of contamination. Water supply systems, often ownership was updated, and decrees were promulgated on the con- patched up or expanded using a variety of incompatible equipment version of businesses with foreign investment into joint-stock compa- and tools from local sources, are of poor quality. nies and on allowing foreign investors to own up to 30% of the registered capital of Vietnamese businesses. Water supply companies (WSCs) are usually unable to meet the design and construction standards because of lack of appropriate In order to boost both domestic growth and FDI the government is equipment, high quality materials, management skills, and fi nancial looking to develop the country’s southern economic zone, which cur- resources. As a result, existing schemes are often diffi cult to operate, rently contributes some 40% of overall GDP. Prime Minister Phan Van unreliable, and ineffi cient. Except for HCMC and Hanoi, the quality of Khai moved that process along in mid-April 2005 when he cut the water supplied in urban areas generally fails to meet the World Health ribbon to inaugurate fi ve power plants in the country’s largest power Organization (WHO) standards or requirements of the drinking water centre in the southern Ba Ria-Vung Tau province. Of the six plants, quality guidelines of the Government. Although meters are generally Electricity Vietnam (EV) has been the major investor in four, while the used in urban centres, the quality and accuracy are usually poor. Un- remaining two (Phu My 2.2 and 3) have been built with foreign money accounted for water (UFW) is reported at 32-54% of water produced under the country’s BOT program. on average. The government has embarked on numerous bilateral and multilateral There are 67 Provincial Water Companies (PWCs) serving urban ar- negotiations to strengthen its bid for WTO membership, including the eas in Vietnam. Most Provinces are served by one PWC, although USA, Canada, Switzerland, Australia, Japan, Colombia, India, Iceland a few of the most populated Provinces have two PWCs (Hanoi, Ho and Paraguay. Chi Minh City, Vinh Poh, Ha Tay, Dong Nai and Long An). The main One of the fundamental risks remains corruption (see table 1.3). The function of PWCs is to manage all activities related to water provision, CPV has made some progress with regards to fi ghting corruption over including operating and maintaining piped water systems, and billing recent years, with several high profi le fi gures in the political and com- and collection. However, many companies carry out additional activi- mercial worlds dismissed and in some cases convicted of corruption- ties to supplement the company’s revenue, including construction ac- related activities. However, anecdotal evidence suggests that those tivities and sewerage system operation (table 3.5). efforts have failed to stem a sharp rise in corruption among middle ranking party members, who, having lost many of the relative privi- Informal Sector leges that came with party membership, believe they are due a slice Because of the lack of coverage by the public sector in many areas, of the country’s economic revitalization in recompense. a considerable amount of the water supply in Vietnam is provided by small scale and informal providers, creating a private sector that is This, and the repression of the media, was well exemplifi ed in Janu- made up of thousands of micro and small enterprises. These range ary 2005, when the government accused a journalist, Lan Anh, on the from informal self-employed individuals who collect, transport and sell daily Tuoi Tre (Youth) newspaper of “appropriating state secrets.” The small quantities of water, to small ‘utility’ companies that provide piped allegations centre on a series of articles Lan Anh wrote in 2004 accus- water to individual households. In addition, a small-scale production ing the Hong Kong-based Zuellig Pharmaceutical Company (ZPC) of industry has developed to support these activities, including the man- monopolizing Vietnam’s prescription drug market and artifi cially forc- ufacture of pumps and rain jars and drilling for water sources. ing up the prices of many popular medicines. In response to the growing demand for piped water, a number of dis- II. Water trict towns and private companies have developed independent water The increase in population, and rapid economic growth in recent systems to serve limited areas. There are currently over 65 towns in years, after the Doi Moi (Renovation) Policy, have put a large and Vietnam served by such means. Such enterprises have grown rapidly increasing stress on the water resources and environment of Vietnam- during the last decade to the point where they are now quite visible, ese cities. The demand from industries, businesses, and households rather than being ‘underground’ operations. The nature of this private surpassed the current supply/ distribution capacities. The water qual- sector, and the services that it provides, varies from place to place ity in river courses and underground sources is also highly degraded and is tailored to local market circumstances, such as water resource due to many sources of pollution. The authorities have initiated some availability, population density and consumer incomes. joint venture works with foreign water companies to invest in the com- Similarly, in Ho Chi Minh City, the public utility was still struggling to mercial development of water supply infrastructure. While the PSP meet demand despite investments made during recent years and the

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 378 Water Market Asia - Vietnam

Table 2.1: Income Level Vietnam Developing Asia High Income Asia GDP per capita 2004 (US$) 537.00 1,104.30 23,628.57 Population on less than US$1/ day 2004 (%) 2.00 18.23 0.00 Unemployment 2004 (%) 2.20 6.73 4.89

Table 2.2: Area & Population Vietnam Developing Asia High Income Asia Population Growth 2003 (%) 1.43 1.67 0.64 Urban Population Growth 2003 (%) 2.90 3.48 1.18 Population Density 2002 (pop/km2) 242.00 231.45 2,335.17 Area (thousands Ha) 33,169.00

Chart 2.3: Household final consumption expenditure per capita Chart 2.1: Population 2000-2004 Chart 2.2: Urban Population (%) 2000-2003 (cst 2000 US$) (millions) 82.57 83.00 26.00 81.43 25.41 82.00 25.50 320 307.66 81.00 80.28 24.97 80.00 79.20 25.00 24.52 300 288.22 79.00 78.14 24.50 24.08 272.09 280 263.83 78.00 24.00 77.00 260 76.00 23.50 75.00 23.00 240 2000 2001 2002 2003 2004 2000 2001 2002 2003 2000 2001 2002 2003

Chart 2.4: Consumer Exp. on Water 1999-2004 (US$m) Chart 2.5: Consumer Exp. on Water Growth Forecast 2005-2009 (%)

800 666.24 678.16 4.00 609.75 569.82 522.77 549.05 600 3.00 2.93

400 2.35 2.00 1.91 1.78 1.19 200 1.00

0 0.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 installation of new water production units. As a result of slow prog- Vietnam Dev eloping Asia (mean) ress with improving water coverage, and in recognition of the existing involvement of many local water providers in non-served areas, the High Income Asia (mean) Municipality decided to actively encourage the development of small scale water providers. In 2002, a pilot project was set up with Hiep An Company, a private company based in District 8, who signed a con- and 180 lpcd in Class 1 cities; (ii) 95% coverage and 150 lpcd in tract with the Water Utility to supply bulk quantities of drinking water Class 2 cities; (iii) 90% coverage and 120 lpcd in Class 3,4, and 5 (700m3/day). Water is pumped from 2 wells and treated in a water unit, towns; and (iv) 80% coverage and 80-100 lpcd in district towns and a set-up requiring around US$100,000 of investment. This Company clusters. To achieve these development targets, the Government has serves ‘safe’ water to around 100 households in the neighbourhood adopted the blue print invariably offered by multilateral funders, and call for (i) restructuring the ministry of construction to refocus its func- Recent policy trends tions in development planning, sector policy formulation, regulations, The Government’s development framework and priorities are refl ect- training, and technology transfer, and terminating its direct involve- ed in a series of development plans, policy statements, and ministe- ment in business activities; (ii) clearly defi ning the roles and respon- rial decisions. For urban rehabilitation and development programs, sibilities of various Government agencies involved in the water and the Government policy emphasizes the need for reducing the gaps sanitation sector and encouraging better cooperation among these between urban and rural areas and developing and modernizing sector agencies; (iii) making Provincial People’s Committees (PPCs) technical and social infrastructure to attract investment and improve the responsible agencies for water supply, sanitation, and drainage people’s living standards. The development targets and policies for development in the provinces; (iv) providing WSCs with training and urban water supply and sanitation are described in the Government’s capacity building on project implementation and O&M, and encourag- Orientation Plan for Development of Urban Water Supply to 2020, ing WSCs to become self-fi nancing and progressively eliminate sub- and the Draft Orientation Plan for Urban Drainage Development to sidies; (v) creating the legal basis for providing public urban services, 2020. For water supply, the targets by 2010 are (i) 100% coverage with enhanced enforcement; (vi) promoting community education and

379 Water Market Asia - Vietnam

Main Cities of Vietnam (2004) Population '000 er than 10% of the total water production cost. The decision to include a drainage charge in the water tariff provides the means to recover the Ho Chi Minh City 5731.00 costs of drainage and wastewater management. Hanoi 3083.00 Haiphong 171.00 Despite the Government’s policies and reform initiatives over the past 10 years to make WSCs legally distinct and fi nancially autonomous, awareness, particularly on drainage and sanitation issues; (vii) mo- the level of autonomy for WSCs, and particularly PWCs, remains bilizing additional fi nancial resources; (viii) protecting water sources; limited. Government approval is required for key management and (ix) upgrading technology and materials; and (x) developing human operating decisions, such as production level, staff salaries and ben- resources. efi ts, capital and major maintenance expenditures, and senior staff Reforms in the water supply sector were initiated in 1990 with the appointments. Provincial governments generally set tariffs for water promulgation of Resolution 217, which delegated the authority for set- supply and sanitation on the basis of the perceived affordability and ting water tariffs from the central Government Pricing Committee to willingness to pay by the households, institutions, and commercial PPCs. It also reduced Government grants to small WSCs and elimi- and industrial establishments. The tariffs are insuffi cient for WSCs to nated such grants to large ones. Wider range reforms in the state- recover full cost and provide adequate levels of service. As a result, owned enterprises (SOE) were introduced in 1995 with the enactment WSCs are unable to expand the services to households unconnected of the Law on State Enterprises (LSE). The major objective of the to the piped water supply systems. Poor services in water supply also LSE was to improve performance of SOEs. Apart from strengthening prevented industrial and commercial development, for which quality the role of PPCs in overseeing the operations of the SOEs, the LSE and reliability of water supply are far more important than the tariff allows SOEs to retain all depreciation expenses instead of submitting level. them to the Government. This is of particular importance to WSCs. Under the LSE, WSCs have been designated as state public service II.2 Financing enterprises, which are defi ned as SOEs that produce, distribute, and External assistance has been a major source of funding for the reha- supply public services in accordance with state social policies. In gen- bilitation and development of the country’s urban water supply and eral, the fi nancial and managerial autonomy of the state public service sanitation. Over US$800 million has been provided in the last decade enterprises is limited. For example, tariffs must be approved by the for improving water supply and sanitation in 59 cities and provincial supervising PPC. towns. Since 1993, The Asian Development Bank, has approved three loans totalling US$200 million for water supply and sanitation. The fi rst Complementing its water sector policies, the Government issued a loan, approved in 1993 for the HCMC Water Supply and Sanitation strategy for the development of urban drainage in November 1998, Rehabilitation Project, aimed at providing safe and reliable water sup- which aims at reducing subsidies to the sector in the short term, and ply, improved sanitation, sewerage, and drainage facilities in HCMC establishing fi nancial mechanisms to ensure sustainability of urban with institutional and management support. The subsequent two loans, drainage enterprises in the long term. While the policy objective is to approved in 1995 and 1997, respectively, were provided for improving reduce Government subsidies by collecting suffi cient drainage tariffs water supply and sanitation in provincial towns. The fi rst one’s objec- to cover O&M costs and an increasing share of capital investment, tives are expanding the piped water supply and sanitation facilities, the application of the policy in the project towns is still in its very early reducing water losses, strengthening the institutional capabilities of stage. There are presently no charges for drainage in any of the proj- WSCs, and helping to implement low-cost sanitation and community ect towns. environmental health education programs. The second one is aimed Following the Government’s policy on cost recovery for water supply at improving public health in the provincial towns, improving the ur- and sanitation, Ministry of Construction (MOC) and the Government ban environment, enhancing public awareness of hygiene and sanita- Pricing Committee issued guidelines on water supply and drainage tion, and restructuring and strengthening existing sector institutions. tariffs in June 1999, recommending that the water tariff cover the cost ADB also funded the HCMC Environmental Improvement Project to of water production and the resultant drainage, and generate pretax improve drainage and solid waste in the city. The ADB also provides income approved by the PPC. The drainage charge should be no low- technical assistance. Recommendations have been accepted by the

Table 2.6: Vietnamese urban areas Class Type Comment 1 National centres. Very large cities, Includes Hai Phong, Hanoi, and Ho which play an important role in Chi Minh City national development. Population not less than 1 million. 2 Regional centres. Large cities, which Includes Can Tho , Da Nang, and play an important role in development Hue. Da Nang is managed by central of a territory. Population from 350,000 authorities. to1,000,000. 3 Provincial cities. Large-medium size Managed by provincial authorities. towns, which play an important role in development of a province or sector in a territory. Population from 100,000 to 350,000. 4 Provincial towns. Small-medium size Managed by provincial authorities. towns, which play an important role in Includes Phan Rang, Rach Gia, Tay development of a province. Ninh, Thu Dau Mot, and Tuy Hoa. Population from 30,000 to 100,000. 5 District towns. Small towns, which Managed by district authorities. play an important role in development of a district. Population from 4,000 to 30,000 persons Others District towns and clusters. Includes Chi Thanh and La Hai, which are managed by district authorities.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 380 Water Market Asia - Vietnam

Table 3.1: Water Service Coverage Indicators 2002 (%) Vietnam Developing Asia High Income Asia Population with Access to Improved Water 73.00 76.85 100.00 Households Connected 14.00 22.27 99.00 Urban Population with Access 93.00 86.17 100.00 Urban Households Connected 51.00 48.27 99.50 Rural Population with Access 67.00 71.42 100.00 Rural Households Connected 1.00 14.58 97.00

Table 3.2: Water Resources Vietnam Precipitation Volume 2002 (bn m3/yr) 604.00 Precipitation Depth 2002 (mm/yr) 1,821.00 Groundwater: produced internally 1998-2002 (bn m3/yr) 48.00 Surface water: produced internally 1998-2002 (bn m3/yr) 353.50 Overlap: surface and groundwater 1998-2002 (bn m3/yr) 35.00 Water resources: total internal renewable 1998-2002 (bn m3/yr) 366.50 Water resources: total external 1998-2002 (bn m3/yr) 524.70 Water resources: total renewable 1998-2002 (bn m3/yr) 891.20 Agricultural water withdrawal 1998-2002 (bn m3/yr) 48.62 Domestic water withdrawal 1998-2002 (bn m3/yr) 5.54 Industrial water withdrawal 1998-2002 (bn m3/yr) 17.23 Total water withdrawal 1998-2002 (bn m3/yr) 71.39

Table 3.3: Water Resources II Vietnam Developing Asia High Income Asia Water resources: total internal per capita 1998-2002 (m3/cap/yr) 4,565.00 8,432.27 23,016.08 Water resources: total renewable 1998-2002 (m3/cap/yr) 11,102.00 13,917.81 23,036.68 Total water withdrawal: 1998-2002 (m3/cap/yr) 889.30 507.25 544.73 Dependency ratio 1998-2002 (%) 58.88 33.33 1.39 Water withdrawal/Renewable 1998-2002 (bn m3/yr) 5.46 14.45 7.39 Agricultural water Withdrawal/Renewable 1998-2002 (bn m3/yr) 8.01 16.19 13.19

Chart 3.1: Water Uses 2002 (%) Chart 3.2: Fresh Water per Capita 1999-2004 (m3/head) 11,800 11,582 Indus. 11,406 11,600 11,278 24% 11,400 11,173 10,998 Agricult. 11,200 10,991 11,000 68% 10,800 10,600 1999 2000 2001 2002 2003 2004 Dom. 8%

Table 3.5: Provincial Water Companies Business activities Sewerage System Operation 25.80% Consulting (Project Preparation, detail design…) 40.90% Construction of W& S Systems 72.70% Trading of Sector equipment and material 39.40% Manufacturing of sector equipment and material 4.60%

381 Water Market Asia - Vietnam

Government for developing the national water supply tariff guidelines, Minh City with additional treated water capacity of 300,000m3/d. A 25- strengthening the WSCs, and enhancing community health aware- year contract was signed in 1997 between Lyonnaise Vietnam Water ness. Supply Company (LVWC) and the Ho Chi Minh City People’s Commit- tee. LVWC is a joint venture between Ondeo and Pilecon Engineering In July 2005, the World Bank agreed to a US$113m loan with the State of Malaysia. The Asian Development Bank (ADB), which has been Bank of Vietnam to help fi nance a project that should provide piped working on the project since 1995, was going to provide a US$35 mil- water to one million residents in towns and cities across Vietnam. The lion direct loan. Three commercial banks had been selected to provide urban water supply development project primarily aims to improve loans under Coface and OND political risk guarantees: ANZ Invest- water and household sanitation services in district towns and large ment Bank, Fortis Bank and Credit Lyonnais. Under the initial agree- urban centres. The project will expand water supply and sanitation ment, tariffs were supposed to rise to 9,400 dong/m3 (US$0.64/m3) services to districts across the country, and channel funds through the when Thu Duc was commissioned in 2003. The investors are under- Development Assistance Fund to lend money for water supply and stood to have retreated due to concerns regarding convertibility risk. sanitation projects of technically and fi nancially qualifi ed public or private water supply companies. The project will also develop standard Grand Imperial BOT procedures to improve key management practices in participating wa- The HCMC government paid US$4 million to the Grand Imperial Sai- ter supply companies. gon Water Company to take over the half-fi nished Saigon River Wa- Other external funding agencies active in the sector include the gov- ter Supply project second phase. The central Government vetted the ernments of Australia, Denmark, Finland, France, and Japan. takeover between the city and project company and decided that the second phase of the project would be developed with local funding. In April 2004, Japan signed eight credit agreements with Vietnam in The city was forced to compensate the investor for all expenses spent order for JBIC to provide US$728 million to Vietnamese infrastructure on the project. projects. Part of the fi nancing is going to water supply schemes in the southern provinces of Dong Nai and Ba Ria-Vung Tau. In November Under a license issued by the Ministry of Planning and Investment in 2004, Japanese contractor NES signed a US$20m deal for a liquid- 1999, Grand Imperial Saigon Water Supply, a subsidiary of Malaysia- waste treatment plant and 6.5km sewerage system, three-pump sta- based Paragon Holdings, was meant to develop the project US$149- tions and 28 sets of facilities for sewer cleaning and sewage mainte- million BOT project in 1999-2002. Progress was slow due to diffi cul- nance in Ho Chi Minh City, to be entirely fi nanced with JBIC money. ties on the part of the local partner, HCMC Water Supply Company. Water supply and sanitation projects assisted by external funding The project comprises two phases, the fi rst one worth VND975 billion agencies in the country have generally failed to follow their implemen- being implemented since 1993 with offi cial development assistance tation schedules. This refl ects partly the rigidity of the centrally con- from Italy. The project came to a dead halt in 1997 due to slow dis- trolled decision making process and partly poor understanding of the bursement. Each phase was designed to supply 300,000 m3 per day. Government procedures and the resultant unrealistic expectations. IFI projects in the sector have suffered from (i) delays in loan signing (the Saigon River Water Supply BOT Second Provincial Towns Water Supply and Sanitation Project) (ii) de- The Saigon River Water Supply (SRWS) project was a 25 year BOT lays in loan effectiveness (the HCMC Water Supply and Sanitation contract to develop a new 300 000 m3/d bulk treated water source for Rehabilitation Project and the Second Provincial Towns Water Supply Ho Chi Minh City (HCMC). Water was to be supplied to the HCMC Project) and (iii) delays in contract awards and disbursements. Water Supply Company, on a take-or-pay basis. The objective of the project was to increase supplies to some 1.25 million people in the II.3 Private Sector Participation south west zone of the city at a total cost of US$157m. The project Being a foreign investor in Vietnam is a generally challenging position was to be developed by a consortium jointly owned by M-Power South to be in, and the idea that foreigners should be durably involved in the East Asia Ltd (MPSEA) of Singapore (50%) and Anglian Water Inter- water sector still has long way to go in Vietnamese offi cials’ minds. national (50%). The project was folded early due to concern about The introduction of PSP has so far been a failure. Projects which are demand and counter-party risk. far too risky and oversized as well as long periods of protracted negotiations with Vietnamese authorities have prompted all western and Local Private sector most foreign players to abandon the idea of entering the Vietnamese During the 1990s, a number of small, initially unregulated, privately- water sector. invested, piped-water schemes emerged in the provinces. In the province of Tien Giang for example, such schemes developed rapidly in Past international projects response to consumer demand. In 1998, the Tien Giang Provincial In 1995, HCMC launched 4 major bulk water supply schemes aimed Government issued a decree to govern this activity. The decree stipu- at doubling water supplies to HCMC by 2004. Three of these have lated investment requirements and operating mechanisms and set out never been built. the process for provincial authorities to regulate pricing, drilling, and water quality. There has been impressive growth in private, coopera- Binh An BOT tive, and user-managed systems, and 65% of the 1.6 million people The fi rst private water treatment plant in Vietnam was built in 1999 on living in the Province now have access to piped water, mostly through a Build-Operate-Transfer (BOT) basis under a 20-year contract with schemes developed since the mid to late nineties. The rate of devel- the city People’s Committee and the Water Supply Company of Ho opment of new schemes is so rapid (some 70- 80 per year in recent Chi Minh City. The 20-year Binh An WTP contract involved an original years), that the remaining 45% of the population will likely be served investment of US$38 million, assisted by a US$25 million IFC loan. within the next three to four years. The shareholders of Binh An Water Corporation are IJM Corporation Of the total invested capital in piped water supply schemes in the Berhad, Kumpulan Emas Berhad, Malaysian South Corporation Ber- province in 2002, US$3,645,000 (61%) had been invested by private had and Salcon Engineering. The 100,000m3/d of water from Binh investors and water users, US$1,760,000 (29%) by state enterprises, An increased total supply to Ho Chi Minh to 830,000m3/d. The plant, and US$618,000 (10%) provided as subsidy from state budgets. Since located in the Thuan An district of the southern province of Binh Du- the decree was issued in 1998, the number of user-group invested ong, also supplies water to neighbouring areas, such as the Bien Hoa systems has grown by 800%, cooperatives by 230%, and private in- Industrial Park in Dong Nai. The participating banks in the syndication vestors 130%. In all cases, the government provides technical design include the Vietnam-based Bank for Investment and Development, support and has a series of pre-designed systems that are tailored and Asia Commercial Bank, as well as three foreign banks: Chinfon for varying populations and water source conditions. Additionally, the Commercial Bank, the International Commercial Bank of China and drilling of wells is very tightly controlled and there are no private sector the Bank of China well drillers in the province. Thu Duc BOT There are some other examples of BOO and BOT water supply sys- Initially developed by Suez (Ondeo) and a Malaysian partner, this tems constructed by a state-owned company (WASECO). The com- project was cancelled after Suez decided to pull out in 2003 after the pany borrowed money with short-term commercial rate from a local contract was signed in 1997. The project was meant to provide Ho Chi bank to construct district town water supply systems, operate for 7-10

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 382 Water Market Asia - Vietnam

Table 4.1: Wastewater Service Coverage Indicators 2002 (%) Vietnam Developing Asia High Income Asia Population with Access to Improved Sanitation 41.00 54.64 100.00 Households Connected 2.00 7.22 99.29 Urban Population with Access 84.00 77.09 100.00 Urban Households Connected 8.00 18.11 99.00 Rural Population with Access 26.00 48.08 100.00 Rural Households Connected 0.00 2.57 90.00 years and then transfer to the local authorities. Seven schemes were mization of long term costs) and protections (e.g. performance bond- constructed in the Mekong Delta in the early 1990s. With regard to ing and a minimum consumption charge), it is envisaged that serving BOO and BOT contracts, it appears that although customers can ac- district towns can be a sustainable business provided the services of- cess water supply services quickly, the quality of the service has been fered meet the needs and affordability of the customers. Initial results modest. There have been limited funds for maintenance and the facili- show that the DBL approach may work in Vietnam. ties have deteriorated. The company has borne high risks. Few local investors are interested in following this model. II.4 Tariffs Guidelines for tariff setting are set out in an inter-ministerial circular Due to water demand in the outer suburbs and outlying areas of Ho formulated by the national Department of Materials Pricing; however, Chi Minh City, many families have resorted to using wells to access it is the responsibility of the People’s Councils (at the provincial and/ underground water. Private companies were also encouraged to set or local level, depending on the coverage of the service provider) to up and provide services of supplying underground water to resident set the tariffs. The basic principle is that tariffs should cover produc- homes via pumping facilities. In 2000 one such company, Phuc Doan tion and operational costs, taking into consideration “affordability to Company in Tan Thoi Hiep ward of District 12, was set up to supply consumers and debt repayment” to make sure the water companies 1000 cubic meters/day to 3,000 homes in this district. are sustainable. Evidence suggests, however, that the Circular is not The deal represented a signifi cant milestone for Vietnam’s fi nancial being applied and overall tariffs generally cover O&M costs and some market as it was the fi rst commercial loan signing for a BOT project. depreciation expenses but do not support the fi nancial viability of the companies or the accumulation of capital to allow for the expansion of At present, water supply is not an attractive sector for private invest- the system. Tariffs are also only adjusted every 3-4 years. ments due to: The principles and methodology for setting tariffs for clean water - No, or very diffi cult, access for private investors to bank and funding are set out in Inter-Ministerial Circular No. 3 dated June 1999 (No. agencies; 03/1999/BXD-BVGCP) on Guidelines on methods for pricing and - Water tariff is set and approved by local authorities, usually lower jurisdiction on defi ning clean water tariffs for urban areas, industrial than production costs zones and rural residential centres. The Circular sets out guidelines for price setting, but it is not mandatory that the People’s Councils Consequently few private investors are interested in investing in small adhere to these guidelines. town water supply. To reduce the risk to private investors and to encourage them to come in to the sector, a new Design-Build-Lease ap- The level of cost recovery has increased in Vietnam, and tariff levels proach is being piloted. The DBL contractual arrangement is intended generally cover the operating expenses of the PWC and some depre- for groups of district towns, developed through community consulta- ciation. However, tariffs do not generally refl ect the levels required for tion, and let by Provincial Water Supply Companies (PWC). Access to debt servicing, and as many of the sector loans have now started to project funds is based on achievement of eligibility criteria: become due many PWCs do not know how they will fi nd the resources to pay their debts. - Water users pay the full cost of the service; Tariff levels - Land is provided by local government; Average residential tariff per m3 has increased from the year 1997 by - At least 60% households are willing to connect; 9% to 1,696VND/m3 (US$0.12). The minimum and maximum residen- - PWC is to provide equity contribution tial tariff rates per m3 charged in the year 2001 were 1,000VND and 4,000VND/m3 (progressive rate) respectively. Through appropriate incentives (e.g. minimum capital costs and opti-

Tables 4.2 : Performance Indicators Min Max Vietnam Average Average top 25% NRW 13.6% 75% 38.5% 27.5% Working Ratio (Water) 0.38 1.00 0.64 0.57 Staff/ ‘000 connection 3.9 34.5 13.1 9.1 Source: Vietnam Water Supply Association (VWSA) National Indicator Nat’l Average Indicator Average Coverage 44.5% Hours of Service/Day 16.6 hours Metering 96% Production Capacity Used 78% UFW 38% Average Consumption 81.8 l/p/c/d Staffing 12.2 per 1,000 Receivables collected within 30 days 92% Connections Source: World Bank. June 2002 Coverage Indicators District/Sub- Major Regional Major Provincial Provincial & District Centers Major Cities Centers Centers District Centers and Townlets > 1 million 350,000-1,000,000 100,000-350,000 30,000-100,000 2,000-30,000 70% 48% 31% 32% 11% Source: World Bank. June 2002. Benchmarking: The Urban Water Sector Vietnam. Volume 1: Main Report.

383 Water Market Asia - Vietnam

The national average charge per residential connection per month has per day. This amount of production is approximately 78% of the total increased from US$1.93 in 1997 to US$2 in 2000. production capacity of PWCs. In general, plants appear to have spare capacity, providing an opportunity to increase distribution without af- Affordability fecting the level of service to existing customers. Immediate invest- An increase in GDP of the country has lead to an increase in purchas- ment projects might therefore emphasize expansion of distribution ing capacity, the cost of water tariff with respect to the level of income systems where there is surplus production capacity and a demand has in fact dropped. In certain provinces, water remains relatively ex- from consumers. Utilising the full capacity of the treatment plants may pensive; Residential billing per served population as a percentage of decrease the unit operation costs and improve the fi nancial standing provincial GDP per capita can be as high as 4.6%, whereas the aver- of companies. According to projections by PWCs, demand will exceed age in Vietnam is 1.45%. supply by the year 2006. A key question is whether companies will have suffi cient funding to make such expansion. Even though the price of connection fees has increased on average 9.4% in nominal terms, its relation to GDP per capita has decreased. The total length of the PWCs distribution systems (including primary, Therefore, connection fees appear to be more affordable now. secondary and tertiary pipelines) amounts to 12,465 km. The average level of NRW in Vietnam is approximately 38%. This level has been Nearly 80% of the companies determine the price of the connection relatively static over the past few years but shows signifi cant varia- fee based on the length and diameter of connection pipes. Over 30% tions in different provinces, ranging from 13.6% to 75.7%. of companies offer reduced connection fees in order to facilitate access for low-income families. Nearly 60% of companies accept install- In general, the level of metering reported by PWCs is very high, ment payments nearly at 100% for the companies located in the South and Central regions. North is still lagging behind, however, great improvements Collection have been achieved over the past few years. The average level of Vietnam is performing extremely well in collection of revenue. 92% of metering across the country reached 96% in 2000, an increase of 5% companies have a collection period of less than 30 days. This aver- from 1997. Vietnam therefore possesses one of the essential ingredi- age is much better than the performance level reached by top 25% ents for improved commercial management and managing the level utilities of developing countries where the collection period is 90 days of unaccounted for water. or less. Most PWCs collect payments through sending employees to The national residential consumption rate for the year 2000 is 81.8 consumer’s residences; however, lately, a small percentage of com- lpcd. The level has remained relatively constant during the past few panies solicit their consumers to pay the bills directly to the utility. years. The consumption level in larger cities is nearly 50% higher than II.5 Performance consumption levels in smaller cities. Consumption habits and purchasing ability are potential reasons for explaining this gap. In the 1990s the Government implemented a program to strengthen the Provincial Water Companies (PWCs), rehabilitate the systems Recent efforts to improve the effi ciency of public owned companies and increase water production capacity. A major focus has been chan- have yielded impressive results with regards to indicators involving nelling ODA money to develop new production capacity, increasing the number of staff. The ratio of staff per ‘000 connections has de- production capacity from 1.95 million m3/day in 1990 to 2.7 million creased by 17% between the years 1997 and 2000. Nonetheless, the m3/day in 2000. This has allowed for the expansion of the distribu- weighted national average remains nearly two and half times higher tion systems. In 1998, the Government set ambitious coverage targets than the level considered as best practices in developing country (5 to achieve 80% urban water supply coverage in the short-term (with staff per ‘000 connections). High staff ratio would typically result in a 100% coverage in the major cities) and 100% by 2020. high cost of labor with respect to the overall operating costs. However, in Vietnam labor is relatively low-cost, therefore its overall impact on The overall urban coverage of Vietnam remains low at 51%, with cov- the operating expenses is not very critical. However, as salaries grow erage in larger cities reaching on average 67% and smaller towns to refl ect the actual cost of living in Vietnam, the high number of staff about 11%. Approximately 319 towns have a coverage level lower per connection will eventually become a very critical issue. than 25%. The operational cost per m3 produced ranges from 400 VND Nevertheless the sector has been expanding at a rapid rate since (US$0.028) to 1,711VND (US$0.121), while per every m3 sold, the 1997: 40% of the distribution system has been built after 1998. How- operational cost ranges from 577VND (US$0.041) to 2,474 VND ever, the capacity of the treatment plants exceed the capacity of the (US$0.175). This variation could in part be explained by specifi c site distribution system. On average the utilities are operating at 78% of conditions (such as source of water), by disparities in the cost of en- production capacity, although in the smaller towns the level is closer ergy, the quality of service and/or by the overall level of effi ciency of to 60%. the company. The percentage of maintenance cost is relatively low. Although coverage levels through piped supply from the PWCs has This could be partially be explained by the fact that a major portion of increased, coverage has lagged behind in smaller towns (coverage the distribution system is new, requiring a low level of maintenance. was between 10%-32% in 2000-2001). In response, there has been a However, the high level of leakage probably suggests that mainte- signifi cant increase in the number of small privately owned piped-wa- nance levels are sub optimal. ter schemes in the unserved areas. In the Tien Giang Province, for ex- The working ratios of PWCs are excellent in general. The national av- ample, 65% of the population of 1.6 million has access to piped water erage is lower than the average performance of the top 25% of utilities supply from private, cooperative, and user-managed systems. Ho Chi in developing countries (0.7). The WR for water provision is better than Minh City has also encouraged the development of small-scale ser- the WR for the entire business. This fi nding is to be expected given vice providers because it was facing diffi culties in meeting demand, the capital intensive nature of the water business. The working ratios particularly in new urban areas and surrounding rural areas. have slightly improved from 1997 for the entire business. However for The main function of PWCs is to manage all activities related to water the business of water provision, it has improved by nearly 9% which provision, such as operating and maintaining piped water systems and is a good performance. While these WR are impressive compared billing and collection. However, many companies carry out additional to many developing countries, the relatively low tariff means that the activities to respond to a need and/or to supplement the company’s cash generated from the PWC in absolute terms is also low. revenue. 24% of companies in the North, 6% of companies in the The average level of provision in Vietnam is 19.6h / 24h. Centre and 30% of companies in the South perform work in provinces outside their geographic jurisdiction. These activities are mainly in the III. Wastewater fi eld of construction and equipment trading. It is a typical feature of III.1 Sector Policy, Structure & Performance centrally planned economies that SOEs should get involved in seemingly unrelated businesses to raise cash. Typical examples in Vietnam In addition to the PWCs, there are three autonomous Sewerage & include the Vietnamese military running textile factories making Hugo Drainage Companies (Hanoi, Hai Phong, and Da Nang) that provide Boss shirts and numerous hotels throughout the country. sewerage and drainage services in Vietnam. In the other 7 urban areas with sewerage and drainage systems, the systems are man- Vietnam’s PWCs are currently producing over 2,597,680 m3 of water aged directly by public works/environment companies that also have

Opportunities in the Water & Wastewater Sectors in Asia & the Pacifi c 384 Water Market Asia - Vietnam responsibilities for solid waste and other public services. The develop- land area is covered by plains, the most important being the Bac Bo ment of sewerage infrastructure has lagged signifi cantly behind water and Nam Bo, corresponding to the courses of the Red and Mekong supply infrastructure. There are combined sewerage and drainage rivers respectively. The total cultivable land area is 7,086,000 ha, of systems in 10 of the larger urban areas providing services to approxi- which 3,300,000 ha are in delta areas. The cultivated land area is mately 30-40% of the population of these urban centers. Since 1997, about 6,757,000 ha, or 95% of the total cultivable area. there have been several ODA projects focusing on the rehabilitation The climate varies from temperate and subtropical in the north to tropi- and expansion of these systems, the largest being based in Hanoi. cal in the south. Precipitation varies from 2,000 to 2,500 mm in the Offi cial targets for drainage, sewerage, and urban environmental mountainous areas and from 1,600 to 2,200 mm in the midlands and sanitation are to (i) improve and complete urban drainage and sewer- plains. The average annual rainfall is 1,960 mm, with a minimum of age systems to ensure a minimum of 80-90% coverage by 2020; (ii) 650 mm in Phan Rang, and a maximum of 4,760 mm in Bac Quang. require enterprises to have on-site treatment for toxic liquid waste; The rainy season lasts from April/May to October/November. Some (iii) eliminate pit latrines in urban areas by 2005; (iv) provide waste 70-80% of the total annual precipitation occurs during the 3-6 months collection systems that treat solid and liquid wastes; and (v) gradu- of the rainy season. ally rehabilitate and clean the canal systems. Reality and actual plans The driest periods are either from December to February or from Jan- remain in stark contrast with offi cial targets. uary to March depending on location. The temperature varies from The urban centres commonly discharge wastewater and storm water 15°C in winter to 25°C in summer. The annual average evaporation of through combined systems to nearby watercourses, usually without the territory is 953 mm. treatment. Large sections of these combined networks, constructed There are 16 river basins larger than 2,000 km2, 9 of which are consid- decades ago, need rehabilitation due to lack of maintenance. Flood- ered major rivers, each with a catchment area larger than 10,000 km2. ing is common in urban centres in the wake of heavy rainfalls. Silted These nine major basins are the Bang-Ky Cung, Red River/Thai Binh, or inadequate drains overfl ow during storms, spreading excreta and Ma, Ca, Thu Bon, Ba, Dong Nai and the Mekong Delta. Other basins garbage over the ground. Many drains were constructed without ad- are either small in area (the Tien Yen and Muc) or have several small equate grades for self-cleansing and there are often no design provi- rivers grouped together such as the Giang/Huong, Tra Khuc and Cai- sions for odour control or dry weather fl ow. There are few wastewater Luy. The nine major basins represent 80% of the country’s area and treatment plants, and untreated sewage and industrial wastewater are 70% of its water resources. The largest basins are the Mekong and discharged directly into water bodies and streams in the surrounding the Red River/Thai Binh, covering half of the country’s territory. areas and pose high risks to aquatic ecosystems. Vietnam has abundant surface water resources in terms of total run- Environmentally acceptable sanitation facilities in urban areas are off, of which the Red and Mekong rivers carry 75%, while each of the generally unavailable. other basins carries 1-3% of the water resources. The mean annual While around 40% of households in provincial towns have septic tanks, runoff totals approximately 878 km3/year, of which about 354km3/year only a small proportion of these septic tanks are connected to sewers (40%) are generated within the country (corresponding to a runoff co- or drains. In many urban areas, septic tank effl uent or seepage con- effi cient of 0.5). About 60% of the total fl ow in Vietnam originates out- taminates the groundwater table in areas where water from wells is side the country. More than 90% of the Mekong basin lies outside Viet- widely used for drinking. In general, households in district towns have nam. Half of the Red River basin lies outside the country. The Ma and fewer septic tanks than those in provincial towns, and some even lack Ca rivers both have about 40% of their basin area outside the country basic toilet facilities. Those without access to any sanitation facilities and the Dong Nai has 15% of the basin area outside the country. The have no organized system of wastewater collection, treatment, and contribution from neighbouring countries to the runoff in Vietnam is disposal, and use open ground, local drains, and watercourses for estimated at 524.7 km3/year, including 470.1 km3/year (Mekong) and disposal of excreta and wastewater. 1.4 km3/year (Dong Nai) from Cambodia, 44.1 km3/year (Red) from China and 9.1 km3/year (Ca and Ma) from Lao PDR. Although most provincial and district towns have some form of solid waste facilities, the coverage is low, with only 47% collection. As a The distribution of water resources in the country during the year is result, solid waste usually is burned or dumped into lakes, ponds, highly variable due to unevenly distributed monsoon rainfalls. High streets, vacant land or in drainage systems. Most solid waste comes variations combined with limited storage and fl ood control infrastruc- from domestic activities, with only 30% generated by industries. Col- ture result in devastating fl oods in the wet season and extreme low lected solid waste is generally brought to landfi lls. Current disposal fl ows in the dry season. About 70-75% of the annual runoff is gener- sites in urban areas are not properly designed and do not operate as ated in three to four months. landfi lls but simply as dumpsites. Typically, the landfi lls are unlined The groundwater recharge in the country is estimated at 48 km3/year. with a high risk of leakage into groundwater aquifers. No city or town Over 50% of these resources are in the central part, about 40% in in Vietnam has adequate facilities for disposing of hospital and toxic the north and 10% in the south. A large amount of water is stored in wastes, expect for HCMC. unconsolidated alluvial sand and gravel geological formations found III.2 Private Sector Participation in plains and valleys. A substantial part of these resources (estimated at 35 km3/year) returns to the rivers as base fl ow. The exploitable re- Private wastewater projects are few and far between in Vietnam. In- serves (the volumes of fl ows of satisfactory quality which can be ex- dustrial projects exist however and represent the only serious oppor- tracted economically given the present technology) are estimated at tunities in the sector. As Vietnam moves towards higher value added about 6-7 km3/year. productions water quality will matter more for industrial processes. An environmental crack down on polluters is also not impossible even By adding together the internal and external water resources, the total though it would probably be thwarted by corruption. renewable water resources are estimated at 891 km3/year. In 2005, the Glowtec Environmental Vietnam Ltd Liability Company re- Water Resources Policy cently signed a memorandum of understanding with four Vietnamese Vietnam has a long history of water management related to its mon- partners to treat waste water in the city’s industrial parks (IP). Glowtec soon climate. Irrigation and drainage have allowed intensive paddy Vietnam will build a combined wastewater treatment factory for IPs, production while fl ood control works have greatly reduced the risk install equipment and run the factory to ease heavy environmental to large populations living in the lowland deltas and coastal areas. pollution cause by waste water discharged by industrial plants. However, a number of water-related challenges have increased in re- IV. Environment and Legal Aspects cent times. Water quality is deteriorating in many areas due to urban and industrial activities and saline water intrusion is increasing as dry IV.1 Water and Wastewater Fundamentals season river fl ows are reduced. The poor condition and fi nancial sus- Water Resources tainability of hydraulic works limits agricultural output in many areas. Although Vietnam has adequate water resources overall, local and Mountains and hills cover more than three-quarters of the territory, seasonal shortages are increasing, causing impacts on water users although over 70% of the country lies below 500m above sea level. and the environment. Vietnam has a dense hydrographic network. About 25% of the total

385 Water Market Asia - Vietnam

The water management sector has not performed well due to frag- and sanitation. mentation of responsibilities among national ministries and among Other key organizations related to the sector include the (i) Ministry provinces and agencies within river basins. The country has not yet of Planning and Investment, which is responsible for advising the developed a comprehensive and strategic approach to investment and Government on investment planning and the utilization of externally management of water resources, with various sectors each undertak- funded assistance and direct foreign investment; ing their own planning. Although a progressive legal base, including a number of important and far-sighted reforms, is provided by the 1998 (ii) Ministry of Finance (MOF), which prepares and administers the Law on Water Resources, progress in implementing the Law is still budget and is responsible for the disbursement of externally funded slow and supplementary legislation is not yet in place. projects; The Government investment strategy in the water resource sector (iii) Ministry of Science Technology and the Environment, which is re- has traditionally focused on subsector interventions for irrigation, hy- sponsible for environmental protection; dropower, water supply, and fl ood control, rather than focusing on an (iv) Ministry of Health, which is responsible for promoting environmen- integrated approach for utilizing water resources. This, combined with tal health education and for water quality testing; the large number of subsector-based agencies involved in management and use of water resources, has resulted in a lower priority being (v) Vietnam Women’s Union (VWU), which is a Government-funded given to the establishment of integrated water resource planning and mass organization with central, provincial, and district level offi ces, regulatory systems, and to effi cient water resource use. and plays a major role in community mobilization and health education; and To address these constraints, the Government has introduced reforms and is developing new policies to improve the effi ciency of manage- (vi) Vietnam Water Supply and Sewerage Association, which is a non- ment and use of water. The reforms have been initiated through the government business and professional organization established in Water Resource Law (WRL), which became effective in 1999. It de- 1987 with members from WSCs and related companies and organiza- fi nes the role of the National Water Resource Council, which was sub- tions; and is active in developing and undertaking training courses for sequently established in 2000, to advise the Government on water WSCs. resource management, related national strategies, and action plans. It also provides for the establishment of river basin organizations as Water Management and Environment the institutions responsible for river basin management. In November Ministry of Natural Resources and Environment 2002, the Government transferred the responsibility for water resource management from the Ministry of Agriculture and Rural Development In November 2002, the Government assigned the Ministry of Natural (MARD) to the newly established Ministry of Natural Resources and Resources and Environment (MONRE) to take over responsibilities Environment (MONRE) thereby separating the functions of water re- of state management of natural resources as well as other natural source management from water service delivery, an important step in resources and environment. The Decree separates state water man- the process of implementing the WRL. agement functions under MONRE from public water services delivery which will be carried out by the Ministry of Agriculture and Rural According to WRL, the National Water Resources Council has the re- Development and other ministries with water-related responsibilities. sponsibility to advise the Government and Prime Minister on important The Prime Minister’s Decree specifi cally assigns to MONRE the re- water resources issues, including: national water resources strategies sponsibility for: and policies, major river basin planning, plans for major inter-basin diversions, projects for protection, exploitation and utilization of water - surveying and licensing basic water resource allocation; resources, cooperation in international rivers, settlement of disputes - surveying, assessing and producing an inventory of water resources regarding water resources and exchange of information and data. The and establishing databases NWRC has the responsibility to proactively advise the Government on the protection and sustainable development of water resources, - implementing measures to protect water resources thereby making an important contribution to the industrialization and - supporting the National Water Resources Council. modernization of the country. The formation of MONRE marked a major step in the institutional de- IV.2 Laws and Institutions velopment of the water sector by bringing water resources together Sector responsibilities for urban water supply and sanitation involve with environmental and other natural resource management respon- both the central and provincial government agencies. The central sibilities and in separating water resource management from the ir- Government agencies are mainly responsible for policymaking, stan- rigation and drainage services under the Ministry of Agriculture and dards, and development. Provincial and local governments are mainly Rural Development and other water-related services under other min- responsible for construction, supervision, and operation and mainte- istries. nance (O&M) of the facilities, although they are becoming more ac- Within MONRE the Department of Water Resource Management tive in development in response to the Government’s decentralization (DWRM) was set up in 2003 to carry out state management of water initiatives. resources. Figure 1 at the end of this paper gives the organizational Apart from urban water supply and sanitation, the Ministry of Con- structure of the DWRM. struction (MOC) is mainly responsible for (i) urban and rural planning National Water Resources Council and policies; (ii) construction standards, rules and regulations; (iii) technical and fi nancial guidelines for evaluating construction projects; The Law on Water Resources (No. 8/1998) enabled the creation of (iv) research, and (v) human resource development for urban infra- the National Water Resources Council (NWRC) as well as river basin structure investment and maintenance. MOC also involves in monitor- planning management boards. The formation of these new organiza- ing and administering major urban development projects. MOC has a tions also marked a new step in coordination and advice to Govern- minister and four vice ministers, and includes 8 departments, 4 cen- ment at the central and river basin level. tres, 5 institutes, 4 boards, 12 corporations, 20 companies, 2 universi- 1. Functions ties, 5 colleges, and 6 training schools. The NWRC was established under a Decision of the Prime Minister At the provincial level, provincial people’s committees (PPCs) exer- (No. 67/2000/QD-TTg). The Decision indicates that: cise executive authority over all functions. The line ministries have their corresponding departments in the structure of the provincial - The National Water Resources Council will be established to advise government. PPCs make use of boards and committees to facilitate the Government on important decisions on water resources within cross-sectoral coordination. The administrative responsibility for ur- tasks, powers of the Government. ban water supply and sanitation is usually assigned to the department - The National Water Resource Council will advise the Government of construction, which then delegates the responsibility to a WSC, and before the Government makes decisions on: 1) Strategies and poli- that for drainage, solid waste, and sanitation to a public works com- cies on national water resources; 2) Major river basin plans; 3) Plans pany. In some cases, WSCs are responsible for both water supply for major inter-basin diversions; 4) Projects for protection, exploitation

Opportunities in the Water & Wastewater Sectors in Asia & the Pacifi c 386 Water Market Asia - Vietnam and utilization of water resources and projects for fl ood control and The Offi ce of NWRC is located in DWRM. The department as a whole overcoming the adverse effects caused by water where such proj- is assigned to work on water resource management activities which ects require Cabinet approval; 5) Management, protection, exploita- are related to the functions of the Council. The Director General of tion and utilization of international water sources and settlement of the Department may assign any staff to work on assignments for the any disputes; 6) Resolution of confl icts regarding water resources be- Council. tween ministries and branches, between ministries & provinces, cities The Offi ce of the NWRC has the responsibility to: directly under the central control. 1. Develop agendas and issues for Council meetings and workshops; According to the accompanying Regulation on the Organization and Operation of the National Water Resources Council, the Council will: 2. Prepare documents related to operations of the Council between 1) Proactively investigate, recommend and advise the Government on the council meetings; major policies, projects and important issues in water sources fi eld; 2) 3. Communicate with Council members and collect responses from Organise discussion among specialists and scientists for recommen- them; dations on National water resources strategies and major and important projects under Government authority; 3) Report on and make rec- 4. Prepare and submit reports to the Government; ommendations for major and important projects on water resources as required by Ministries, agencies, and provinces or as required by 5. Carry out studies, surveys and consultations, including organization the Government. of consultation groups; 2. Structure and Reporting Lines 6. Develop and maintain a National Water Resources Profi le and other needed information tools to assist NWRC; According to the Law on Water Resources and subsequent legislation, the membership of the NWRC includes: 7. Develop annual plans and budgets for the Council activities; and - Chairman of the National Water Resources Council: Vice Prime Min- 8. Manage the operation, personnel and facilities of the Council. ister; In addition to the staff of the Offi ce, a number of other ministries and - Standing member: Minister of Natural Resources and Environment; agencies have been involved in Council support activities through working groups, workshops and training activities. - Other permanent members: Vice Ministers of the Ministry of Natural Resources and Environment; Ministry of Agriculture and Rural Devel- Working groups have been formed on training and awareness, data opment; Ministry of Fisheries; Ministry of Science and Technology; and information management, development of the Council’s multi-year Ministry of Planning and Investment; Ministry of Finance; Ministry of work plan, preparation of a National Water Resources Profi le and Na- National Defence; Ministry of Construction, Ministry of Transportation; tional Water Resources Strategy, and various legislative development Ministry of Industry; Ministry of Public Health; the Chairman of NWRC tasks. Workshops on these topics have included other stakeholders Offi ce; and four specialists working in water sector. besides staff of ministries and agencies. Non-permanent members include representatives of central and local PSP Law agencies with regards to specifi c issues and are invited by the Chair- In December 1992, the Government amended the Law on Foreign man of NWRC at each session of the Council. Investment to allow for BOT projects, and a year later implementing Appointment of members of the Council is the responsibility of the regulations were enacted by Government Decree. Prime Minister. V. Sources The NWRC reports to the Government through the Chairman. The EIU, ADB, PIAFF, World Bank, Interviews Council is an offi cial body within the Government, with an Offi ce located in, and funded by, the Ministry of Natural Resources and Environ- VI. Useful contact ment. In practice, the NWRC works closely with MONRE. The Council Mr Quyen, VWSA (Vietnam Water Supply Association) requests MONRE to undertake various tasks and to report the results to it. The Ministry also refers important, policy-related draft material to [email protected] the Council for its review and comment before these are submitted to the Government. The National Water Resource Council meets twice per year in the fi rst and the fourth quarter of the year. The Chairman of the Council may also convene irregular meetings. Also, information may be circulated to Council members at other times and their responses may be requested. 3. Offi ce

Average Water Total Water Unit Cost Unit Cost Operating Cost Revenue W&WW Year Production Consumption W&WW (US$/m W&WW (US$/m Coverage (US$/m water (l/person/ day) (l/person/day) water sold) water produced) (ratio) sold) 1997 216.68 144.16 0.13 0.08 1.23 0.62 1998 212.87 137.24 0.15 0.09 1.27 0.63 1999 226.11 130.51 0.14 0.09 1.32 0.60 2000 208.39 129.29 0.15 0.09 1.27 0.65 Average Connection Revenue Non Revenue Metering Level Pipe Breaks Water Coverage Year Charge - water W&WW (US$/m Water (%) (%) (breaks/ km/yr) (%) (US$/conn) water sold) 1997 0.12 52.20 39.00% 88.16% 7.17 36.32% 1998 0.12 45.15 39.31% 90.75% 7.18 46.07% Table 5.2: Average performance of of performance Average 5.2: Table

Vietnamese water utilities 1997-2000 1999 0.12 50.72 39.17% 91.70% 4.53 46.57% 2000 0.13 51.59 37.43% 94.36% 3.57 51.44%

387 Water Market Asia - Vietnam

Table 5.1: Performance of 15 largest water utilities in Viet Nam (2000)

VungTau

PhanThiet

Nha Trang Nha

Hue

HCMC

HaiPhong

HaNoi

District

GiaLam

Dalat

DaNang

Town

CaoLanh

CanTho

BienHoa

iyUtilityname City

& Sewerage & Company

Tien Giang Water Supply TienGiang Water

Vung Tau Province Tau Vung

CompanyBa Of Ria -

The Water Supply Water The

& Sewerage & Company

Binh Thuan Water Supply Water Thuan Binh

& Sewerage & Company

KhanhHoa Supply Water

Company

SupplySewerage And

Thua Thien Hue Water Hue Thien Thua Water

Company

ExploitationTreatment &

HcmCity

SupplyC

Ho Chi Minh City Water HoCity Minh Chi Water

Company

Hai Phong Water Supply HaiPhong Water

BusinessCompany

HaNoi Clean Water

BusinessCompany

HaNoi No2. Clean Water

Company

LamSupply Dong Water

Company

DaNang Water

Company

Dong Thap Water Supply DongThap Water

Company

Can Tho Water Supply Can Water Tho

Construction Company Construction

Dong Nai Water Supply Dong Nai & Water

ompany

Ground Water Ground Water

Supply

2 o50n 54.7 3.6123. 236.96 49.57% 25 no to 125 500

2 o50n 00%331 / 18. n/a 393.17 40.06% 7 no to 125 500

2 o50n 18%195 102. 119.57 41.88% 7 no to 125 500

2 o50ys24.6 1.8na3 n/a 211.58 42.46% 2 yes to 125 500

2 o50n 43%162 54 23%100%01 .85.31.14 52.93 0.08 0.11 100.00% 22.31% 75.43 136.25 54.34% 6 no to 125 500

0 o1nanana80%100%00 / / 1.62 n/a n/a 0.08 100.00% 8.00% n/a n/a n/a 1 no 500 >

0 o55.7 0.3116 37. 181.65 308.83 52.37% 5 no 500 >

0 o1 87%137 / 64%90.40% 46.44% n/a 173.72 88.70% 12 no 500 >

0 o18.5 / / 55. n/a n/a 80.95% 1 no 500 >

2 o50n 49%122 6.42.0 0.0 .9na6.31.00 64.93 n/a 0.09 100.00% 23.00% 164.34 122.29 24.97% 4 no to 125 500

2 o50ys1 63%180 7.51.6 0.0 .301 23 0.90 42.34 0.16 0.13 100.00% 19.26% 172.05 178.08 46.36% 17 yes to 125 500

2 o50n 82%247 91. 264.73 38.22% 1 no to 125 500

2 o50n 04.9 1.344.65 112.13 49.59% 10 no to 125 500

2 o50n 43.4 6.2160. 269.92 35.94% 14 no to 125 500

125 to 125 500

Thousands Thousands

of people people of

served

o26.2 6.1143 31.50 144.34 168.51 61.32% 2 no

Sewerage

Service?

townsserved

Number of of Number

with water with

Coverage

Water

(%)

Production

(l/per

Water

day)

son/

(

l/person/day)

TotalWater

onsumption onsumption

65.0 42%0. 94.26% 50.50% 06

94.8 0.0 .701 94 n/a 49.40 0.13 0.07 100.00% 40.68% 79

82.9 / .401 05 0.99 70.57 0.15 0.14 n/a 26.59% 88

13.0 0.0 .101 56.46 0.15 0.11 100.00% 32.50% 31

40%9.3 0.12 99.83% 34.00%

Water(%)

Revenue

.9 66%00 .92.30.97 28.23 0.09 0.07 96.63% 0.19%

7 0.0 .601 35 1.63 63.51 0.14 0.16 100.00% 87%

1 0.0 .001 52 1.23 35.29 0.15 0.10 100.00% 11%

3 10%00 .17.7n/a 70.57 0.11 0.06 71.03% 53%

Non

0.0 .3na7.71.38 70.57 n/a 0.13 100.00% %

Level(%)

Metering

.901 94 1.82 49.40 0.16 0.09

(

US$/mwater

600 64 1.26 56.46 0.08 06

produced)

UnitCost

W&WW

.74.41.01 42.34 0.17

(US$/m water (US$/m

Revenue

W&WW

Average Average

sold)

Chargewater -

(US$/conn)

Connection Connection

1.83

Operating Cost Cost Operating

Coverage (ratio)

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 388 Water Market Asia - Vietnam

Known PSP Projects in Vietnam Nonsan Water Pipeline

DBL Total investment (USDm) n/a

Sector 1 Water Sector 2 No data In September 2005, a new project was being offered to the private sector on a build, lease, transfer (BLT) basis, instead of the BTO or BOT schemes that have dominated the PSP programme. The Nonsan water pipeline project company would build the water pipeline underground, and the government will pay the company lease fees for using the facilities.

Capacity Timeline

Transmission n/a m3/d Announced 2005 September Opportunity!! Equity investor Unknown

Binh Dinh Province

Nhon Hoi Treatment Plant

Nhon Hoi Binh Dinh Total investment (USDm) 100.00

Sector 1 Water Sector 2 No data Salcon of Boustead Singapore signed memorandums of understanding with the Binh Dinh Provincial People’s Committee to conduct feasibility studies with a view to participate in the US$100m water supply and treatment plant in the Nhon Hoi Economic Zone. The latest project was in line with the Vietnamese government’s plans to develop Binh Dinh Province and the Nhon Hoi Economic Zone.

Capacity Timeline

Production n/a m3/d Direct negotiations 2005 September

Technical Advisor Salcon Water (HK) Ltd

Quy Hon Water Treatment

Quy Hon Binh Dinh Total investment (USDm) 70.00

Capacity Timeline

Treatment n/a m3/d Direct negotiations 2005 October

Technical Advisor Salcon Water (HK) Ltd

HCMC

Binh An Water Corp Ltd.

Ho Chi Minh City HCMC 20 -year BOT Total investment (USDm) 38.00

Sector 1 Water Sector 2 Wastewater The ﬁ rst private water treatment plant in Vietnam was built in 1999 on a Build-Operate-Transfer (BOT) basis under a 20-year contract with the city People’s Committee and the Water Supply Company of Ho Chi Minh City. The 20-year Binh An WTP contract involved an original investment of US$38 million, assisted by a US$25 million IFC loan. The shareholders of Binh An Water Corporation are IJM Corporation Berhad, Kumpulan Emas Berhad, Malaysian South Corporation Berhad and Salcon Engineering. The 100,000m3/d of water from Binh An increased total supply to Ho Chi Minh to 830,000m3/d. The plant, located in the Thuan An district of the southern province of Binh Duong, also supplies water to neighbouring areas, such as the Bien Hoa Industrial Park in Dong Nai. The participating banks in the syndication include the Vietnam-based Bank for Investment and Development, and Asia Commercial Bank, as well as three foreign banks, Chinfon Commercial Bank, the International Commercial

389 Water Market Asia - Vietnam

Bank of China and the Bank of China

Capacity Timeline

Production 300,000 m3/d Contract awarded 1998 July

Equity investor IJM Corporation Berhad

Equity investor Salcon Water (HK) Ltd

Saigon River BOT

HCMC HCMC 25 -year BOT Total investment (USDm)

Sector 1 Water Sector 2 No data The Saigon River Water Supply (SRWS) project was a 25 year BOT contract to develop a new 300 000 m3/d bulk treated water source for Ho Chi Minh City (HCMC). Water was to be supplied to the HCMC Water Supply Company, on a take-or-pay basis. The objective of the project was to increase supplies to some 1.25 million people in the south west zone of the city at a total cost of US$157m. The project was to be developed by a consortium jointly owned by M-Power South East Asia Ltd (MPSEA) of Singapore (50%) and Anglian Water International (50%). The project was folded early due to concern about demand and counter-party risk.

Capacity Timeline

Production 300,000 m3/d Announced 1997

Cancelled 1999 Termination!

Equity investor Anglian Water International

Thu Duc Water Project

Ho Chi Minh City HCMC 25 -year BOT Total investment (USDm) 154.00

Sector 1 Water Sector 2 Wastewater Initially developed by Suez (Ondeo) and a Malaysian partner, this project was cancelled after Suez decided to pull out in 2003 after the contract was signed in 1997. The project was meant to provide Ho Chi Minh City with additional treated water capacity of 300,000m3/d. A 25-year contract was signed in 1997 between Lyonnaise Vietnam Water Supply Company (LVWC) and the Ho Chi Minh City People’s Committee. LVWC is a joint venture between Ondeo and Pilecon Engineering of Malaysia. The Asian Development Bank (ADB), which has been working on the project since 1995, was going to provide a US$35 million direct loan. Three commercial banks had been selected to provide loans under Coface and OND political risk guarantees: ANZ Investment Bank, Fortis Bank and Credit Lyonnais. Under the initial agreement, tariffs were supposed to rise to 9,400 dong/m3 (US$0.64/m3) when Thu Duc was commissioned in 2003. The investors are understood to have retreated due to concerns regarding convertibility risk. The reasons given by Ondeo for ending the project are not clear but the company is thought to be uncomfortable with the convertibility of the Vietnamese dong into US dollars. This risk is absolutely real in Vietnam. The People’s Committee had been highly effective in securing a ministry of ﬁ nance guarantee to backstop the payment obligations and performance undertakings of the off-taker. A lot of political goodwill has gone astray with this project. Local and central government will now take a lot of convincing to support a new BOT project in Vietnam.

Capacity Timeline

Distribution 287,000 connections Contract awarded 1997 July

Early termination 2003 March Termination!

Equity investor SUEZ (Ondeo)

Grand Imperial Saigon Water Supply Project

Ho Chi Minh City HCMC 25 -year BOT Total investment (USDm) 149.30

Sector 1 Water Sector 2 No data

Capacity Timeline

Production 300,000 m3/d Cancelled 1999 January

Equity investor Paragon Holdings (Malaysia) Termination!

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 390 Water Market Asia - Vietnam

Long An Province

Long Dinh Industrial Zone Wastewater

Long Dinh Long An BOO Total investment (USDm) 0.77

Sector 1 Wastewater Sector 2 No data The construction of a wastewater treatment plant attached to a yeast production facility started in the Long Dinh industrial zone in southern Long An province in Dec 2005. The plant is being built by the Glowtec Vietnam Co. Ltd, a wholly Singaporean-invested company. The building of the US$770,000 wastewater treatment factory is concurrent with the construction of Saf-Viet yeast production factory, a joint venture between Vietnam and Lesaffre group of France. Hutschison Whampoa and A.P. Moller Maersk will respectively hold a 32 per cent interest in the project, Shanghai International Port Service (Group) Co., Ltd. will take a 16 per cent stake, and COSCO Group and China Shipping Group will each hold a 10 per cent stake.

Capacity Timeline

Treatment n/a ton/d Contract awarded 2005

Equity investor A P Moller Maersk 32.00%

Equity investor Hutchinson Whampoa 32.00%

391 Water Market Asia - Vietnam

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 392 Water Market Asia - Part 3: Company Proﬁ les

Part 3: Company Proﬁ les

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 394 Water Market Asia - Part 3.1: Key Players

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 396 Water Market Asia - Company Proﬁ les: Key Players

Asia Water Technology

26-03 Hitachi Tower FINANCIALS (most recent) 16 Collyer Quay Sales (US$m) 28.14 Singapore 49318 Sales 1 yr change (%) 36.46 SINGAPORE EBIDTA (US$m) 3.75 +65 6538 2598 http://www.asiawatertech.com/ Net Income (US$m) 3.00 Net Income 1 yr change (%) 23.80 Contact Acc. Receivables (days) 107.55 Huang Hanguang, Chief Executive Return on Assets 12.76 LISTING DATA (most recent) Return on Equity 68.28 Quote Symbol 5GB-SG Current Market Cap (US$m) 39.19 Total Assets (US$m) 38.66 Share Price on 24/01/06 (LCU) n/a Total Liabilities (US$m) 30.67 Share Price 52 Week High (LCU) 0.52 Current Ratio 1.19 PE Ratio 11.09 EPS Year End (US$) 0.02 Employees 193 Dividend Payout (%) 0.00

Asia Water provides water and wastewater treatment solutions in China. Its main activity is as a systems integrator of water treatment systems for clients in the power sector. It is the largest company in this sub-sector, with 120 projects conducted across China and an estimated market share of 70%. Incorporated in Singapore in Nov 2002, AW carries out its business in China mainly through its 90.4% owned subsidiary, Wuhan Kaidi Water (Kaidi Water), which was acquired indirectly from Wuhan Kaidi Electric (Wuhan Electric) in Feb 2003. Company restructuring in 2003 allowed Asia Water to operate independently of parent company Wuhan Electric. Asia Water listed on the Singapore stock exchange (SESDAQ) in March 2005. 24.8% of shares were listed at SG$0.275. The share price rose substantially in the ﬁ rst 9 months of trading to SG$0.37 in Jan 2006. SG$7m proceeds from the listing in Singapore were primarily used to fund the capital requirements for its municipal water project in Wuhan. In 2004, water treatment accounted for about 92% of total revenue, while wastewater treatment and miscellaneous projects account for about 5% and 3% respectively. Asia Water has been dependent on the Wuhan Electric Company for a large proportion of its earnings (85% in 2001) but this has been decreasing over time to 27% in 2004. In 2004, Asia Water entered the municipal wastewater treatment market as part of a strategy to diversify its revenue sources. The company agreed a BOT contract for a municipal wastewater treatment plant in Hanxi, Wuhan. The Hanxi plant will be one of the largest wastewater treatment plants in China at a capacity of 400,000 m3/d. The plant is 43% owned by Asia Water under a 23-year contract which will commence after commissioning in Q2 2006. Hanxi will constitute a stable earnings stream for the company and should provide Asia Water with a good base from which to compete for other projects in this growing sector and the company plans to expand its activities through further BOT projects and treatment plant management contracts. Meanwhile, it has strong order books for the power industry, which is currently growing rapidly, though growth is expected to slow down in 2007 and beyond. The company’s orderbook for water treatment services has grown to RMB260m in 2002 to an estimated RMB350m in 2004.

397 Water Market Asia - Company Proﬁ les: Key Players

Beijing Capital

7/F Jing An Center FINANCIALS (most recent) No 8 Beisanhuan East Road Chaoyang Dt Sales (US$m) 36.20 Beijing 100028 Sales 1 yr change (%) 34.22 CHINA EBITDA (US$m) 77.15 +86 8455 2266 www.beijingcapital.com.cn Net Income (US$m) 59.26 Net Income 1 yr change (%) 21.55 Contact Acc. Receivables (days) 22.61 Pan Wen Tang, President [email protected] Return on Assets 10.23 Return on Equity 11.14 LISTING DATA (most recent) Quote Symbol 600008-SH Total Assets (US$m) 864.75 Current Market Cap (US$m) 1,608.39 Total Liabilities (US$m) 335.05 Share Price on 24/01/06 (LCU) 4.13 Current Ratio 0.75 Share Price 52 Week High (LCU) 6.23 PE Ratio 26.98 Employees 1,440 EPS Year End (US$) 0.03 Dividend Payout (%) n/a

Beijing Capital is a conglomerate, majority-owned by the Beijing Municipal Government through the Beijing Capital Group Co. with activities in infrastructure, including water, wastewater, toll roads, tourism, real estate, and hi-tech industries. The company’s main sources of revenue are infrastructure, tourism and property development. In the water and wastewater sectors, BC is active in the capital and in several cities in central and eastern China. Beijing Capital’s water investments make up a majority of its assets. Beijing Capital treats a total of approximately 5.6m m3/d water and wastewater. Infrastructure accounts for 74% of the company’s gross revenues, while travel services contributes most of the remainder. Beijing Capital was founded in 1999. Its parent company, Beijing Capital Group, is one of the largest state-owned enterprises in the Chi- nese capital. It was set up in 1995 as a result of the consolidation of 17 state-owned enterprises and has achieved rapid growth since its creation: net assets grew by more than six times in the period 1995-2003, and net profi ts multiplied 25 times in the same period. BC Group has four listed subsidiaries, including Beijing Capital Company, and two investment funds. Beijing Capital listed on the Shanghai Stock Exchange in 2000, BCG owns 72.6% of Beijing Capital, while approximately 27.4% of BC’s shares are ‘A Shares’ tradable on the Shanghai Stock Exchange. BC has been considering the idea of an overseas listing in New York or Hong Kong. The company had announced that this would take place in 2005 but as of the end of the year, no concrete steps had yet been taken. BC has been in discussions with international strategic investors from the fi nance, real estate and infrastructure sectors in preparation for the IPO. The company reported in October 2005 that deals had been signed with several investors to invest RMB10bn in the company but further details have not been made public. At the end of 2005, BC had a market capitalization of RMB13.354bn (US$1.609m). Provisional results announced in Q3 2005 showed turnover up at RMB358.1m compared to RMB217.9m for the equivalent period in 2004, while net income was on a level with the same period for 2004 at RMB351.4m, from RMB352.2m in the previous year. The company’s aggressive acquisitions strategy is seen in the increase in total assets, up to RMB7.945.1m from RMB6856.5m one year before. As of early 2005, Beijing Capital had invested more than RMB6bn (US$724.9m) in the water service industry in eight mainland cities, with a total water handling capacity of 6 million tons. Its large-scale projects include the First Phase construction of Beijing Gao Bei Dian sewage treatment plant and the Beijing Qinghe sewage Treatment Plant. Its investment programme for 2005-6 is estimated at US$600m in approximately ten projects. BC is confi dent that water and wastewater will be growth industries in the coming years as a result of the positive changes in government policy and an increasing emphasis by Government on environmental issues, demonstrated in the supportive statements on ‘sustainable development’ made by both President Hu Jintao and Premier Wen Jiabao. In 2003, Beijing Capital adopted a new focus on water and wastewater activities within the company. It has adjusted its forward investment plan, substituting planned investments in highways with water and wastewater projects. BC announced at the time that it will continue to expand its investments in the water and wastewater sector and set the goal of expanding outside the PRC to become a player in the international water market within a 3-4 year timeframe. BC’s investments in the water and wastewater sector are made through several different joint venture companies. As with most Chinese water sector investments, BC’s investment are carried through a JV between the private parties and the concerned municipality. BC holds majority stakes in most of its JVs, including those for the Ma’anshan, Yuyao and Xuzhou projects and the Dongyang project is owned 50- 50. By contrast, BC only has a minority stake in the Baoji, Qingdao and Shenzhen projects. BC also has JVs with other private companies: Beijing Water Company (BWC), a JV with the Beijing Drainage Group, 51% owned by BC (49% until end-2005) and the Beijing Capital VW Investment Company (BCVW), a JV with Veolia 51% owned by BC. Beijing Water Company was set up in 2003 to focus on urban sewage treatment. BWC signed three contracts in 2003 for wastewater plants in Beijing (Second Phase of the Qinghe Plant, Xiaohongmen Plant and Beixiaohe Wastewater Treatment Plant). Beijing Capital’s investment in the huge Gao Bei Dian Wastewater Treatment Plant was also transferred to Beijing Water Company, making it a very important player in the wastewater treatment sector of the capital city. The venture currently has sewage treatment facilities, including those under construction, with a capacity of 2.1m m3/d and accounts for over 80% of Beijing City’s total facilities. The company has a registered capital of RMB4bn. In December 2005, BC approved a plan to become the controlling shareholder in its joint venture with the Beijing Drainage

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 398 Water Market Asia - Company Proﬁ les: Key Players

Group (BDC) by purchasing an extra 2% stake in the Beijing Water Company. Prior to the acquisition, BDC held 51% in the venture, against 49% for Beijing Capital. BCVW, the JV with Veolia, was set up in 2003. BC has US$15.3m equity in the JV compared to Veolia’s US$14.7m, giving a total registered capital of US$30m. It is the fi rst JV of this kind between a mainland Chinese company and a foreign company in the water business. BCVW’s fi rst investment was a 25-year water supply contract in Baoji signed in 2003, but its most important deal was the acquisition of a 40% stake in the Shenzhen Water Group to supply and distribute water for 50 years to the business centre of Shenzhen. The transaction, worth RMB2.9bn makes it the largest concession in the Chinese water sector. BCVW signed a further deal in 2005 for a wastewater treatment project in Urumqi (Xinjiang). The Ma-anshan Water Co. is a JV with local utility for water supply in Anhui Province in which BC has invested RMB90m. The company operates three water treatment plants and is constructing a fourth plant along the Yangtze River. The company made a small profi t in 2003 of RMB800,000 and received a municipal subsidy of RMB6.5m. The Yuyao (Zhejiang), Xuzhou (Jiangsu), Qingdao (Shandong) and Huainan (Anhui) deals were all made in 2003-2004. The Huainan and Xuzhou companies both began operations in early 2005. Company representatives had announced that BC was considering a project in Qinhaungdao but as of end 2005, there had been no further announcement of a deal. Liu Xiaoguang, chairman of Beijing Capital, has summed up the company’s water investment strategy for us: BC will focus initially on coastal areas and areas along rivers including cities in Shandong, Anhui, Jiangsu, Zhejiang and Guangdong provinces where the local population exceeds one million and the daily handling capacity exceeds 200,000m3. BC’s head of Strategy Planning, He Jun Feng, believes the company understands what local governments need and can deliver with lower operational expenditure than its competitors. In the future, BC intends to use the JV structure for more of its future investment projects. Investing as part of a joint venture with a foreign company is convenient and quick, according to He, but BC is considering linking up with other foreign partners aside from Veolia Water for future investments.

399 Water Market Asia - Company Proﬁ les: Key Players

Bio-Treat Technology

Tu Tang Industry Area FINANCIALS (most recent) Tu Tang Chang Ping Sales (US$m) 80.62 Dongguan City Sales 1 yr change (%) 17.04 Guangdong CHINA EBITDA (US$m) 29.59 +86 0769 3992 606 http://www.bio-treattechnology.com/index.htm Net Income (US$m) 25.24 Net Income 1 yr change (%) 31.02 Contact Acc. Receivables (days) 100.51 Song Kun Yuan, CEO Return on Assets 65.23 LISTING DATA (most recent) Return on Equity 91.50 Quote Symbol B22-SG Current Market Cap (US$m) 567.04 Total Assets (US$m) 113.16 Share Price on 24/01/06 (LCU) 0.68 Total Liabilities (US$m) 13.41 Share Price 52 Week High (LCU) 1.21 Current Ratio 6.77 PE Ratio 13.25 EPS Year End (US$) 0.04 Employees 390 Dividend Payout (%) 0.00

Bio-Treat’s main business is providing wastewater treatment solutions to municipal and industrial clients. Services includes providing consultancy and design, installation, commissioning and project management of wastewater treatment systems. The Group has also developed two waste management products for commercial and residential use which it sells direct to consumers. The company is listed in Singapore and carries out its activities in the PRC. Major shareholders include Capital International inc and Morgan Stanley. Wastewater treatment accounts for the bulk of the company’s turnover, while product sales account for the remainder. Bio-Treat’s turnover is up 35% at RMB279m in Q1 2006 from RMB207m in Q1 2005. Net profi t was up to RMB67m from RMB53m year-on-year, an increase of 29%. For their half year results to mid-2004, Bio-Treat reveal that their property plants and equipment has increased by 189% to RMB276m mainly due to their new stakes in BOT/TOT projects, and contracts-in-progress increased by 160%. Bio-Treat’s business is based on its proprietary BMS Biological Process and is one of the main companies using sophisticated biotechnology solutions for waste and wastewater treatment in the PRC. Bio-Treat has used its proprietary technology in over 250 wastewater treatment projects in the PRC for both industrial and municipal customers. As of end-January 2006, Bio-Treat has seven deals in China (including Nanjing and Suzhou) which are in various stages of construction/ operation, the latest one of which should be completed by 2008. The company’s main interests are in Guangzhou in Southern China, where it built and operates six wastewater treatment plants. Their combined capacity is 660,000 m3/d of wastewater/water treatment. These include the Kunshan City Wastewater Treatment Plant (phases 1 and 2), and a BOT project in Xianyang City, Shaanxi Province. The Kunshan plant was commissioned in mid-2005 and Bio-Treat was contracted to build the next two phases of the project. Overall, Bio-Treat has secured turnkey orders of RMB1.4bn, which is expected to increase as the company can now leverage on its Kun- shan project to win new large-scale municipal projects in the future. In August 2005, the company won the bid for a new US$10 million BOT wastewater treatment project initiated by the Nanjing Municipal government of Jiangsu Province. The project involves a 40,000m3/d wastewater treatment plant. Construction is expected to be completed in Q3 2007, and the Jiangdu plant is expected to be completed in Q3 2007. The most recent project, awarded in January 2006, is a wastewater treatment BOT in the city of Suzhou worth more than RMB500m in cumulated revenues, the largest BOT contract for the company so far. The facility will have a capacity of 150,000 m3/d and Bio-Treat is also responsible for the construction of sewerage network system for the project. This is the fi rst phase in a larger project, which the company will be well placed to bid for in its position as First Phase operator. The project will be implemented through a JV with Shenzhen Hanyang Investment Holding Co. which will hold a 5% equity stake. Bio-Treat is one of the few Singaporean companies to start earning revenues from its Chinese projects. Revenue from the Lianyungang plant started coming through at the end of 2004. Strategy The management has ambitious plans to expand its wastewater treatment capacity by 72% in 2004-2007 to reach a target level of 1million m3 wastewater treatment capacity by 1Q FY2008. This would make Bio-Treat the largest of the Singaporean companies in the Chinese market. The company plans to use the strategy of securing the fi rst phase of wastewater treatment projects and then aligning itself to win the second and third phases in its other projects. Bio-Treat will tend to form joint ventures or take small stakes in the wastewater treatment projects so as to preserve its cash. Bio-Treat should be able to achieve IRR of 12-15% for each project. The company intends to use debt fi nancing (up to 70%) to reduce its capital requirements and enhance project returns. Overall, Bio-Treat would like to gear up to 40-50%. The Management of Bio-Treat has indicated it is exploring further opportunities in provinces like Jiangsu, Zhejiang and Guangdong. Ana- lysts estimate that In June 2005, it secured debt fi nance for the Lianyungang project. Bio-Treat plans to focus on turnkey projects, which yield high profi t margins. At the same time, we will selectively take on high-quality BOTs either through effi cient fi nancing or JV partnerships that will bring synergies to the Company. The company has no plans to enter the water distribution market. The Group intends to remain focused on securing large-scale wastewater treatment projects. Executive Chairman, Wing Hak Man has expressed the company’s intention to build a portfolio of turnkey, BOT and TOT wastewater treatment projects. The company is looking primarily for large-scale turnkey wastewater treatment contracts with high profi t margins, in cities with high levels of economic growth and it plans to team up with strategic partners to take on these projects.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 400 Water Market Asia - Company Proﬁ les: Key Players

Biwater

Biwater House FINANCIALS (most recent) Station Approach, Sales (US$m) 292.00 Dorking RH4 1TZ Sales 1 yr change (%) n/a Surrey UK EBITDA (US$m) n/a +44 1306 740740 www.biwater.com Net Income (US$m) n/a Net Income 1 yr change (%) n/a Contact Acc. Receivables (days) n/a Martin Lane, Asia Managing Director Return on Assets n/a LISTING DATA (most recent) Return on Equity n/a Quote Symbol n/a Current Market Cap (US$m) n/a Total Assets (US$m) n/a Share Price on 24/01/06 (LCU) n/a Total Liabilities (US$m) n/a Share Price 52 Week High (LCU) n/a Current Ratio n/a PE Ratio n/a EPS Year End (US$) n/a Employees n/a Dividend Payout (%) n/a

Biwater was established in 1968 in the UK and provides design, construction and operations services for water and wastewater systems and water leisure facilities and product sales. For the year to March 2005, Biwater’s turnover was GB£165m (US$292m) and profi t was up from £0.1m in 2003-4 to £5.6m in 2004-5. Operating profi t increased by 71% year-on-year to £4.8 million. In August 2005, Biwater acquired US fi rm Advanced Environmental Water Technologies, which has established Biwater in the membrane technology market. AEWT is a provider of water and wastewater treatment equipment including RO desalination technology and is an important player in the US desalination market. Biwater plans to use AEWT’s technical expertise to introduce desalination into its Asian operations where it sees high growth potential, particularly in China where the membrane market has grown 20-fold in recent years. Currently, the Asia-Pacifi c region accounts for only a small proportion of the company’s activities. Over the last 10 years, Biwater has generated an annual turnover of US$50m in Asia on average. However, Biwater’s management is fully committed to expansion in the region. The departure of other international companies is leaving a gap for a company with contracting experience that can provide the full range of technical solutions to municipal and industrial clients. Biwater intends to fi ll this gap but faces competition from both local and the remaining international companies. Volatile demand patterns in the region require a diversifi ed strategy and Biwater is therefore aiming for a portfolio of projects spread across several different countries. Biwater’s Asia-Pacifi c activities are currently concentrated in Greater China (Hong Kong and Macau in addition to the mainland) and in Malaysia. Biwater is well established in the region: it began operations in Hong Kong, Malaysia and Singapore in the 1980s. Hong Kong is one of the most important markets for Biwater, where it carries out its contracting and product sales through Biwater Man Lee. Biwater’s main clients there are the public agencies, Water Supply Department and the Drainage Services Department. Biwater is just about to complete its largest regional project, the HK$340m Sha Tin water treatment plant upgrading. The project started in 2001 and should be completed in January 2006. A second major project has recently reached completion, the 800 MLD Bukit Batong Treatment Works serving the Klang Valley in Malay- sia. The second phase of the project was commissioned (Phases I & II) in Q3 2005. This RGM300m project was implemented in a joint venture, RBC with local company Rohas Euco Industries. In Malaysia, Biwater operates through Biwater Shallabear Malaysia. Biwater’s activity in Malaysia began with the massive Malaysian Water Supply Scheme Project from 1987-1995. Depending on the size and type of project, Biwater generally works with joint venture partners for civil, mechanical and electrical works. In China, JV partners are a key part of corporate strategy and are being sought actively. Biwater considers itself a local company in Asia because of its long presence in the market and has only one expatriate staff member. Biwater AP’s activities cover three main areas: contracting, including build and design and build contracts, which accounts for 60-70% of turnover; product sales, which account for 10% of turnover; and management and leisure contracts make up the remaining 20-30% of turnover. At the moment, Biwater Asia is not involved in any BOT projects, but Regional MD Martin Lane sees great potential for expansion in this area, especially in mainland China, and is seeking opportunities for equity investment. In China, Biwater currently has a market share of less that 1% in the water and wastewater construction and equipment sales markets but intends to build this up. Teffrey Leung, Country Director, sees the best growth potential in the BOT market as the amount of municipal funds available for investment are currently going down. Most clients are municipalities, but Leung recognises the potential in the industrial market and is in discussions with the Ministry of Petroleum on a potential project. One challenge for Biwater China is to attract staff with

Biwater Asia Biwater China Suite 202, Block 1, Hofai Commercial Biwater Man Lee, Room 1108 Centre Block B Huixin Plaza 8 Anlilu 218 Sai Lau Kok Road, Tsuen Wan Andingmenwei HONG KONG Bejing +852 2416 2828 CHINA www.biwater.com.hk +86 10 8499 0903/4

401 Water Market Asia - Company Proﬁ les: Key Players

the right skills and experience. Biwater has two ongoing projects in Tianjin providing wastewater treatment to the petrochemicals sector and will soon be bidding for a wastewater treatment plant DBO that will be supported by the World Bank. While the number of companies competing for projects seems to be falling, competition between those that remain is fi erce. Biwater is hoping to retain its place in the market by linking up with local partners while maintaining a technological edge on local competitors. Biwater AP is planning to expand its activities in the leisure sector and sees ample opportunities in the growing tourism markets of Hong Kong and Macau. In 2005, Biwater won three contracts for leisure-related water facilities in Macau which is enjoying a boom in the tourist sector after the liberalisation of the territory’s gaming sector. The contracts for water features, swimming pools and irrigation have a value of US$5m. The company signed a deal for a World Bank-sponsored project in Vietnam in January 2006 and is in discussions for projects for industrial clients in the Philippines. Other target countries include Thailand, Singapore, Indonesia and Sri Lanka while India is not a target market for the company. Across the region, Biwater serves both municipal/public and industrial clients. In Malaysia, most projects are small-scale water and wastewater treatment facilities for industrial clients. In China, clients are more likely to be municipal. Wastewater is an increasingly important area in many countries, including China, but Biwater recognises that in developing Asian countries, improvements in sewage collection and treatment will require fi nancing from international donors, as in the Vietnam project. In addition to the projects carried out by Biwater’s regional division, the company is involved in two concessions in Asia under Cascal, its Joint Venture with Nuon. Cascal is managing in Subic, Philippines and Batam, Indonesia. Nuon is a leading Dutch multi-utility group with comparable activities in ten other countries, including the UK, Belgium and Germany. Cascal also has projects in the US, UK, Mexico, Chile and South Africa. The venture had a turnover of US$101.4m in the 2004-5 fi scal year and profi t of US$26m for the same period.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 402 Water Market Asia - Company Proﬁ les: Key Players

Darco Water

41 Loyang Drive FINANCIALS (most recent) Singapore 508952 Sales (US$m) 31.01 SINGAPORE Sales 1 yr change (%) 48.34 +65 6545 3800 EBITDA (US$m) 2.91 www.darcowater.com Net Income (US$m) 1.11 Contact Net Income 1 yr change (%) -22.69 Thye Kim Meng, MD & Chief Executive Acc. Receivables (days) 155.64 Yap Keck Meng, CFO Return on Assets 4.76 LISTING DATA (most recent) Return on Equity 6.14 Quote Symbol 5CB-SG Current Market Cap (US$m) 32.73 Total Assets (US$m) 39.12 Share Price on 24/01/06 (LCU) 0.33 Total Liabilities (US$m) 18.14 Share Price 52 Week High (LCU) 0.32 Current Ratio 1.76 PE Ratio 29.50 EPS Year End (US$) 0.01 Employees 346 Dividend Payout (%) 0.00

Darco is a specialist water treatment company listed in Singapore operating mainly in Malaysia (32% of turnover in 2004) and Taiwan (40% of turnover) with activities in mainland China (15%) and Singapore (5%), Indonesia and the Philippines. The company had a market capitalisation of US$33.8m in January 2006. Its sales were up almost 50% in 2004 on the previous year, at US$31m. Darco operates through three divisions: Engineered Water Systems (EW), which designs, constructs and commissions water systems for industrial clients; Water Management Services (WM), which provides operating and maintenance services for water and wastewater systems; and Trading, which involves supplies chemicals, electrical controls and related instruments for water treatment systems. EW is the largest division, accounting for 72% of revenue in 2004. Recurring income is generated by the WMS division which has more than 60 contracts mainly for industrial sector clients. Darco operates through a number of subsidiary companies including: Darco Environmental (Taiwan) Inc, in which it owns a 60% stake, 100%-owned Darco Water Systems in Malaysia, PT Darco Indonesia (75%), Darco Environmental Philippines (65%) and the Deqing Huanzhong Producing Water Company Ltd in China (72.59%). Darco had a very successful year in 2005. The company won two major deals in Taiwan for municipal design-build contracts at a value of US$70m. In November, Darco won the contract for Ker-Ya wastewater treatment project in Hsin Chu City, in a JV with Taiwanese fi rm Leader Construction. A few weeks later, the company won a second project for a 20,000m3/d wastewater plant in Chu Bei City’s Municipal Water Resources Recovery Centre. Darco is responsible for all aspects of this project, including civil construction. This is one of the fi rst projects that Darco will carry out without a JV partner, and if successful will contribute to Darco’s reputation as a total solutions provider. Both projects involve O&M contracts following on from commissioning of the facilities. Darco has one BOT project, in Deqing, PRC which is expected to start earning revenues in 2006, estimated at US$2.5-3m per year over 15-20 years. The company resolved a dispute at the end of 2005 with its Chinese partner and the project is expected to be completed in the fi rst quarter of 2006, after a 2-year delay. The Ker-Ya project is projected to start contributing to the company’s bottom line from 2008 for 5 years (US$5.4m) and the Chu Bei project at US$2.5m from 2007-2010. As of end-2005, Darco had orders of SG$110m. The new projects have contributed to the company’s revenue growth prospects for 2006 and have supported the stock price which rose 80% in the course of the last few weeks of 2005. In 2005, Darco also agreed a purchase agreement with an Indonesian company for a 10% stake in PT Air Bintan Biru (ABB), a company which will negotiate water sales to Singapore on behalf of the Indonesian government. The acquisition of a stake in an Indonesian company gives Darco access to market Indonesian water resources, but there is no defi ned timeframe for water sales from Indonesia to Singapore. Darco will provide design and build and O&M services for any water treatment facilities that would be required as part of the water sales project. Senior managers have signalled an interest in small-scale privatisation of municipal water treatment projects in Indonesia and the Philippines. Darco’s strategy elsewhere is to concentrate on towns with a population of not more than 200,000 people. The management considers that the company cannot handle projects on a larger scale and that these towns and smaller cities offer the best growth prospects. Darco is not bidding for municipal projects in Singapore.

403 Water Market Asia - Company Proﬁ les: Key Players

Dayen Environmental

6 Woodlands Industrial Park E1 FINANCIALS (most recent) Singapore 757729 Sales (US$m) 39.00 SINGAPORE Sales 1 yr change (%) 49.64 +65 6365 0652 EBITDA (US$m) 1.70 http://www.dayen.com.sg/ Net Income (US$m) 1.23 Contact Net Income 1 yr change (%) 7.51 John Lee Thian Guan, Executive Chairman Acc. Receivables (days) 69.01

LISTING DATA (most recent) Return on Assets 8.39 Quote Symbol 5BT-SG Return on Equity 21.07 Current Market Cap (US$m) 9.07 Share Price on 24/01/06 (LCU) n/a Total Assets (US$m) 36.87 Share Price 52 Week High (LCU) 0.30 Total Liabilities (US$m) 29.75 PE Ratio 6.78 Current Ratio 1.14 EPS Year End (US$) 0.02 Dividend Payout (%) 48.30 Employees 156

Dayen Environmental Limited is an environmental engineering company, providing integrated systems for waste and water treatment to industrial clients, especially in the power sector. Dayen provides integrated design, construction and commissioning of systems for water and wastewater treatment plants, service reservoirs, pumping stations and power stations and supplies equipment for treatment. Dayen also provides maintenance and overhaul services for power stations. Waste treatment accounted for 94% of 2004 revenues, while water treatment only accounted for 5%. Dayen was set up in 1986 in Singapore and listed on the Singapore exchange in 2002. Dayen has been operating in Malaysia since 1996, where it has carried out projects for the Ministry of Construction and for international fi rms. Dayen has two subsidiaries in China, the 100%- owned Jufuyuan Environmental (Beijing) Ltd and a 50-50 JV, Shenfei Dayen Environmental. Dayen’s Market capitalisation was US$9.66m in January 2005. Turnover has been on a strong growth path, reaching SG$55m (US$34m) in 2005, from SG$28m in 2004 and SG$12m in 2002. Profi ts rose slightly in 2005 to SG$2.2m from SG$2.1m year on year. In the past, the company relied primarily on projects for Singapore’s public agencies, such as the Public Utilities Board and the Environ- ment Ministry. Past projects have included a US$39m contract as part of the construction of the island’s Deep Tunnel Sewage System. However, management has announced a strategy to diversify away from Singaporean public projects towards projects for industrial clients and projects in developing countries as public investment in major water and wastewater works is declining. Managers also expect to be able to generate higher profi t margins from industrial projects than municipal projects, but recognise that the Singapore market will be the most important for the fi rm. In 2004, management identifi ed four revenue sources: EPC projects, BOT projects, product sales and systems packages for industrial clients. The company is looking for JV partners to expand into higher growth markets outside Singapore, including China, Vietnam and the Middle East. Dayen has two BOT projects in China, awarded in 2003 and in 2005, Dayen secured its fi rst Membrane Bio-Reactor project. Dayen also strengthened its position in the industrial market by securing contracts from new industrial clients, mainly in the electronic sector. Dayen intends to expand in the industrial markets by building up its capacity in process design and in municipal markets in Asia and the Middle East.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 404 Water Market Asia - Company Proﬁ les: Key Players

Earth Tech

300 Oceangate, Suite 700 FINANCIALS (most recent) Long Beach 90802 Sales (US$m) 40,153.00 California UNITED STATES Sales 1 yr change (%) 9.11 +1 562 951 2008 EBITDA (US$m) 7,298.00 www.earthtech.com Net Income (US$m) 3,114.00 Contact Net Income 1 yr change (%) 217.88 Barry Norman, Regional Director Acc. Receivables (days) 54.59

LISTING DATA (most recent) Return on Assets 5.73 Quote Symbol TYC-N Return on Equity 10.10 Current Market Cap (US$m) 53,285.64 Share Price on 24/01/06 (LCU) 35.74 Total Assets (US$m) 63,667.00 Share Price 52 Week High (LCU) 36.24 Total Liabilities (US$m) 33,307.00 PE Ratio 14.15 Current Ratio 1.66 EPS Year End (US$) 1.41 Dividend Payout (%) 3.47 Employees 258,400 Financial information relates to listed parent company Tyco

Earth Tech, based in California, US, is a business unit of Tyco International and provides consulting, engineering and construction services in the water and wastewater, environment, facilities and transportation sectors for commercial, industrial and public sector clients. The company offers a full range of services, including DBFO and management contracts. Water and wastewater services account for more than 50% of Earth Tech’s annual revenue of US$1.4bn. Tyco Engineered Products & Services, the business segment of Tyco encompassing Earth Tech, has business activities in electrical & metal products, fi re and building products and fl ow control. Earth Tech has grown rapidly over the last couple of decades, benefi ting from increasingly stringent environmental regulation in North America and Europe which has spurred demand for environmental services. Earth Tech also has a growing presence in emerging markets, particularly in China, Mexico and Hungary. Important DBO projects outside Asia include the MOL Duna Refi nery Wastewater Plant in Hungary and wastewater treatment for PEMEX oil refi neries in Mexico. The company currently operates around 200 water treatment facilities around the world. In Asia, Earth Tech’s business is carried out through three divisions: Consulting, Infrastructure and Environment. Infrastructure is responsible for DBFO type projects, Consulting carries out standard design and build work, while the Environmental division offers services for the treatment of contaminated sites etc. Earth Tech employs 600 professional staff in the Asia Pacifi c region. The most important Asia-Pacifi c markets for Earth Tech are China and Australia. China In China, Earth Tech has just three DBFO-type projects – in Xi Lang, Tianjin and Changli – and has a much smaller investment volume than the other major international players. The company is deliberately taking a cautious approach to further equity investment. In the 2004-2005 period, the division has been focusing on managing the three ongoing projects and on providing design, consulting, engineering and procurement services. Recent important contracts include a 24,000 m3/d wastewater treatment plant for Petro China in Dalian, Liaoning and Earth Tech has put in bids for several further projects in the industrial sector. The commissioning of the US$28m Jie Yuan water treatment project in Tianjin is expected in May 2006. The 500,000 m3/d plant will employ dissolved air fl otation technology and will be operated by Earth Tech under a 20-year O&M contract. New equity investments will be with municipalities looking specifi cally for advanced technological solutions and willing to pay a higher price for better quality. On costs, competition from local fi rms remains fi erce with a few large Chinese players now leading the market. The company considers that it has a particular strength in tailoring technical solutions, as in their water treatment plant in Tianjin which is specially designed to deal with city’s polluted water sources. Earth Tech has management control of all its projects in China and holds majority ownership stakes. China Vice President David Chen sees BOT contracts with a single government off-taker as less risky than contracts to collect tariffs directly from end-users, suggesting that the company may focus its growth on industrial clients. However, Earth Tech’s Changli project is an integrated supply and distribution concession, one of the fi rst distribution and network deals in China to be awarded to a private investor. The contract was signed to provide services to Changli County, an area which includes the popular Golden Coast seaside resort. The size of the deal (US$14 million) and strong support from the municipality made it possible to sign the deal before regulations on foreign participation in distribution were loosened in 2002. Construction for Earth Tech’s largest deal – Xi Lang – was completed in May 2004. The contract for this wastewater project in Guangzhou was signed in 2001, making it the fi rst private wastewater BOT deal in China. Earth Tech is considering the option of linking up with an equity partner for its future Chinese projects.

Earth Tech Asia-Paci c Earth Tech China Earth Tech Thailand 71 Queens Rd 11th Floor, New China Life Tower, 65/66 Chamnan Phenjati Business Melbourne 3004 A12 Jian Guo Men Wai Avenue, Chaoyang Center Victoria AUSTRALIA District 7th Floor Tower B +61 3 8517 9200 Beijing 100022 Rama IX Road http://www.earthtech.com.au/ CHINA Huaykwang Sub District + 8610 6569 3200 Bangkok THAILAND 10320 + 66 2 643 8600

405 Water Market Asia - Company Proﬁ les: Key Players

Australia Earth Tech has been very active in both Australia and New Zealand. Overall, the company has invested AU$100 in wastewater treatment and recycling in Australia and the company estimated that it recycles 10% of the wastewater in Australia. The A$45m 25-year Campaspe Water Reclamaton Scheme was the fi rst major BOOT for Earth Tech in Australia. The wastewater plant, located in Victoria, was commissioned in 2004. Earth Tech is partnering with publicly owned Coliban Water to carry out the project which achieves 100% reuse of water and 100% reuse of bio-solids using upfl ow anaerobic sludge blanket (USAB) and intermittently decanted extended aeration (IDEA). Reclaimed water from the facility is used for agriculture purposes. Three further projects are noteworthy. The US$22m Eastern Irrigation Scheme in Melbourne is a 25-year DBFO project with Melbourne Water. This UF plant has a capacity of 30,000 m3/d making it the largest membrane treatment facility for recycling water in Australia. The Virginia Pipeline scheme is one of the world’s largest high quality community water recycling schemes serving 250 agricultural customers. Finally, Earth Tech Asia Pacifi c has developed a portable membrane bioreactor and reverse osmosis plant for a ‘sewer mining’ trial, to produce high quality recycled water ‘on-site’ that is being used in Melbourne for irrigation. In October 2005, the company signed its fi rst DBO deal in New Zealand, a US$20m 15-year contract for the resort area of Mangawhai near Auckland. The Eco Care wastewater project is being implemented in partnership with the local government council. Regional Earth Tech caters to a range of clients from both the municipal and industrial sectors. In developing Asia, where water and wastewater treatment needs have not yet been met, most opportunities are in the municipal sector. In developing countries, standard water and wastewater treatment is the priority. In Australia, Earth Tech is one of the strongest players in water recycling and water cycle management and the company is well positioned to expand its activities there. Currently, the company’s DBFO projects are in China and Australia, while the group has design build and/or management contracts in Malaysia and Thailand. In Thailand, Earth Tech is carrying out the US$1bn Bangkok International Airport Terminal but is planning to focus its activities on the environmental sector. Earth Tech representatives see many opportunities for the company in the government’s infrastructure investment plan announced in late January 2006. Earth Tech’s current activities in the Thai water sector include the operation of the Yannawa Wastewater Treatment Works in Bangkok. This DB project was combined with a one year operations contract and is due to end by Q3 2006. In Malaysia, Earth Tech sees the restructuring of the sector creating new opportunities for the company, although it recognizes that the legal process constitutes a block on new projects in the short-term. Strategy The Asia Pacifi c is increasingly important for Tyco where it generates around 10% of its total revenues there currently. It is unclear how Tyco’s internal restructuring will affect Earth Tech’s activities in Asia. As Earth Tech is already well established in the Australian and Chinese markets, it is pursuing a strategy of organic growth in these two countries and in Malaysia, where the company has recently begun operations, and sees important new opportunities for private sector participation. Earth Tech has no plans to enter any new markets in the region, either in South East Asia or in the Indian subcontinent. In contrast to the Chinese market, opportunities for expansion in Australia’s municipal water and wastewater sectors are limited as there is a small population and so only a few DBFO opportunities. However, Earth Tech expects to be able to bid competitively for projects when they do come up, building on the company’s key strength is in the area of water recycling. Earth Tech’s executives see this as an area with plenty of potential in the Australian market and one that is expected to become more important in the future in developing Asian countries. Forthcoming projects include a water recycling project in Townsville in Queensland, Australia, a biosolids management project in Victoria, Australia and a range of projects in Malaysia, Hong Kong and China.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 406 Water Market Asia - Company Proﬁ les: Key Players

Hy ux

Hyfl ux Building FINANCIALS (most recent) 202 Kallang Bahru Sales (US$m) 54.31 Singapore 339339 Sales 1 yr change (%) 9.22 SINGAPORE EBITDA (US$m) 20.67 +65 6214 0777 http://www.hyfl ux.com/ Net Income (US$m) 16.40 Net Income 1 yr change (%) 37.20 Contact Acc. Receivables (days) 135.31 Olivia Lum, CEO olivia_lum@hyfl ux.com Return on Assets 23.45 Return on Equity 31.19 LISTING DATA (most recent) Quote Symbol 600-SG Total Assets (US$m) 186.87 Current Market Cap (US$m) 919.45 Total Liabilities (US$m) 115.80 Share Price on 24/01/06 (LCU) 1.98 Current Ratio 3.20 Share Price 52 Week High (LCU) 3.98 PE Ratio 52.46 Employees 518 EPS Year End (US$) 0.03 Dividend Payout (%) 6.55

Hyfl ux’s business is based around its membrane fi ltration technology. Its main activities are: the development, manufacture and sale of equipment and parts for membrane fi ltration for water treatment and desalination; the installation and commissioning of treatment systems; turnkey engineering services and installation of industrial equipment. The operation and management of systems is becoming an increasingly important part of the company’s activities, including DBO and BOT contracts. The company is structured into fi ve businesses areas: Water – providing water treatment and desalination facilities and services for municipal and industrial clients; Industrial Processes – covering fl uid treatment in manufacturing processes; Structured Projects – covering BOO and BOT projects; Consumer Goods; and Hyfl ux Materials, which carries out the group’s R&D activities. Hyfl ux has been growing rapidly since its establishment (as Hydrochem) in 1989. It has a market capitalisation of SG1.533bn (US$941m) as of January 2006. Turnover was up 100% in Q1 2005 year-on-year, at SG$24.2. Net profi t was up more than 200% at SG$9m, which compares with SG$2.8 to Q1 2004. The Hyfl ux Group operates in Singapore and the PRC, but the bulk of activity takes place in China, which accounted for more than 80% of turnover and 84% of profi ts in 2004. Originally, Hyfl ux’s clients were mainly industrial but the group now has a range of municipal and industrial clients. In 2003, Hyfl ux entered the consumer market, providing home purifi cation equipment air to water generators to households. In 2004, 73% of turnover came from services to the industrial sector, while the municipal sector made up most of the remaining 27%. Hyfl ux listed on the Singapore stock exchange in January 2001. Since listing, the stock has climbed from SG$0.19 to a high of SG$3.8 in July 2005. Major stockholder are CEO Olivia Lum, who owns 34% of the company, investment company Istithmar (UAE), which owns approximately 10% and investment funds Matthews International Capital and Fidelity Investments which own 5.09 and 4.91% of the company respectively. Hyfl ux continues to invest heavily in R&D with support from the Economic Development Board of Singapore. The company has one of the largest membrane and materials technology R&D centres in the region. Hyfl ux has been pursuing an active strategy of market expansion. In order to overcome liquidity constraints, the Group explored the possibility of a future fl ow securitisation of the revenues from its water reclamation plant, SingSpring at Tuas. The Singaporean government did not give its approval for this, but agreed that government-owned investment company Temasek would buy up 50% equity in SingSpring. The stake was sold for SG$60m against Hyfl ux’s investment cost of SG$40m, generating a 50% capital gain for Hyfl ux. Hyfl ux still intends to securitise revenues from the project and to decrease its stake to 30%, the minimum level required under the law, to free up more cash to fulfi l the company’s order book. The Group is expected to use the same strategy with its Chinese investments, reducing holdings in its Tianjin and Liaoning desalination projects to minority stakes to free up capital to invest in other opportunities. This will enable Hyfl ux to realize its EPC revenues upfront. Hyfl ux intends to direct these funds towards further investments in China and the Middle Eastern market where it has established a partnership with the Dubai-based Istithmar Group. In the longer-term, the company is considering projects in India, Southeast Asia and Africa. Observers’ concerns that Hyfl ux had not demonstrated its capacity to deliver a project were laid to rest in September 2005 when the SingSpring Tuas desalination plant was commissioned. The 136,000m3/d SingSpring plant in Singapore is the group’s fl agship project. In 2005, the group secured its fi rst projects outside Asia with partner Istitmar: a US$103m DBO desalination project and a wastewater

Hy ux Filtech (Shanghai) Co. Ltd Hydrochem Engineering (Shanghai) Co. Ltd 902# Xin Yin Building, Hy ux Aquosus (Shanghai) Co. Ltd 888 Yi Shan Road, 99 Ju Li Road, Shanghai PRC 200233 Zhangjiang Park, Pu Dong Area, Tel: 86-21-6432-0227-9 Shanghai PRC 201203 Fax: 86-21-6432-0226 Tel: 86-21-5080-5118 Fax: 86-21-5080-5128

407 Water Market Asia - Company Proﬁ les: Key Players

treatment plant, both in Dubai. Two desalination plants of 32,000m3/d are to be constructed in Palm Jumeriah, Dubai and a 40,000 m3/d membrane bioreactor treatment plant for the Dubai Metals & Commodities Centre. Ongoing projects include China’s largest seawater desalination plant at Tianjin, Dagang, a 100, 000 m3/d facility worth SG$155 million which is expected to be commissioned by the end of 2006. Also in 2005, Hyfl ux won two further contracts in Tianjin to design, build and supply two leachete treatment plants for Harbin City Environment Sanitation Management Bureau. Earlier in the year, Hyfl ux invested in a JV with Ningxia Electric Power Development & Investment Co., Ltd and Western PVC Co., Ltd to build own and operate a $107 million membrane based organic plant in Shizuishan City, Ningxia Province. Hyfl ux’s projects in Tianjin and Liaoning have both been held up by the need to secure approvals for construction. The proposals were cleared at the end of 2005 and construction has now begun. Hyfl ux claims that it can retain the original timetable for commissioning at the end of 2006. Hyfl ux is in negotiations for two further projects, both in mainland China: the SG$700m Harbin Moopan Mountain Reservoir Water Supply Project, involving a 450 000m3/d raw water treatment plant and a 450 000m3/d water purifi cation plant. Expected investment in the project is about RMB3.5 billion (US$420 million). The second deal is a SG$160m wastewater treatment plant with water recycling capability in Changchun City. The feasibility study for the latter has not been completed. Hyfl ux operates through its JV SingSpring, which it now jointly owns with Temasek Holdings for the Tuas plant in Singapore. It also has a JV with Bejing Shouren Group to develop, manufacture and sell water treatment equipment and components, provide technical consultancy in the water sector and undertake water treatment engineering projects in China. A fully-owned Hyfl ux company, Hydrochem Engineering, recently won two contracts, worth a combined S$3.6 million (US$2.2 million), to design, build and supply two leachate treatment plants for the city of Harbin, providing a new application for Hyfl ux’s membrane systems, which are made in China. The contracts should are due to be completed in 2006.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 408 Water Market Asia - Company Proﬁ les: Key Players

Manila Water

MWSS Administration Building FINANCIALS (most recent) 489 Katipunan Road, Balara Sales (US$m) 70.69 Quezon City Sales 1 yr change (%) 11.23 PHILIPPINES EBITDA (US$m) 38.42 + 63 2 926 7999 http://www.manilawater.com/ Net Income (US$m) 23.80 Net Income 1 yr change (%) 16.08 Contact Acc. Receivables (days) 26.80 Antonio T. Aquino, President Return on Assets 14.77 LISTING DATA (most recent) Return on Equity 44.71 Quote Symbol MWC-PH Current Market Cap (US$m) 238.23 Total Assets (US$m) 226.94 Share Price on 24/01/06 (LCU) n/a Total Liabilities (US$m) 135.46 Share Price 52 Week High (LCU) 7.60 Current Ratio 1.06 PE Ratio 9.35 EPS Year End (US$) 0.01 Employees 1,541 Dividend Payout (%) 24.40 Manila Water (MWCI) is a water and sanitation service company. It was awarded a 25-year concession contract for the provision of water, sanitation and sewerage services to the East Manila zone in 1997. MWCI is jointly owned by the Ayala Corporation, United Utilities Pacifi c (a subsidiary of the UK company), Mitsubishi (Japan), BPI (Bank of the Philippine Islands, a subsidiary of the Ayala Group) and the Inter- national Finance Corporation, the private lending arm of the Word Bank. Manila Water is now 46% held by Ayala, 18% by Britain’s United Utilities Pacifi c Holdings, 10.7% each by Mitsubishi, BPI and International Finance Corp and 6.8% by employees. Bechtel was one of the original partners in the concession but sold its stake in 2004 to Ayala and BPI Capital. United Utilities remains the designated international operator as required under the concession contract. Majority-owned Ayala Corp is one of the oldest business conglomerates in the Philip- pines with operations in real estate, electronics, utilities, banking, insurance, telecoms, transportation and food. MWCI listed on the Manila Stock Exchange in March 2005. 30% of shares were sold in the IPO which brought in US$65m. This will be invested in the company’s capital works programme in Manila. In the fi rst 9 months of trading, the company’s shares have performed strongly. MWCI’s capital investment programme for 2004-2007 is estimated at $292 million. This includes concession fees which cover the repayment of loans to the MWSS, the former public utility. The capital costs are covered by the IPO, a US$60m loan package led by the IFC and the IFC’s US$15m equity injection. Manila Water serves a population of around 5 million people in the East Zone, including residential, commercial and industrial customers. In the fi rst 7 years of the contract, its fi nancial and operating performance as a concessionaire has been good, particularly in comparison to the its counterpart concessionaire in the West Zone, Maynilad. In 2004, MWCI reported an increase in revenues of 11% to PHP4.2bn as of December 2004 while net income was up 16%. Non-revenue water fell from a pre-privatization level of 63% to a level of about 43% at the end of 2004. In its most recent results, the company announced a 46% year-on-year increase in net income for the nine-month period ending September 2005 and a third quarter net income of PHP1.49bn up from PHP1.02bn for same period in the previous year. MWCI won the concession with an extremely competitive bid, offering a tariff half that of the next lowest bidder. The bid was achieved using a low implicit discount rate and a fi nancing structure using Yen-denominated loans. MWCI then adopted a cautious approach to spending in the earlier years of the concession which allowed the company to manage its fi nances until tariffs could be raised from the very low bid level. Sales revenue and profi ts have been rising steadily as a result of tariff increases since then. Under the contract, tariffs are adjusted every 5 years in the rate rebasing process in addition to annual automatic adjustments to account for infl ation and foreign exchange fl uctuations. In 1998, MWCI successfully negotiated an adjustment to its ‘Appropriate Discount Rate’ used in the tariff calculation. In 2002, MWCI went through the fi rst round of rate-rebasing process to establish tariffs and performance targets for the second 5-year operating period. The process was successfully concluded and tariff increases were agreed and are being gradually implemented over the course of the operating period. At the same time, MWCI agreed to introduce a series of performance indicators which were not in the original contract. The indicators cover effi ciency measures like NRW and measures of customer satisfaction. In 2005, the World Bank agreed co-fi nancing for the extension of sewerage service in the East Zone in a US$84m project which will be implemented by MWCI. Targets for the roll-out of sewerage services set out in the concession were very ambitious but were delayed in subsequent renegotiations between the government and the concessionaires. The new US$64m World Bank loan will be directed towards the construction of 10 sewage treatment plants, the upgrading of two communal septic tanks to secondary treatment, the improvement and construction of collection networks and the acquisition of equipment to pump-out septage from septic tanks. The loan will also be used to fund the construction of two septage treatment plants and support for a public information campaign. MWCI will need to increase sewerage coverage from 10% to 30% within fi ve years. Manila Water established its credibility with consumers through the extension of water service to low-income customers. Under the “Tubig Para Sa Barangay” programme, water services have been extended to 134,000 households mainly located in informal settlements, from only 1,500 households in 1998. The company’s strong fi nancial position in the Manila concessions has provided it with a base for expansion. The company has been in negotiations with the municipal government in Cebu, one of the Philippines largest cities, to take on the operation and management of the water utility. However, no deal has yet been concluded. MWCI has also signalled its interest in taking over the West concession which is due to be rebid in 2006 and it is widely considered to be a strong contender. In 2005, MWCI pre-qualifi ed for its fi rst project outside the Philippines, an O&M contract for water service in one zone of Delhi, India. This project has now been put on hold as the Delhi government is engaging the public in consultations in the hope of overcoming popular resistance to the project.

409 Water Market Asia - Company Proﬁ les: Key Players

Puncak Niaga Holdings

Suite 2601-2606 26/F Plaza See Hoy Chan FINANCIALS (most recent) Jalan Raja Chulan Sales (US$m) 149.17 Kuala Lumpur 50200 Sales 1 yr change (%) -1.97 MALAYSIA EBITDA (US$m) 74.39 +60 3 2031 8648 http://www.puncakniaga.com.my/ Net Income (US$m) 12.22 Net Income 1 yr change (%) -64.16 Contact Acc. Receivables (days) 508.71 Rozali Ismail, Executive Chairman Contact: [email protected] for MD Matlasa Return on Assets 3.51 Hitam Return on Equity 4.05

LISTING DATA (most recent) Total Assets (US$m) 823.13 Quote Symbol PUNCAK-KU Total Liabilities (US$m) 507.56 Current Market Cap (US$m) 318.37 Current Ratio 1.57 Share Price on 24/01/06 (LCU) 3.30 Share Price 52 Week High (LCU) 3.06 Employees 696 PE Ratio 25.49 EPS Year End (US$) 0.03 Dividend Payout (%) 0.00

Puncak Niaga is Malaysia’s largest listed water company. It provides construction, operation and management services and invests in assets in the water sector. Its main focus is on water treatment and supply in Kuala Lumpur and Selangor but it has also carried out water resource management projects. The group has no revenue sources outside the water sector and all its activities are carried out in Malaysia. PN listed on the KLSE in 1997. In December 2004, Puncak Niaga secured a 30-year concession contract for water services to the Federal Territories (Kuala Lumpur and Putra Jaya) and the State of Selangor which will be run through its subsidiary, Syabas. This is Malaysia’s largest water deal so far, serving 6 million people through 1.4m connections, with planned investment of US$3bn over the life of the contract. PN had been in discussions with the government for several years before the deal was fi nally concluded. Revenues and assets were boosted in 2004 by its takeover of water distribution services in Kuala Lumpur. It is too early for the new business to show up in audited accounts, but interim Q3 results announced in September 2005 show turnover up to MYR802.7m and net income up to MYR76.3 compared to full-year fi gures for 2004 of MYR566.8 and MYR46.4 for turnover and profi t respectively. However, analysts have expressed concerns that the company will not be able to sustain profi tability under the terms of its concession contract which do not provide a transparent mechanism for tariff-setting. The fi nancial arrangements for the deal were complex: PUAS, the corporatised public utility had built up a backlog of MYR in debts to its treated water suppliers, including to Syabas, the developer of one of the BOTs. The fi nal deal involved MYR900m fi nancial assistance for the concessionaire from the Federal Government in return for Syabas assuming the former public utility’s debt. The government is providing a grant and soft loan for the overhaul of the pipe network. After long delays, the deal went ahead despite the federal government’s position that no more privatisation deals would take place before the restructuring of the water sector was complete. The concession company, Syabas, is 70% owned by Puncak Niaga and 30% by the state government investment arm, Kumpulan Darul Ehsan Bhd (KDEB). Puncak also runs two water supply contracts concessions previously awarded by the Selangor State Government. The fi rst was awarded in 1994 and provided for Puncak to operate, maintain, manage, rehabilitate and refurbish 27 existing water treatment plants formerly under the management of the public utility. The second contract was a BOT awarded in 1995 to fi nance, design, construct, operate, manage and maintain a 950,000 m3/d water treatment plant at Bukit Badong, as part of the Sungai Selangor Water Supply Scheme Phase 2 Project. CGE (Veolia) was responsible for managing the operations until 2004, when responsibility passed back to Puncak. As a supplier of treated water to heavily indebted utility PUAS, accounts receivable to Puncak had ballooned and the fi nancial position of the company deteriorated. Securing the distribution concession contract was essential to restoring the fi nancial health of Puncak as a whole. A tariff increase of 15% is due for implementation in January 2006. This is one of the fi rst tests of the concession arrangement for PN and the signs are that the increase will be approved. Under the agreement, Puncak is entitled to seek tariff increases if NRW reduction targets are met. The distribution business is expected to offer an internal rate of return (IRR) of 10-12% as compared to the treatment business, which has been offering an IRR of over 20% but the group’s risks are sunstantially lower and the treatment arm will now be paid consistently. Puncak is now responsible for making payments to SPLASH and Konsortium ABASS, the region’s two other BOT contractors. The two companies will continue to supply treated water to Syabas while Syabas is liable for the outstanding receivables due from PUAS to the two companies. Kumpulan Darul Ehsan is a common shareholder in Syabas and SPLASH. The key priority for the management is to improve performance as tariff increases are linked to key performance indicators. NRW, which stood at 43% at the beginning of 2005, has a target of 37% for 2006 and 27.9% by 2009. Syabas has allocated a budget of MYR2.7bn to NRW reduction for next 10-15 years, with an initial MYR250m to be spent on an emergency pipe replacement programme. Through group company WWE Holdings Berhad, a leading wastewater engineering company in Malaysia, Puncak is planning to extend its business in that area. Puncak is pursuing opportunities in the Middle East and has bid for projects through WWE for its fi rst activities outside Malaysia.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 410 Water Market Asia - Company Proﬁ les: Key Players

Ranhill Utilities

37th Floor Empire Tower FINANCIALS (most recent) 182 Jalan Tun Razak Sales (US$m) 129.02 Kuala Lumpur 50400 Sales 1 yr change (%) 15.74 Johor MALAYSIA EBITDA (US$m) 65.31 +60 3 4252 2020 www.ranhill.com.my; www.saj.com.my Net Income (US$m) 20.89 Net Income 1 yr change (%) -16.01 Contact Acc. Receivables (days) 86.13 Hamdan Mohamad, Executive President Return on Assets 1.43 LISTING DATA (most recent) Return on Equity 13.91 Quote Symbol RUBHD-KU Current Market Cap (US$m) 116.88 Total Assets (US$m) 2,011.20 Share Price on 24/01/06 (LCU) 2.44 Total Liabilities (US$m) 1,840.15 Share Price 52 Week High (LCU) 2.52 Current Ratio 2.15 PE Ratio n/a EPS Year End (US$) 0.07 Employees 1,733 Dividend Payout (%) 0.00

Ranhill Utilities is the listed holding company for SAJ Holdings, the water concessionaire for the State of Johor in Southern Malaysia. RU is a 70% subsidiary of Ranhill Berhad, an engineering company with interests in the oil & gas, power and other infrastructure sectors. RU listed on the KLSE in 2002. It is one of the few water companies in the region: water services make up 95% of the fi rm’s turnover, with the remainder is generated by property development activities. SAJ began operations in 2000 under a 30-year concession contract for water treatment and distribution to a population of 3 million people across the whole of the state. It is the only majority-private water company in Malaysia providing integrated water supply and distribution services. The company has MYR8bn in concession assets. Ranhill commissioned the Semangar water treatment plant in 2004, a high-profi le RM650m facility intended to reduce the state’s dependence on treated water from Singapore’s Public Utilities Board. RU was selected as the contractor for the plant by the central government which fi nanced the project. The sound operational and fi nancial performance of the concession has provided a base from which to explore other opportunities. The company reported turnover of MYR847m for the 18 months to January 2006 and profi ts before tax of MYR195m. This compares to turnover of MYR490m and PBT of MYR122m for FY2004. Profi ts were down as a result of higher fi nancing costs and higher depreciation on the company’s expanding asset base, including the Semangar water treatment plant. SAJ has been seeking long-term fi nancing for its operations both through bond issues and debt. In 2004, SAJ redeemed MYR680m 10-year bonds through the issuance of MYR1.28bn in Islamic Debt Securities. RU has considered expansion in several states in Malaysia. In 2003-2004, the company conducted negotiations with the State of Sabah to take over water services there in a concession-type contract, but the deal foundered on the issue of tariffs for water from Sabah’s existing BOT water plants and the transfer of the state utility’s debts to the concessionaire. Ranhill has also considered the possibility of expanding into other states in peninsular Malaysia, including Melaka. Any plans for expansion within Malaysia are now on hold as the central government is restructuring the sector. This have a mixed impact on RU. On the one hand, RU’s track record in Johor makes it well placed to take on operations and management of one of probably four large regional blocks, a plan that is under consideration. On the other hand, there is some doubt about whether the central government will try to change the terms of existing concession arrangements, creating uncertainty about RU’s future revenue stream. The central government has said that it will respect existing contracts but could force concessionaires to renegotiate the terms of their contracts. RU publicly supports the restructuring programme but the CEO of SAJ has expressed the view that water services should be consolidated across several states and believes that the company would be in a good position to bid for a regional contract. The company has also signalled its interest to provide a fully integrated service including the collection and treatment of wastewater, and management of river basins. Unfortuntately this would require the restructuring of the wastewater and water resources sector at the national level which is not currently under consideration. Ranhill Water Services Sdn Bhd (“RWS”) was set up in March 2005 to provide operating and maintenance and consultancy services to municipal and industrial clients with a focus on the Malaysian market. RWS will offer a range of services including project design, feasibility studies and will take on turnkey, O&M and BOT projects in both water and wastewater.

SAJ Holdings KWI (THAI) Ltd Bangunan SAJ HOLDINGS SDN. BHD. 101-102, No. 2303, P.O. Box 262 Soi Onnut Suanluang, 80350 Johor Bahru Suanluang Bangkok 10250, + 60 7 224 4040 Thailand Contact: CEO Ahmad Zahdi Jamil Tel: +(662) 721 4390 www.saj.com.my Fax: +(662) 721 5235 Email: ofﬁ [email protected]

411 Water Market Asia - Company Proﬁ les: Key Players

Changes in the Malaysian water market have prompted RU to look for opportunities to expand abroad. In Q1 2005, RU acquired a 70% stake in KWI Far East Bhd, now known as Ranhill KWI. The remaining 30% is held by managers of KWI after the management buy-out of the company. KWI has experience in the areas of water and wastewater treatment, sewerage services and engineering and consultancy services. Ranhill KWI will take forward the group’s expansion into wastewater, water reclamation and seawater desalination. On acquisition, RU took over management of KWI’s O&M contracts for two 10,000m3/d water and wastewater plants on the Amata In- dustrial Estate in Thailand. RU has used these projects as a basis for expansion and signed three further deals in 2005 for extension of water, wastewater and water recycling services with a capacity of 15,000m3/d on the Amata Estate. These deals are expected to start contributing to group revenues in 3-5 years. The company has announced its intention to expand its operations in Thailand and is bidding on further projects. Within Malaysia, RU’s main competitor in the concession business is Puncak Niaga but it also benchmarks itself against listed water company PBA, a majority state-owned company that has a concession for water services in Penang. In the EPC markets, key competitors include Salcon and George Kent. Strategy The key elements of RU’s growth strategy are to secure O&M contracts in Malaysia for water and wastewater, and to build two new businesses: an EPC business through Ranhill KWI for Malaysian and international projects and a service contracts business led by RWS, primarily for the Malaysian market, including contracts for NRW reduction etc. Over the longer term, RU is seeking concession or BOT projects in South-East Asia, China and South Asia. Thailand and China are the key markets for RU, but the company is also looking at opportunities in the Philippines. In India, RU is taking a cautious approach, waiting to see how the Chennai desalination project progresses. The company is well placed to leverage its concession assets and solid revenue ﬂ ows for expansion in new markets but faces some uncertainty due to the sector restructuring. Over the medium-term, the restructuring should lead to an injection of federal government funds for capital investment in the sector, creating opportunities for RU. In the meantime, RU will be lobbying to ensure that current concession value is not reduced and will be ready to adapt to the new arrangements by participating in long term O&M contracts, further development of EPC technology and technical and advisory contracts such as non revenue water reduction, asset management, water quality improvement and customer services. Although the central government has not proposed plans for the reintroduction of private sector participation in the wastewater sector, after the failed privatization to the Indah Water Konsortium, RU is publicly supporting an integrated approach to the water cycle and sees further opportunities for expansion of its own business activities in the area of wastewater collection and treatment.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 412 Water Market Asia - Company Proﬁ les: Key Players

Salcon Berhad

15th Floor Menara Summit FINANCIALS (most recent) Persiaran Kewajipan USJ 1 Sales (US$m) 38.62 47600 UEP Subang Jaya Sales 1 yr change (%) 1,854.27 Selangor MALAYSIA EBITDA (US$m) 3.96 +60 3 8024 8822 www.salcon.com.my Net Income (US$m) 2.44 Net Income 1 yr change (%) 48.71 Contact Acc. Receivables (days) 463.61 Lim See Teok, CEO [email protected] Return on Assets 3.14 Return on Equity 9.03 LISTING DATA (most recent) Quote Symbol SALCON-KU Total Assets (US$m) 78.29 Current Market Cap (US$m) 25.50 Total Liabilities (US$m) 41.89 Share Price on 24/01/06 (LCU) 1.00 Current Ratio 1.75 Share Price 52 Week High (LCU) 1.12 PE Ratio n/a Employees 349 EPS Year End (US$) 0.01 Dividend Payout (%) 16.19

The core business of Salcon is construction and engineering with a specialisation in the water sector. The company’s business activity covers: design, construction, operation and maintenance of municipal potable water, sewerage and wastewater facilities; design, construction and commissioning of palm oil mills; provision of mechanical and electrical engineering services for industry; marketing, sales and servicing of equipment for water and palm oil industries. Salcon was incorporated in 1974 and is listed on the KLSE. Salcon conducts its operations through 4 divisions: water, agro-industrial, trading and building services. The water division has a portfolio of 450 projects in Malaysia, China, Vietnam, Indonesia and Thailand developed over the course of 30 years. 12% of revenues are generated in its overseas markets. Salcon was a member of the consortium for Malaysia’s fi rst water BOT, the Greater Ipoh Water Supply scheme, and of the fi rst water BOT in Vietnam, supplying Ho Chi Minh City. Salcon has also carried out works for Singapore’s PUB in Malaysia. In China, Salcon is involved in 7 BOT projects. The company has a 50-year concession contract to provide water in Changle Country that began operations at the beginning of 2003. In late 2005, Salcon announced that it was considering acquiring a further 25% stake in the concession company, adding to its existing 75% stake. Operations in Changle have so far been reasonably successful: Salcon announced that it broke even in 2004. In April 2005, Salcon signed a second RMB18m deal in Changle for a wastewater treatment facility. The treatment plant is expected to become operational in 2006. In 2004, Salcon won a 30-year concession for water treatment in Chenggong County (Yunnan) through its Hong Kong subsidiary, Salcon Yunnan. The project is structured as a JV between Salcon, which holds a 60% equity stake, and the local utility, Chenggong County Water Supply Co. The water treatment plant will have an initial capacity of 20,000m3/d with the possibility of an extension to 60,000m3/d. Salcon began construction on the project in 2005. Salcon’s Chinese investments, in Chenggong, Linyi and Changle County are expected to generate income for the group from 2006. Salcon ontinues to operate the Binh Anh BOT in Vietnam in which it holds a 36% stake and two further projects signed in 2005. Over 2005, the share price collapsed from around MYR1 to a low-point of MYR0.35, before recovering towards the end of 2005. The sharp drop was partly the result of the disposal of a large block of shares mid-year by a former major shareholder. The most recent results reported by the company for the 12 months to end-June 2005 show a pre-tax profi t of RM4.4m on the back of revenue of RM112.7m. Salcon’s order book in September 2005 was valued at RM509m with unbilled transactions amounting to RM300m. In 2005, Salcon’s management identifi ed concession projects in China as its primary growth engine for the next fi ve years with a target of generating 60% of total revenue in that market. Revenues from Chinese investments are currently insignifi cant. Salcon will consider listing its China operations within a 3-5 year timeframe, after it has achieved signifi cant volume from its concession business within three to fi ve years. In China, the company will focus on municipal contracts capable of generating stable revenue fl ows and is in negotiations for further deals. Salcon is also considering new projects in Sri Lanka, India, Vietnam and Thailand.

413 Water Market Asia - Company Proﬁ les: Key Players

Sembcorp Industries

30 Hill Street No 05-04 FINANCIALS (most recent) Singapore 179360 Sales (US$m) 3,641.29 SINGAPORE Sales 1 yr change (%) 28.06 +65 6723 3113 EBITDA (US$m) 684.03 http://www.sembcorp.com.sg/index.htm Net Income (US$m) 242.28 Contact Net Income 1 yr change (%) 38.70 Huat Tang Kin, President & CEO Acc. Receivables (days) 80.54

LISTING DATA (most recent) Return on Assets 6.74 Quote Symbol U96-SG Return on Equity 23.03 Current Market Cap (US$m) 3,048.48 Share Price on 24/01/06 (LCU) 1.63 Total Assets (US$m) 4,900.29 Share Price 52 Week High (LCU) 3.14 Total Liabilities (US$m) 3,184.04 PE Ratio 22.73 Current Ratio 1.06 EPS Year End (US$) 0.13 Dividend Payout (%) 18.43 Employees 17,134

SembCorp Industries is a diversifi ed engineering and construction company and one of the largest companies listed on the Singapore stock exchange. It is involved in fi ve areas: integrated utilities and energy; engineering & construction (covering turnkey construction, design, consultancy, and management); environmental engineering (including integrated waste management services); logistics; and marine engineering, which covers ship building and repair, rig construction and offshore engineering. The company also has subsidiary business activities in IT, industrial parks, construction and tourism. Utilities accounted for 49% of 2004 revenue, marine engineering for 23%, engineering and construction for 14%. Logistics, environmental engineering and other activities accounted for less than 10% each. SembCorp was formed in 1998 from a merger of STIC (Singapore Technologies Industrial Corporation) and Sembawang Corporation and listed on the main Singapore exchange in the same year. Singaporean public investment company Temasek Holdings owns 50.73% of the company. Utilities activities are carried out by wholly-owned subsidiary SembCorp Utilities and focus on energy, integrated utilities and offshore engineering. Geographically, utilities activities are focused in Singapore. For the company as a whole, Singapore generated just over half turnover in 2004. Europe also constitutes an important market, constituting 23% of turnover. Most remaining turnover comes from other Asian markets. This share is expected to rise in line with the company’s strategy of expansion in Asia-Pacifi c. The company offers integrated utility services to industrial clients including water and wastewater management. Its largest project of this kind is for petrochemical companies on Jurong Island, Singapore. SembUtilities imports and retails natural gas and generates and supplies power to industrial customers in Singapore. SembUtilities owns and operates power plants in mainland China, Australia and Vietnam. The company also provides utility services in the UK. 2005 was a successful year of operations from the company which began the year with an orderbook of SG$5.9 billion, up 61% from 2003 not including long term contracts for the utilities and logistics businesses. The group sees increasing opportunities for the provision of integrated utilities, energy and waste management services in developing Asia which it has identifi ed as areas for expansion. Interim results for Q2 2005 show turnover of SG$3,540.4, up from SG$2,880.4 in the corresponding period in 2004. Provisional fi gures put profi t after tax at SG$201.8, an increase from SG$156.6 for the fi rst 6 months of 2004. In June 2005, total assets had reached SG$7348.4m. The integrated utilities and energy business grew strongly in 2004 on the back of increased demand for centralised utilities services and energy. SembCorp Group is expanding in the Asia-Pacifi c region and is planning to enter new national markets. The company is focusing on overseas activities in its core sectors, working through JVs with strong local partners in strategic locations or niche markets. It is relying on its technological capability to retain its competitiveness against low-cost suppliers in developing Asia. SembCorp has four projects in China, all providing specialised water and wastewater servces to the chemicals industry. In 2003, Semb- Corp set up a JV, Nanjing SembCorp, to provide wastewater treatment services to petrochemical and chemical companies located in the Nanjing Chemical Industrial Park in China. The company has since agreed two further contracts for the Nanjing Park, one for treated water and a second wastewater facility, the latter signed in 2006 under a deal to give SembCorp preference for any project in the Park. In 2005, the company won a deal for wastewater service in Zhangjiagang, Jiangsu, also for chemicals manufacturers. SembCorp had a stake in Cathay International Water Ltd. which it sold in 2003.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 414 Water Market Asia - Company Proﬁ les: Key Players

Shanghai Industrial Holdings

26th Floor Harcourt House FINANCIALS (most recent) 39 Gloucester Road Wanchai Sales (US$m) 441.15 HONG KONG Sales 1 yr change (%) 21.34 +852 2529 5652 EBITDA (US$m) 224.83 www.sihl.com.hk Net Income (US$m) 177.94 Contact Net Income 1 yr change (%) 9.84 Cai Lai Xing, Executive Chairman Acc. Receivables (days) 125.22

LISTING DATA (most recent) Return on Assets 8.17 Quote Symbol 363-HK Return on Equity 9.46 Current Market Cap (US$m) 2,120.53 Share Price on 24/01/06 (LCU) 16.60 Total Assets (US$m) 2,647.29 Share Price 52 Week High (LCU) 18.00 Total Liabilities (US$m) 448.03 PE Ratio 11.52 Current Ratio 3.68 EPS Year End (US$) 0.19 Dividend Payout (%) 35.80 Employees n/a

Shanghai Industrial Holdings is a large conglomerate majority-owned by the Shanghai Municipal Government and listed on the Hong Kong stock exchange. With a market capitalisation of HK$16bn (US$2bn) in 2005, it is the largest company of Shanghai Municipal Government listed overseas, although its activities are carried out mainly on the mainland. Provisional accounts for the year indicate a 38% increase in turnover from 2004 to HK$2,714m in 2005. Post-tax profi ts fell to HK$626 for 2005, down from HK$986.2m. Results for 2004 were skewed by exceptionals, and 2005’s results constitute a return to form. In addition to fi nancial service provision, Shanghai Industrial has activities in four sectors: consumer products & retailing; infrastructure including water, road and port facilities; medicine & biotechnology; and IT services. The retailing and medicine business units currently generate the largest share of the group’s turnover but the management signaled in 2005 that infrastructure and medicines would be the company’s priority growth areas. Infrastructure generated US$20m in earnings for the company in 2004, 18% of overall earnings, but up from only 10% of earnings in 2003. The infrastructure division’s share of group earnings is projected to rise rapidly, reaching 40% by 2007. Within the group’s infrastructure activities, water is taking over from transport as the most signifi cant sector. Water now makes up a signifi cant share of revenue after the group’s 2003-5 water investment spree and the disposal of two road projects in Shanghai in August 2003. The growth of the water business is being driven by an aggressive strategy of acquisitions. In January 2005, SIHL announced its intention to raise its total investment in water and wastewater to RMB10bn (US$1.2bn) by the end of 2006, investing with partner CECIC. The management set a target of doubling the size of the company’s water service operations by the end of 2005 but whether the fi rm has achieved this target has not yet been announced publicly. The stated rationale behind the focus on water is to generate a low-risk, stable revenue stream for the company over the long-term. However, the fi rm’s top managers have also said that SIHL plans to list its water investments as a separate company within a 3-5 year time frame, suggesting that capital gains may be equally important. SIHL has successfully achieved a leading position in the Chinese water market alongside Beijing Capital as a result of its acquisitions in the last 3 years. By the end of 2005, SIHL was involved in 10 projects, and in advanced discussions for a further 3 projects. This has been achieved despite the company’s comparatively late entry into the water sector, having made its fi rst investment in August 2003. SIHL’s water investments are carried out through its General Water China vehicle (GWC, previously the China Water & Sewage Treat- ment Company Ltd.). GWC was set up in August 2003 as a 50-50 joint venture between SIHL and state-owned enterprise, China Energy Conservation Investment Corporation (CECIC), a national investment corporation operating in the fi elds of energy conservation and environmental protection. CECIC raises fi nance to invest in environmental projects in line with government policy. Its wholly-owned subsidiary, China National Environment Protection Corp., has experience in urban water sewage treatment, industrial wastewater treatment and urban water supply. GWC has a registered capital of RMB500m. Projects In 2003-4, GWC invested RMB1.4bn (US$169m) in 6 facilities in China with a water treatment capacity of 2 million m3/d and 700,000 m3/d of wastewater. In 2005, the group signed further projects in three cities. A project in Xianyang (Shaanxi) involves the construction of two water supply facilities, while the agreement with Jinan municipality (Shandong) confi rms GWC’s position as preferred partner for 3 planned projects in both water and sewage, bringing SIHL’s total 2005 investment in water and wastewater to around US$120m. The company’s largest deal so far was a US$56m investment in Xiamen, which it won in an open tender, beating competition from major international players. It was also short-listed for the sought-after Nanjing water utility tender, which attracted the interest of the major international players, but the bidding process was not pursued. General Water is considering new projects in several Chinese provinces. Prominent existing projects include the US$56m deal for water and wastewater services in Xiamen (Fujian) that was awarded in December 2004. The planned investment will go 45% to water facilities and 55% to sewage to serve a city of 1.37 million. The company will have a water supply capacity of 1 million m3/d and a sewage treatment capacity of 559,000m3/d, with a treatment ratio of 72%. In August 2005, the company secured agreement for 3 projects in Jinan (Shandong) for a total investment of up to HK$1bn (US$129). The projects - one water supply and two sewage treatment projects – will be implemented in a joint venture between GWC and Jinan Water Supply, the city’s monopoly water company. In April 2005, GWC secured a sewage project in Shenzhen (Guangdong) and one in Xianyang (Shaanxi) for a total investment of RMB850mn (US$102m).

415 Water Market Asia - Company Proﬁ les: Key Players

So far, SIHL and GWC have not engaged in any joint ventures with international partners. Instead, investments have taken the form of joint ventures with the local municipal company. The Transfer-Operate-Transfer model, where the investor takes over existing assets, allows SIHL to generate a revenue stream right from the start of the project. Overall, the current projects and those under negotiation are a mix of TOTs and BOTs, with the latter raising revenues in the longer-term. Earnings from water investments are beginning to contribute to the company’s bottom line; in 2005 the concession projects in Bengbu (Anhui) and Xiangtan (Hunan) began to generate revenues for SIHL, while other water projects are expected to make a signifi cant contribution to revenues by 2007/8 as SIHL estimates that it takes about three years to improve the fi nancial and commercial viability of projects after acquisition. The company’s water investments are so far earning a rate of return on assets of 10% or more. Most projects have a duration of 20 years. The projects do not have fi xed tariffs set out in the contract, so tariffs will be subject to revision over the life of the contract. SIHL is counting on being a benefi ciary of the overall upward trend in water and wastewater tariffs in China. SIHL’s water sector projects usually have a debt-equity ratio of 70:30. SIHL has a strong fi nancial position that should be able to support its burgeoning activity in the water sector. Strategy Through GWC, SIHL has a 3-5 year business objective to “become a sizeable professional enterprise that could provide turnkey solutions covering project investment, technical services and operational management for urban sewage treatment, industrial wastewater treatment and potable water production projects.” Shanghai Industrial is interested primarily in acquiring stakes in existing companies where municipalities are seeking to generate cash from their municipal assets. Looking to the future, the company intends to build up a portfolio of water sector assets destined for spinning-off. Senior management representatives have set a minimum timeframe of 3 years for this, so an IPO could occur as early as 2008. The company has already applied this spin-off strategy successfully to its investment in the semiconductor industry: the Semiconductor Manufacturing International Corp (SMIC) was sold in March 2004, generating an exceptional gain for the company of HK$480m for SIHL in the fi rst half of 2004. GWC has a clear strategy of focusing on investments in the more affl uent Eastern coastal states and in particular cities in the Yangtze River Delta, the Pearl River Delta and the routes of the Eastern and Central pipelines of the South to North Water Diversion Project. GWC will continue to seek controlling stakes in water and wastewater concessions. In only two years, SIHL through the GWC venture has entered the top league of Chinese water market operators. The company’s deep fi nancial resources and management commitment to driving capital investment into the water/wastewater sectors should support the company’s prominent position in the sector.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 416 Water Market Asia - Company Proﬁ les: Key Players

Siemens (I&S)

Schuhstraße 60 FINANCIALS (most recent) Erlangen D-91052 Sales (US$m) 93,363.06 GERMANY Sales 1 yr change (%) 1.26 +49 89 636-00 EBITDA (US$m) 9,320.53 http://www.industry.siemens.com Net Income (US$m) 4,229.27 Contact Net Income 1 yr change (%) 41.34 Acc. Receivables (days) 81.20 LISTING DATA (most recent) Quote Symbol SIE-FF Return on Assets 5.06 Current Market Cap (US$m) 73,282.34 Return on Equity 14.35 Share Price on 24/01/06 (LCU) 62.36 Share Price 52 Week High (LCU) 75.67 Total Assets (US$m) 92,791.71 PE Ratio 20.52 Total Liabilities (US$m) 58,778.72 EPS Year End (US$) 4.74 Current Ratio 1.38 Dividend Payout (%) 28.72 Employees 430,000 Financial information relates to listed parent company Siemens

Siemens AG is one of the world’s largest companies. Its activities are built around its strength in electrical engineering and electronics. The company has global reach, with 460,000 employees and activities in most countries in the world. It works in six key areas: information and communications, automation and control, power, transportation, medical, and lighting. In the fi rst 9 months of 2005, Siemens had sales of EUR75bn and net income of €2.2bn. The group also provides fi nancing services, investment, treasury and fund management. Siemens water activities are carried out by the Industrial Solutions & Services group under the automation and control division. Asia-Pacifi c is a growing market for Siemens, which now generates more than 10% of total sales in the region. Siemens’ acquisition of VA Tech Wabag was approved in 2005, providing an extra boost to Siemens activities in China, where Wabag had experience in a municipal project in Anhui. Siemens conducts its water sector activities through its Industrial Solutions and Services division (I&S). Water is also a growth area for the company, particularly in China and Thailand. China In mid-2005 Siemens took a majority stake in a joint venture with the Tianjin National Water Equipment & Engineering Company to design and produce tailored water and wastewater products to industrial and municipal customers. Siemens had inherited a minority stake in the Tianjin company when it took over US Filter. Siemens China managers predict a tenfold increase in turnover for the company from current levels to EUR40m in the next few years. I&S China have set a target to build turnover for water up from US$25m today to US$250m by 2010. At the moment, water accounts for only 5% per cent of I&S’ US$480m turnover. The group is very active in the Chinese water market as a major supplier of products to systems integrators and dealers and Siemens I&S has been involved in the design and construction of 200 water and wastewater treatment plants. Key technologies include micro-fi ltration membranes, produced by affi liated company Memcor, which Linne says “have been a real hit with Chinese customers.” Other branded technologies include powdered activated carbon treatment and wet air oxidation systems from Zimpro, chlorine disinfection from Wallace &Tiernan and continuous electro-deionisation from Ionpure. Up till now, Siemens products have been imported, but the plan is to use the new Tianjin JV as a base for local production. I&S is currently in discussions with other Siemens companies to agree the shortlist of technologies which will be manufactured in China and is developing a strategy to build up its own sales capacity using the well established Siemens sales network. As a result of the acquisition of VA Tech Wabag, Siemens intends to build on the experience of Wabag in its DBO project in Anhui Prov- ince. Siemens intends to build up its China business through JV structures which can deliver much more rapid growth in comparison to an organic, in-house strategy. I&S is in discussions with potential Chinese partner companies. With the backing of the large, diversifi ed Siemens structure, I&S China has fi nancial resources and expertise to develop rapidly in the water business. Thailand In 2005, Siemens I&S President Joergen Ole Haslestad announced that it would be targeting Thailand as one of 14 countries worldwide for expansion of its water solutions and technology business; also included is China, Mexico, the Netherlands, Singapore, Brazil and Turkey. As in China, Siemens will follow a strategy of business expansion through acquire or merging with local water or industrial fi rms. The company has identifi ed industrial sites with water shortages as a key market opportunity. The company plans to offer various water technologies for processing and manufacturing industries, particularly paper, steel, and electricity generation companies. The technologies include biological and chemical treatment, membrane technologies, desalination, and ultra pure water. Across the region, Siemens expects to see water reuse take off as a result of increasing pressure on water resources. In Asia, rapid population and economic growth is expected to drive demand for reuse technologies and facilities.

Siemens Asia-Paci c Siemens I&S China 60 MacPherson Road 7, Wangjing Zhonghuan Nanlu 348615 Chaoyang District SINGAPORE Beijing 100102 +65 64 90 60 00 CHINA +86-10-6472-1888 Ext. 6001

417 Water Market Asia - Company Proﬁ les: Key Players

Sinomem Technology

06-10 Techpoint FINANCIALS (most recent) 10 Ang Mo Kio Street 65 Sales (US$m) 31.99 Singapore 569059 Sales 1 yr change (%) 22.91 SINGAPORE EBITDA (US$m) 12.96 +65 6481 6966 www.sinomem.com; http://suntar1.a2.cn4e.com/esite2/default. Net Income (US$m) 13.14 asp Net Income 1 yr change (%) 51.52 Acc. Receivables (days) 88.40 Contact Lan Wei Guang, MD Return on Assets 26.97 Return on Equity 34.97 LISTING DATA (most recent) Quote Symbol S14-SG Total Assets (US$m) 71.16 Current Market Cap (US$m) 170.80 Total Liabilities (US$m) 15.66 Share Price on 24/01/06 (LCU) 0.65 Current Ratio 3.55 Share Price 52 Week High (LCU) 0.80 PE Ratio 12.96 Employees 167 EPS Year End (US$) 0.03 Dividend Payout (%) 0.00

Sinomem began operations as Suntar Xiamen in 1996. Sinomem Technology Limited was incorporated in Singapore in 2002 as an investment holding company and listed on the Singapore stock exchange in June 2003. The operations of the company are based in Xiamen (Fujian) in the PRC. Sinomem’s business is centred around its proprietary membrane technology. It provides integrated solutions for separation, purifi cation and cleaner production, including desalination. The Group designs process systems and installs and commissions the membrane systems. It also manufactures some membranes and associated products in house. Sinomem’s clients are mainly companies in the pharmaceuticals sector, where the processes are used for production of antibiotics, vitamins and amino acids etc.. 90% of the company’s turnover comes from these clients but it also provides systems for the chemicals, dyeing, food and beverage and water and wastewater treatment industries. The membrane technologies are applied to municipal or industrial wastewater treatment and recycling, and landfi ll leachate treatment. Municipal clients account for only a small proportion of turnover. Sinomem has established a strong market position in the provision of membrane technology to the pharmaceutical sector and managers have confi rmed that they will retain their focus on that sector, and that it still has considerable growth potential, although the management said it is not ruling out the possibility of work for municipalities. Sinomem operates through subsidiaries: Suntar Membrane Technology (Xiamen) and Suntar Process Technology (Xiamen), both 100%- owned; Suntar Desalination (Xiamen) Company Ltd, a 51%-owned JV; Jiangxi New Ruifeng Biochemical Company Ltd (also 51%-owned) and the Xin Feng Company (48%). In 2005, it acquired the company Microdyn-Nadir to enter into membrane production. It also has a stake in pharmaceuticals company Pharmesis International which listed in Singapore in 2004. Sinomem’s interim results for Q3 2005 show turnover up to RMB50.4m from RMB36.3 for the corresponding period in 2004. Net income was also up, reaching RMB16.5m compared to RMB12.9m for the fi rst 9 months of 2004. In September 2005, total assets stood at RMB120.5m. The company has been building up profi ts at an impressive speed since 2000, and further annual increases of 25% are expected for the 2005-2007 period. Organic growth should be sustained by the expansion of the PRC membrane treatment market, which should generate 8-10% of profi t growth in the near term. Sinomem has aggressive downstream expansion plans in the membrane application business which are expected to generate a further 10% or more increase in profi ts each year. The company intends to boost its recurrent income by investing on a project basis in BOT/BOO-type projects for wastewater treatment and reuse. To implement the new strategy, the company will need require signifi cant capital investment and Sinomem is planning to link up with strategic partners in the downstream business. Sinomem’s shares have been volatile over the last year. While the company has grown steadily in terms of revenues and profi ts, investors have not been impressed by the rates of growth. The shares hit a peak of SG$.079 in September 2005.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 418 Water Market Asia - Company Proﬁ les: Key Players

Suez

16 rue de la Ville l’Eveque FINANCIALS (most recent) Paris 75008 Sales (US$m) 55,372.72 FRANCE Sales 1 yr change (%) 2.82 +33-1-58-18-50-0 EBITDA (US$m) 8,962.25 http://www.suez.com Net Income (US$m) 2,452.53 Contact Net Income 1 yr change (%) 183.34 Jean-Marie Chaussade Acc. Receivables (days) 108.18

LISTING DATA (most recent) Return on Assets 3.44 Quote Symbol SZE-FR Return on Equity 26.11 Current Market Cap (US$m) 43,020.08 Share Price on 24/01/06 (LCU) 19.32 Total Assets (US$m) 85,600.63 Share Price 52 Week High (LCU) 29.48 Total Liabilities (US$m) 68,271.46 PE Ratio 27.92 Current Ratio 1.31 EPS Year End (US$) 2.42 Dividend Payout (%) 82.59 Employees 160,712

Suez is a diversifi ed utility provider providing electricity, gas, energy services, water and waste management. The business is divided into two with the environment division covering operations and management of drinking water and sanitation services; design, construction and operation of water-treatment plants; waste collection, sorting and recycling; urban and industrial waste management. Environmental services accounts for around one quarter of the group’s turnover. In 2004, turnover for Suez Environnement was EUR11,406m, out of total group turnover of EUR40,739m. Suez operates through several wholly-owned subsidiaries: Degrémont, the group’s EPC company, which leads group activities in a number of emerging markets; SITA, the group’s waste specialist; and United Water Resources, which manages the group’s water business in the US market. Q3 results for 2005 showed the Suez environment division increase overall revenues by 3.5% to EUR8,006m with organic growth of 4%. Within Suez Environment, the international division performed best: revenues increased by 9.5% compared to the European water business section which increased sales by 4.5%. China In China, Suez Environnement operates through Sino-French, a 50-50 Joint Venture with Hong Kong-based conglomerate, New World. The JV’s fi rst project was the Macao Water Supply Concession, a 25-year contract agreed in 1985. The Macao concession has proved to be a showcase for the Sino-French’s activities in China and provided a good base for early entry into the mainland market. In 2001-2003, Suez was the most active foreign player in the Chinese market. However, it has since lost all the largest projects to Veolia (Shanghai Pudong, Shenzhen and more recently Changzhou) and no new project deals have been signed since Tianjin Tanguu in 2004, which became operational in 2005. However, in January 2006, Suez announced that it had cemented its relationship with the Chongqing municipality through a JV with the Chongqing Water Industry Holding Company Ltd. (CWIH). The JV is owned 50-50 by the two companies. It has a registered capital of US$30m and the partners expect to be able to leverage their equity commitment fi ve-fold, to generate US$150m in funds which will be invested in the 2006-2007 period. As of January 2006, the JV partners were in negotiations with the Municipality of Chongqing concerning 5-6 water and wastewater projects that are under consideration. The plans include an extension of the concession service area, as well as the construction and operation of new treatment facilities and may also include transport and other urban infrastructure services. Later, the JV may be used as a vehicle for further investments in China’s Central and Western regions. The company’s Chinese investments are fi nanced in local currency as the Chinese fi nancial markets are still very favourable for foreign investors. For now, Suez is in a position to access non-recourse debt fi nance on 15-year tenors with lighter administrative requirements than they would be able to secure from an international bank. Australia In Australia, the Group conducts business in the water sector through a Dégremont subsidiary, Australian Water Services. In 2004, Turnover in Australia from the water sector was EUR30m, compared to EUR150m in turnover generated by Suez waste treatment business, carried out through subsidiary Sita Environmental Solutions. AWS is involved in DB and DBO contracts including the Prospect water treatment plant, one of the largest such plants in the world that serves the population of Sydney. The plant is run by AWS under a 25-year operations contract. AWS also has DBO contracts for several sewage treatment plants in Australia and New Zealand (Hutt Valley and Mangere).

Suez Asia Degremont China Degremont India Suite 4902, 49/F, Central Plaza 9F, Jing Guang Center Ofﬁ ce Building 2nd Floor, Tower A, 18 Harbour Road Hu Jia Lou, Chaoyang District Unitech Business Park, South City - I, HONG KONG Beijing 100020 Gurgaon 122001 +852 2824 0212 CHINA INDIA +86 10 6597 3860 +91 124 4080 120 http://www.degremont.cn/

419 Water Market Asia - Company Proﬁ les: Key Players

Philippines Suez tendered successfully for the West Zone Manila concession in 1997 in partnership with the Benpres Group of the Philippines as Maynilad Water Services. The concession was beset with problems soon afterwards, partly as a result of the Asian fi nancial crisis and the El Nino phenomenon. Maynilad suffered much worse from the devaluation of the Peso than its counterpart in the East Zone, as 80% of the public utility’s US$ debts were to be paid off by Maynilad. Under these circumstances, the company was unable to convert its bridge loan into long-term fi nancing. Problems due to the diffi cult operating environment were compounded by poor cost control by the company in the early years of the concession. Between 2001, when Amendment No 1 to the contract was signed and 2005, when the Government and companies fi nally agreed a rehabilitation plan for the company, many attempts were made to resolve its fi nancial situation. Despite holding only a 40% stake in the concession company, the greatest fi nancial burden of the restructuring was taken by Suez which lost US$100m in the process. However, Suez exposure has now been reduced to a 13% stake in the company and there are no further claims against Suez. Indonesia Suez has an ongoing 25-year concession for the West Zone of Jakarta in Indonesia. Suez is not planning to withdraw completely, but it is seeking to reduce its exposure to risk in Indonesia. In 2005, Suez’ local company, Palyja, successfully raised bond fi nancing the company’s investment programme, without recourse to Suez, reducing the group’s risk exposure under the concession. Suez is now looking for a local partner to take a stake in the concession company to reduces its own exposure further and to provide support in discussions with the government. Originally, Suez had negotiated the contract in partnership with a prominent Indonesian business grouping with close links to former President Suharto but was forced to buy out their stake in 1998 due to the political and economic upheaval that hit Indonesia at that time. Strategy Suez’ ongoing projects in Malaysia have either been closed down or shifted to Degrémont, leaving only the operations in China, Australia and Indonesia (Jakarta). India is not being considered seriously as a growth market for Suez, even though Degrémont is one of the most active international players in the Indian water and wastewater facility EPC market. Degrémont has a DBO contract for the Sonia Vihar water treatment plant in Delhi, the most prominent project of the kind in the Indian market. Suez does not consider the Korean market to offer any growth potential. The group’s involvement is limited to Suez Energy’s contract for gas supply. After several years of painful restructuring, Suez is now planning to raise its capital commitment in the Asian region once again. In keeping with the company’s international strategy, Suez Asia Pacifi c will not undertake any investments in risky emerging markets and will not take on any currency risk. Only two countries in the region fi t these criteria: China and Australia, and it is here that the company’s efforts will be channeled. Suez is adopting an aggressive approach to the Chinese market in order to regain its preeminent position. To reaffi rm this, it will be moving its regional headquarters from Hong Kong to Shanghai over the course of 2006. The company strategy is to concentrate its efforts on winning tenders in the rich cities of the Eastern seaboard, and in particular Guangzhou, Shanghai and Beijing, while considering contracts for smaller cities in the surrounding regions when opportunities arise. In particular, Suez is interested in a large forthcoming water project in Shanghai and then aims to sign on an extra two cities a year in China. The company is also planning to use its strong base in Chongqing, in Central China, where Sino-French has been supplying and distribut- ing water under a concession contract. Suez remains skeptical of the wastewater sector, preferring to take on water projects which they consider less risky and is only likely to invest in wastewater projects in the context of its arrangements in Chongqing.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 420 Water Market Asia - Company Proﬁ les: Key Players

Tianjin Capital Environmental Protection

TCEP Building 2005 FINANCIALS 79 Weijin South Road, Nankai District Sales (US$m) 86.24 Tianjin 300381 Sales 1 yr change (%) 20.03 CHINA EBITDA (US$m) 69.40 : Contact Net Income (US$m) 39.05 Ma Baiyu, Executive Chairman Net Income 1 yr change (%) 16.72 Acc. Receivables (days) 179.72 LISTING DATA 1065-HK Quote Symbol Return on Assets 10.84 339.11 Current Market Cap (US$m) Return on Equity 15.81 Share Price on 24/01/06 (LCU) 2.73 3.10 Share Price 52-week high (LCU) Total Assets (US$m) 562.77 8.58 PE Ratio Total Liabiities (US$m) 290.63 0.03 EPS Year End (US$) Current Ratio 3.63 Dividend Payout (%) 32.86 Employees 472

Tianjin Capital Environmental Protection Co Ltd. is a publicly listed company, majority owned by the Tianjin City Government, which holds 63.08% of the shares. It was established in 2001 when the municipal government replaced all petrochemical assets in Tianjin Bohai Chemi- cal Co. with wastewater treatment facilities and renamed the company TCEP. Tianjin Bohai Chemical Co conducted an IPO in Hong Kong in 1995. TCEP’s parent company, the Tianjin Municipal Investment Co Ltd. is a state-owned enterprise under the municipal government and an investment vehicle to develop the city’s infrastructure and utility facilities. TCEP is focused almost entirely on wastewater treatment, unlike most of its domestic competitors, which are diversifi ed conglomerates. However, TCEP does have one project in the transport sector, operating a section of Tianjin’s middle toll road. TCEP reported a 35% plunge in net profi t to RMB94m for the fi rst six months of 2005. This was due to the suspension in February of the operation of Jizhuangzi Sewage Water Treatment Plant’s old system for modifi cation work. TCEP has been granted monopoly rights on wastewater treatment in Tianjin city. It has a single offtaker, the Tianjin Sewer Company (TSC), and the China Construction Bank has been appointed as an independent guarantor on behalf of the offtaker for its payment obligations to TCEP. The company benefi ts from its close relationship with the government which subsidises the company’s sewage treatment revenues and construction fees. Construction fees are based on an agreement between TCEP and TSC that stipulates payments entitled to TCEP for the construction and extension of the city’s plants. Estimated total revenues from construction by the end of 2005 amount to RMB1,170m. TCEP is set to benefi t from the Municipal Government’s fi rm commitment to raise environmental standards and the plans to increase wastewater treatment in the Tianjin urban area from 40% to 90% by 2007. Tianjin has been at the forefront of the trend to raise prices for drinking water and may lead the way again in the wastewater sector, further securing the fi nancial security of TCEP. Sewerage charges to end-users were recently raised by 20-25%. TCEP’s current treatment capacity is 660,000 m3/d, and is expected to rise to 1.49 million m3/d by 2006 as new treatment plants come on line. TCEP operates the Jizhuangzi and Dongjiao plants and is responsible for the expansion of the Jizhuangzi plant and the construction of the Xianyanglu and Beicang sewage plants, inTianjin. The government has also given TCEP priority in the development of any new wastewater projects. TCEP is one of the fi rst companies to enter into China’s new water recycling industry, which the central government is encouraging. The company owns a water recycling plant in Tianjin with a capacity of 50,000 m3/d through its stake in the Tianjin Water Recycling Company (TWRC). Unlike TCEP itself, TWRC owns and operates the pipeline network supplying end-users. TWRC made a loss in 2003 because of low end-user tariffs and would need a hefty tariff increases to shift the company into profi t. It is also looking at opportunities outside its home base, with a recent investment in Guiyang, the capital of Guizhou province where TCEP holds a 70% stake in a wastewater treatment project. Wastewater treatment rates are almost zero in this region and TC hopes to benefi t from a fi rst mover advantage. In 2005, TCEP won another deal outside Tianjin, the RMB858m Hangzhou sewage project. The project company has an O&M contract for the Hangzhou Qige Sewage Water Treatment Plant project and will provide all sewage water treatment services to the Hangzhou Sewage Water Company for 25 years. TCEP formed a JV with the state-owned Hangzhou City Construction Property Operation with a registered capital of RMB257m. TCEP will invest RMB180m equity for a 70% stake. Unlike many of its competitors, its investment strategy has been geared towards prioritising shareholder value over market share and TCEP has been investing carefully, identifying projects that will begin to earn returns in the short-term. The company has specifi ed tariff-setting models in its contracts with the relevant municipalities which reduces regulatory risk. Under its contract with the Tianjin Municipality, the company has an allowed return of 15% on net fi xed assets, and the company is earning a return-on-equity close to 20%, much higher than the industry average of 8-10%. However, these high returns may not be sustainable as the industry matures. In 2004, TCEP was considered to be one of the strongest Chinese water companies in terms of delivering investor value, but 2005 saw a sea-change in the perceptions of investors. The stock fell rapidly as a result throughout the year and was not showing any signs of recovery by January 2006.

421 Water Market Asia - Company Proﬁ les: Key Players

United Utilities

Dawson House FINANCIALS (most recent) Great Sankey Sales (US$m) 3,785.97 Warrington WA5 3LW Sales 1 yr change (%) 9.64 UK EBITDA (US$m) 1,814.33 +44 1925 237 000 www.unitedutilities.com Net Income (US$m) 663.46 Net Income 1 yr change (%) 29.95 Contact Acc. Receivables (days) 39.55 John Roberts, Chief Executive Return on Assets 6.48 LISTING DATA (most recent) Return on Equity 13.85 Quote Symbol UU.-LN Current Market Cap (US$m) 10,071.20 Total Assets (US$m) 17,495.23 Share Price on 24/01/06 (LCU) 630.00 Total Liabilities (US$m) 11,244.70 Share Price 52 Week High (LCU) 689.00 Current Ratio 1.06 PE Ratio 13.07 EPS Year End (US$) 1.00 Employees 15,674 Dividend Payout (%) 77.89

United Utilities is a UK-based multi-utility provider with activities in four areas: licensed utility operations, infrastructure management, business process outsourcing and telecoms. The regulated utility division covers the operation of water, wastewater and distribution systems while contract solutions develops and operates infrastructure contracts and provides services such as multi-utility connections, metering services, water and wastewater treatment and facilities management. The other two business segments are business process outsourcing and telecoms. The bulk of UU’s activities are carried out in the UK, providing water and wastewater services to around 7 million people. Outside the UK, the International division of the business develops and operates contracts in only a few selected overseas markets. In Asia-Pacifi c, the group has activities in Australia, New Zealand, the Philippines and India. In other regions, UU has projects in Central and Eastern Europe (Poland, Estonia and Bulgaria), and in the US, while its interests in Latin America (IEBA, Argentina) were fully disposed of in 2005. UU’s turnover stood at GBP2.25bn in the year to March 2005, delivering profi ts of GBP333.1m. Turnover has been climbing steadily since 2001 but profi ts have been more erratic. March 2005 fi gures are higher than 2003 but down on 2004. UU currently generates only a very small proportion of its profi t from overseas markets. In FY 2004-5, UU generated just 2% of its turnover in its activities in Asia-Pacifi c. The proportion of profi t from the region was slightly lower, at 1.5%. In Australia, United Utilities operates through wholly owned subsidiary United Utilities Australia, which is an important player at the national level. In Australia, UU operates through a number of wholly and JVs: - United Utilities Australia Pty Ltd (100% owned), a water treatment operator and technical and management services provider. - United Utilities Macarthur Operations Pty Ltd (100 owned) - technical and management services. - Yabulu Water Pty Ltd (100% owned) - technical and management services. - United Utilities Victor Harbor Pty Ltd (100% owned) - water treatment operator. - Yan Yean Water Pty Ltd (50% owned with partner Transfi eld) - water treatment operator. - Macarthur Water Pty Ltd (50% owned with partner Transfi eld) - water treatment operator. - Riverland Water Pty Ltd (50% owned with partners AMP Capital Markets and Bechtel Enterprises) water treatment operator. - Campaspe Asset Management Services Pty Ltd (50% with Origins Energy Asset Management) water treatment and asset management. UUA has fi nanced, designed, built and operates water treatment plants for public utilities in Sydney, Melbourne and regional South Australia. Advanced sewage treatment plants have also been provided under PPP contracts to government and a major local government authority in South Australia. UUA also carries out the management and operations of a public water utility in regional Victoria. The company also has a DBO project under an alliance contract and an RO plant in Queensland which treats tailings pond water for reuse. The bulk of UUA’s revenue is derived from its Public Private Partnership contracts. UUA’s AU$25m Yan Yean water treatment project near Melbourne was the fi rst BOOT project in the Australian water industry carried out in a joint venture with construction company Transfi eld. UUA is responsible for operations. UUA JV Riverland Water manages 10 water fi ltration plants in rural South Australia fi nanced under a 25-year $115m BOOT contract with the South Australian Government. UUA has several further contracts with major public utilities, local government authorities and industrial clients like BHP-Billiton and is among the most experienced companies in the Australian DBFO sector for water, wastewater and water recycling. However, although UUA has a strong position in the Australian market, with PP-type contracts in three states, further growth is limited by the market size. UUA feels that local governments in Australia have not yet really embraced the concepts of either PPPs or outsourcing opportunities and

United Utilities Australia Level 10, 115 Grenfell Street Adelaide 5000 South Australia AUSTRALIA +61 8 8408 6500 www.unitedutilities.com.au

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 422 Water Market Asia - Company Proﬁ les: Key Players

those contracts that do arise are fi ercely contested. UUA’s recent achievements include the commissioning of a high technology sewage treatment plant at Victor Harbor near Adelaide. The plant employs immersed membrane technology to provide high quality treated effl uent. Currently the company is putting forward a proposal to construct a desalination plant and a 400km pipeline to provide water to the Goldfi elds Region of Western Australia. Late in 2005, the proposal received the approval from WA’s Economic Regulation Authority. It is anticipated that the WA Cabinet will decided whether or not to proceed with the project, which has a capital cost of approximately $400m, early in 2006. UU entered the South-East Asian market in 1997 as one of the investors in the Manila privatization. The consortium in which UU participated won the concession for the Eastern part of the city. UU held a minority stake in the Manila Water Company and in March 2005, UU decreased its stake further in the context of the company’s IPO on the Philippine Stock Exchange. It now holds 10.7% of the shares but remains the designated international operator for the concession. UU entered the India water market in 2005 in the fi rst dedicated water private sector participation project in the country in Tirupur, Tamil Nadu. UU is the operator for the project in a Joint Venture with major Indian fi rm Mahindra and Mahindra Ltd. UUA provided engineering and operations staff who helped manage the construction and commissioning of the plant. UUA forms part of Contract Solutions, a business unit of United Utilities PLC that manages international operations. UUA’s involvement in the Tirupur and Manila projects forms part of UU’s international strategy. Strategy At the global level, the company’s strategy is to focus on a small number of target markets where the group is already established, notably Australia and Central and Eastern Europe. UU aims to build its portfolio of long-term investment contracts in these areas with secure operations revenues. UU has been concerned to reduce its exposure to risk and generally its international joint ventures have limited recourse to United Utilities. For those contracts where it is the operator, United Utilities is not the licensed entity but it may be a direct or indirect investor in the licensed entity. UU’s focus on Australia as a growth area is justifi ed by long-term trends: UU sees a growing focus in wastewater reuse in Australia both in the public and industrial sectors and they anticipate that major opportunities in this area will arise in the medium term, driven on the one hand by environmental concerns and on the other, by regulatory changes as national competition policy gradually opens up the monopoly position currently held by most of state-owned public water utilities.

423 Water Market Asia - Company Proﬁ les: Key Players

Veolia Environnement

52 rue d’Anjou FINANCIALS (most recent) Paris 75008 Sales (US$m) 33,535.78 FRANCE Sales 1 yr change (%) -13.74 +33 1 49 24 49 24 EBITDA (US$m) 4,013.70 http://www.veoliawater.com/ Net Income (US$m) 452.88 Contact Net Income 1 yr change (%) 116.22 Stephan Truchot, Head, Project Finance (Asia) Acc. Receivables (days) 131.22 [email protected] Return on Assets 1.35 LISTING DATA (most recent) Return on Equity 9.43 Quote Symbol VIE-FR Current Market Cap (US$m) 18,385.06 Total Assets (US$m) 48,914.78 Share Price on 24/01/06 (LCU) 26.63 Total Liabilities (US$m) 40,472.83 Share Price 52 Week High (LCU) 40.60 Current Ratio 1.00 PE Ratio 24.82 EPS Year End (US$) 1.13 Employees 235,521 Dividend Payout (%) n/a Financial information relates to listed parent Veolia Environnement

Performance Veolia Water, the water division of Veolia Environnement, is one of the world’s largest water services companies. Its revenue in 2004 amounted to €9.8 billion and the company employs 67,800 people. In 2005, revenues were up 13.2% to €6.521 billion. Veolia has had a very successful 2005 in all regions. Its European revenues grew most strongly, with 33% growth in the fi rst nine months of 2005, and will grow further on the back of new contracts in Germany, the Czech Republic and Italy. Revenues in the Asia Pacifi c region were up by more than 20%, driven by the start-up of Veolia Water’s Shenzhen contract. US revenues grew more slowly at 8%, while the AIM (Africa-Middle East-Indian subcontinent) region also grew in 2005, but more slowly than the other regions. Veolia Water Solutions and Technology, the Group’s EPC contractor, saw revenues up 8% in 2005. For 2005, Veolia Water’s total revenue in Asia represents 6% of total revenues worldwide. In 2005, Veolia has engaged in a large number of operations and management or consultancy type contracts in countries as diverse as Azerbaijan, Armenia and Saudi Arabia (May 2005) as well as Pakistan and some of China’s more remote inland cities. This refl ects their global strategy of keeping capital risk low while seeking to build the global business. Chinese market In 2004-2005, Veolia emerged as the strongest international player in the Chinese water market. It won 7 new deals in this period, bringing its total number of projects in China to 17 and a total investment of EUR470m in China as of the end of 2005. The company has set a target of 8-10% of total revenues by 2013 for its Chinese activities. In 2005, Veolia signed 4 projects: Kunming, Changzhou, Handan, and Urumqi (with Beijing Capital) while in 2004, Veolia had signed three: Weinan (with Beijing Capital holding a minority stake), Hohhot (with Kerry Utilities holding a minority stake) and Beiyuan in Beijing. In January 2006, Veolia announced a further deal with Sinopec, China’s major oil refi ner for a 25-year wastewater O&M contract. Veolia will carry out the project through a 50-50 JV with a subsidiary of Sinopec, and will operate facilities to collect, treat and recycle industrial wastewater at the Sinopec’s Yanshan site near Beijing. With this new deal, Veolia is hoping to demonstrate that it can break into China’s market for industrial water and wastewater treatment. In contrast to Suez’s strategy of working exclusively with one partner, Veolia has partnered with a number of mainland and Hong Kong- based companies. One of the most important alliances is with the Beijing Capital Company, Veolia’s partner in the massive Shenzhen project. At least two recent deals have been signed with Hong Kong conglomerate CITIC Pacifi c, and CITIC had announced in 2005 that it expected to invest with Veolia in Kunming. However, Veolia is still engaged in negotiations regarding its partner for the Kunming and Handan project. Veolia’s local partners generally provide fi nance but are not involved in operations. The equity investment is usually shared 50-50 with a partner, while the municipality will often hold on to 50% of the utility. Exceptionally, Veolia does not have a private partner for the Shanghai Pudong project where it owns 50% of the utility. In China, Veolia expects to earn returns not from its investment but from its operating contracts, so projects are structured through a Special Purpose Vehicle and a separate O&M contract. Veolia retains a majority stake in the O&M company. While the return on investment may not be particularly high, it is leveraged to get good returns on the O&M contract. Veolia achieves its target of an IRR of 1.3 times its WACC in China. In Asia, Veolia Water’s most signifi cant market outside China is Korea. Important projects in Korea include the Incheon wastewater project, Korea’s fi rst municipal wastewater outsourcing project, as well as signifi cant industrial contracts with major local industrial players.

VE Asia VE South China VE India 22/F., 8 Queen’s Road Central, Unit E919, 9/F Times Square B-1 Marble Arch Hong Kong No. 28 Tian He Bei Road 9 Prithviraj Road HONG KONG SAR Guangzhou 510620 New Delhi 110011 +852 2824 0212 Guangdong CHINA INDIA +86 20 3891 0808 +91 11 2465 1465

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 424 Water Market Asia - Company Proﬁ les: Key Players

South Asia Veolia sees the India market as a very slow developer. It has been involved in a small number of projects so far in the country providing technical assistance and taking on O&M for some pilot projects. Veolia’s EPC subsidiary has a surprisingly small presence in India, in comparison with Degremont, the Suez EPC branch. Veolia Water Solutions set up an offi ce in India at the beginning of 2006. Veolia Water, on the other hand, has been in India for six years but in this time has not managed to secure a major contract. Veolia’s projects in India include a 2-year management contract for Jusco, the utility provider in Jamshedpur, a city dominated by Tata Steel, one of India’s largest industrial companies. The city has a population of 700,000 of which 470,000 are served by Jusco. The project was fi nanced by Tata Steel and concluded in 2005. In Chennai, Tamil Nadu, Veolia has a service contract with the local utility – the CMWSSB (Chennai Metro Water Supply and Sewerage Board). The term of the project has been renewed for the second time to give a total of 3 years. Initially the project was fi nanced by the World Bank. The company’s most challenging project yet, and the one with most potential to have a positive demonstration effect on sceptical Indian consumers and offi cials is a management contract for 5 pilot zones in 3 cities in the state of Karnataka. The 4-year contracts aim to provide 24-hour water supply to areas that currently receive 2-3 hours of service, 2-3 days a week. The contracts, worth EUR4m, are funded under an Indo-French protocol. Veolia Water has recently entered the Pakistan market, one which the company admits that it knows little about as yet. In 2005, Veolia Water Solutions and Technologies signed a design-build agreement with the Capital Development Authority of Islamabad to carry out a major overhaul of the city’s wastewater treatment system, including the refurbishment of two existing facilities and the construction of a new plant. The EUR25m project is being fi nanced under a Franco-Pakistani protocol and is due to be completed in 26 months. Meanwhile, the company’s engineering subsidiary has won a consultancy contract for the city of Lahore to advise the city government on improving effi ciency, reducing water losses etc. This could be the fi rst step towards a contract for private provision of operations and management services in the city. Australia In Australia, Veolia operates through fully owned subsidiary General Water and United Water Australia, a JV with Halliburton. United Water Australia is among the largest private water companies in Australia and New Zealand. Its major projects include O&M contracts for Adelaide and Papakura in Auckland, New Zealand. General Water Australia has a major treatment contract to supply water to Sydney and operates water treatment plants for Coliban Water. In December 2005, Veolia was short-listed for Sydney’s desalination plant project as part of the Freshwater Alliance consortium with Leighton Contractors. Strategy Worldwide, the company’s strategy involves a clear list of priority markets: Europe is in fi rst place, followed by China and the US. Further down the list is the Middle East where Veolia has been bidding aggressively for projects, but South-East Asia and the Indian subcontinent do not form part of the company’s medium-term growth strategy. In the developing world, Veolia has made it clear that it is interested only in projects where it has operational control. However, the company will partner with companies to reduce its own exposure to capital risk. Veolia is committed to working in emerging markets but mainly in O&M type contracts. This is evident already in the deals that Veolia signed in 2005. Senior management have also expressed scepticism about the role of technical assistance or consulting for developing country utilities and argue that integrated, performance-based water and wastewater management is the way forward for the sector in emerging markets. In China, Veolia’s plans to continue its expansion and has signalled an interest in all types of projects and geographical regions, claim- ing that the quality of the project matters more than the average income of the region being invested in. This marks out Veolia from both international and national competitors who are looking only at opportunities in the affl uent coastal and Yangtze Basin regions. Veolia is considering industrial as well as municipal clients on the back of its successful bid for the Sinopec projects, and takes an interest in both water and wastewater projects. In general, Veolia prefers to take part in integrated projects where the company has a role in service delivery and network management, rather than in BOT projects.

425 Water Market Asia - Company Proﬁ les: Key Players

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 426 Water Market Asia - Part 3.2: Other Active Players

Part 3.2: Other Active Players

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Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 428 Water Market Asia - Company Proﬁ les: Other Active Players

Anhui Water Resources

No.21 Heihushan Rd. 2005 FINANCIALS Bangbu Sales (US$m) 118.16 Anhui CHINA Sales 1 yr change (%) 21.18 EBITDA (US$m) 11.20 Contact: Yong Guang Liang, President Net Income (US$m) 3.65 Net Income 1 yr change (%) 20.72 LISTING DATA Acc. Receivables (days) 79.93 Quote Symbol 600502-SH 71.14 Current Market Cap (US$m) Return on Assets 4.15 4.63 Share Price on 24/01/06 (LCU) Return on Equity 6.73 Share Price 52-week high (LCU) 4.82 23.65 PE Ratio Total Assets (US$m) 204.80 0.02 EPS Year End (US$) Total Liabilities (US$m) 138.36 23.87 Dividend Payout (%) Current Ratio 0.66

Employees 2,454

AWR’s core activity is the construction of infrastructure and services in the water, power and transport sectors. The group operates and manages water and power projects and carries out hydroelelectric and irrigation projects, as well as manufacturing, processing and installation in the metals sector. AWR listed on the Shanghai stock exchange in 2003.

Asahi Kasei

1-2 Yurakucho 1-Chome 2005 FINANCIALS Chiyoda-Ku 100-8440 Sales (US$m) 12,049.16 Tokyo Sales 1 yr change (%) 5.02 JAPAN EBITDA (US$m) 1,189.40 +81 3 3507 2060 www.asahi-kasei.co.jp/asahi/en/ Net Income (US$m) 265.99 Net Income 1 yr change (%) 141.43 : Contact Acc. Receivables (days) 65.99 Shiro Hiruta, President Return on Assets 2.59 LISTING DATA Return on Equity 6.74 Quote Symbol 3407-TO 9,217.06 Current Market Cap (US$m) Total Assets (US$m) 11,780.51 513.00 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 7,393.25 827.00 Share Price 52-week high (LCU) Current Ratio 1.42 PE Ratio 18.92 0.19 EPS Year End (US$) Employees 25,011 Dividend Payout (%) 30.38

Asahi Kasei’s principal activity is the manufacture and sale of chemicals. The Chemicals Division is a prominent manufacturer of water and wastewater chemicals for the Japanese and other Asian markets.

The Services & Engineering Division provides plant construction and environmental engineering, systems integration, research and consultancy services. 40% of the company’s sales come from the Chemicals division; 77% of sales are in Japan, 90% across Asia. The MicrozaTM MF microﬁ lter of Asahi Kasei was selected for the Ulu Pandan NEWater Project plant in Singapore.

Asahi Kasei plans to invest up to JPY400bn to ﬁ nance both production facility construction and mergers and acquisitions deals during the next ﬁ ve years. AK’s production facilities are located all over Asia.

More recently, it has been commissioned for the construction of two MBR wastewater treatment plants in China. The company will construct treatment plants for China Petroleum & Chemical Corp. (SINOPEC) and a joint venture operated by China National Offshore Oil (CNOOC) and the Shell Group.

The SINOPEC plant will have a processing capacity of 10,800 tons per day, while the plant for CNOOC/Shell will be able to process 25,000 tons of wastewater per day of wastewater per day. Both plants will go into operation in Spring 2006.

429 Water Market Asia - Company Proﬁ les: Other Active Players

Asia Environment Holdings

No 15-01 SIA Building 2005 FINANCIALS 77 Robinson Road Sales (US$m) 9.79 Singapore 68896 Sales 1 yr change (%) -18.81 SINGAPORE EBITDA (US$m) 2.30 +65 6323 2343 www.asiaenv.com/home.html Net Income (US$m) 1.61 Net Income 1 yr change (%) -58.84 : Contact Acc. Receivables (days) 511.79 Wang Chunlin, Executive Chairman Return on Assets 5.39 LISTING DATA Return on Equity 7.05 Quote Symbol A58-SG 41.08 Current Market Cap (US$m) Total Assets (US$m) 37.27 0.23 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 8.65 0.29 Share Price 52-week high (LCU) Current Ratio 3.25 PE Ratio n/a 0.01 EPS Year End (US$) Employees 467 Dividend Payout (%) 0.00 Asia Environment provides integrated water and wastewater services. AE has delivered turnkey projects as well as consultancy, design, production and supply of equipment, construction and engineering, installation, and commissioning. It also conducts research and development on water and wastewater treatment equipment and techniques. The Manufacturing division produces generic and customised equipment relating to water and wastewater treatment.

Since 2004, AE has been focusing on developing its involvement in Build-Operate-Transfer projects, and has secured 3 projects so far in Nantong, Nanchang and Pizhou in mainland China. Delays and planning problems have considerably delayed these plans.

In 2005, Asia Environment sold half its stake in the Nanchang project to Shanghai Industrial for RMB28m and reduced its stake in the Pizhou project as well after Dayen Group entered the deal in October 2005. So far, BOTs have not brought Asia Environment the kind of success that others have enjoyed.

AE operates predominantly in the PRC.

Australian Water

Level 14, 9 Hunter Street 2005 FINANCIALS PO Box H240, Australia Square Sales (US$m) n/a Sydney 1215 Sales 1 yr change (%) n/a New South Wales AUSTRALIA EBITDA (US$m) n/a +61 2 9224 7900 www.australianwaterservices.com.au Net Income (US$m) n/a Net Income 1 yr change (%) n/a : Contact Acc. Receivables (days) n/a Marc Simon, Managing Director Return on Assets n/a LISTING DATA Return on Equity n/a Quote Symbol n/a n/a Current Market Cap (US$m) Total Assets (US$m) n/a n/a Share Price on 24/01/06 (LCU) Total Liabilities (US$m) n/a n/a Share Price 52-week high (LCU) Current Ratio n/a PE Ratio n/a n/a EPS Year End (US$) Employees n/a Dividend Payout (%) n/a

Australian Water Technologies was established in 1991 and is part of Degrémont (Suez Group). It is the vehicle for Degrémont’s activities in Australia and New Zealand.

Key projects include the Prospect Water Treatment Plant that serves 85% of Sydney’s population, a seawater desalination plant that uses RO technology (Multiplex JV) in Perth and wastewater treatment plants in Noosa and Cronulla, Australia and the Hutt Valley and Mangere (Auckland) wastewater treatment facilities in New Zealand.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 430 Water Market Asia - Company Proﬁ les: Other Active Players

Anglian Water Group

Anglian House 2005 FINANCIALS Ambury Road Sales (US$m) 3,076.01 Huntingdon PE29 3NZ Sales 1 yr change (%) -3.81 Cambridgeshire UK EBITDA (US$m) 717.31 www.awg.com Net Income (US$m) -142.98 : Contact Net Income 1 yr change (%) -25.69 Jonson Cox, CEO Acc. Receivables (days) 77.34

LISTING DATA Return on Assets 1.90 AWG-LN Quote Symbol Return on Equity -8.18 Current Market Cap (US$m) 2,666.35 821.50 Share Price on 24/01/06 (LCU) Total Assets (US$m) 9,983.38 1,124.00 Share Price 52-week high (LCU) Total Liabilities (US$m) 8,698.36 23.10 PE Ratio Current Ratio 1.99 EPS Year End (US$) -0.96 0.00 Dividend Payout (%) Employees 12,823 AWG’s main business is the supply and distribution of water and collection and treatment of wastewater in the UK through Anglian Water. AWG is also involved in building and maintaining infrastructure for utilities, social housing, highways, property markets and projects under the UK’s Private Finance Initiative. Its water operations in the UK serve a population of 6m. Anglian entered the Asian market in 2000 when it made a small investment in Anhui Province in mainland China and in 2001 began two 4- year NRW-reduction contracts in Bangkok valued at GBP50. However, AWG’s largest project, the US$200m Beijing No 10 water treatment plant, signed in 2002, stalled as a result of disagreements over the design of the project and will probably never reach fi nancial close. AWG subsequently reoriented its international strategy away from capital investments. In the past three years, AWG has disposed of or closed its non-core international businesses incurring signifi cant losses of GBP450m, which the company puts down to “the dangers of investing overseas in a large number of disparate countries.” AWG’s subsidiary, Purac, is a process engineering, technology and project management company specialising in water, wastewater and municipal waste treatment that continues to be active worldwide. In 2000, Purac signed a GBP30m contract to build and operate a sewer network and sewage treatment works at Chiangmai, Thailand. In Asia, AWG operated through wholly-owned subsidiaries Purac - Anglian Water Treatment System (Beijing) Co. and Anglian Water Thai- land, AW Pty (Australia) AWI (NZ) and 94% owned Taizhou-Anglian Water Company Ltd. All these assets have now been disposed of. AWI (NZ) was sold to United Water Australia in 2004 along with a 10% stake in an Indonesian BOT. In December 2005, AWG sold assets and operating rights of its Redcliffe (Queensland) and West Wodonga (Victoria) wastewater treatment plants in Australia to Environmental Group Ltd. By the end of 2005, Anglian Water’s only international operations were in Brazil. The company confi rmed that they were contractual discussions to ensure that no operating business would be left in Beijing or Thailand.

Beijing Sound

Sound Environmental Protection Industrial Group 2005 FINANCIALS National Environmental Protection Industrial Area Sales (US$m) n/a Maju Qiao Country, Tongzhou District Sales 1 yr change (%) n/a Beijing 101102 CHINA EBITDA (US$m) n/a +86 1060504736 www.soundgroup.com Net Income (US$m) n/a Net Income 1 yr change (%) n/a : Contact Acc. Receivables (days) n/a Wen Ye Bo, President [email protected] Return on Assets n/a Return on Equity n/a LISTING DATA n/a Quote Symbol Total Assets (US$m) n/a n/a Current Market Cap (US$m) Total Liabilities (US$m) n/a n/a Share Price on 24/01/06 (LCU) Current Ratio n/a Share Price 52-week high (LCU) n/a n/a PE Ratio Employees n/a EPS Year End (US$) n/a Dividend Payout (%) n/a

Beijing Sound provides integrated service covering technological development, engineering, design and construction of water and wastewater projects for industrial and municipal clients. It also operates solid waste projects and designs and manufactures mechanical equipment for the environmental sector. The Group has 4 BOT projects, all in the PRC, with an overall investment exposure of around US$50m. At the end of 2003, the company had an overall asset value of RMB750m and a net asset value of RMB545m. Income from key businesses was RMB693m with proﬁ ts of RMB139m.

431 Water Market Asia - Company Proﬁ les: Other Active Players

Berlinwasser International

Hefei Wang Xiao Ying Sewage Treatment Co. Ltd. 2005 FINANCIALS 669 Hao, Changjiang West Road Sales (US$m) n/a Hefei Sales 1 yr change (%) n/a Anhui CHINA EBITDA (US$m) n/a +86 139 6678 6919 www.berlinwasser.net Net Income (US$m) n/a Net Income 1 yr change (%) n/a : Contact Acc. Receivables (days) n/a Christoph Donner, Director Project Development Return on Assets n/a LISTING DATA Return on Equity n/a Quote Symbol n/a n/a Current Market Cap (US$m) Total Assets (US$m) n/a n/a Share Price on 24/01/06 (LCU) Total Liabilities (US$m) n/a n/a Share Price 52-week high (LCU) Current Ratio n/a PE Ratio n/a n/a EPS Year End (US$) Employees n/a Dividend Payout (%) n/a

Berlinwasser International was originally fully owned by the Berlinwasser Group which is currently owned 50.1% by the City of Berlin, 24.95% by Veolia Water and 24.95% by Thames Water. 80% of the capital was recently acquired by Marubeni of Japan for US$52m, while Berlinwasser Holdings will continue to hold the remaining 20%.

Marubeni intends to use BW International as a springboard for expanding its water activities globally. The company employs 2,500 people in its global operations and BWI projects future revenues from its existing projects of EUR820m. It has a portfolio of 6 projects in China.

Elsewhere in Asia, BWI has been providing technical assistance to the Hanoi wastewater company in Vietnam since 2002 and has carried out a small project in Thailand. The group’s portfolio of projects also includes investments in Albania, Hungary and Azerbaijan.

Boustead Singapore

Number 06-01 Boustead House 2005 FINANCIALS 63 Ubi Avenue 1 Sales (US$m) 135.42 Singapore 408937 Sales 1 yr change (%) 12.95 SINGAPORE EBITDA (US$m) 21.22 : Contact Net Income (US$m) 7.94 Wong Fong Fui, Chairman & CEO Net Income 1 yr change (%) 31.23 Loh Kai Keong, CFO Acc. Receivables (days) 111.86

LISTING DATA Return on Assets 6.24 B04-SG Quote Symbol Return on Equity 18.60 Current Market Cap (US$m) 160.31 0.58 Share Price on 24/01/06 (LCU) Total Assets (US$m) 143.11 1.06 Share Price 52-week high (LCU) Total Liabilities (US$m) 84.35 12.21 PE Ratio Current Ratio 1.15 EPS Year End (US$) 0.04 17.25 Dividend Payout (%) Employees 1,156

The company is 30% owned by its chairman, Wong, since 1996. The company is focused in serving both energy and water clients. One of Boustead’s subsidiary delivered Singapore’s ﬁ rst dual-membrane-based desalination plant to Senoko Power of Singapore in June 2005.

Boustead also owns 79.5% of Salcon. Salcon builds and operates industrial, municipal and waste-water treatment plants, which is Boustead’s second main area of operations after oil & gas. (See Salcon Proﬁ le)

But the Indian and Chinese markets are what the company’s management is really interested in. Through Salcon, the company is pursuing projects in these two market as well as, more recently, Vietnam.

The company also has a BOT project under construction in Yogjakarta, Indonesia.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 432 Water Market Asia - Company Proﬁ les: Other Active Players

Brite Technology

17 & 19 2nd Floor 2005 FINANCIALS Jalan Brunei Barat Pudu Sales (US$m) 3.33 Kuala Lumpur 55100 Sales 1 yr change (%) -20.79 MALAYSIA EBITDA (US$m) 1.01 +60 3 2142 6689 Net Income (US$m) 0.58 : Contact Net Income 1 yr change (%) -22.96 Pang Wee See, Executive Chairman Acc. Receivables (days) 209.19

LISTING DATA Return on Assets 6.89 BTECH-KU Quote Symbol Return on Equity 8.03 Current Market Cap (US$m) 15.88 0.93 Share Price on 24/01/06 (LCU) Total Assets (US$m) 8.89 0.88 Share Price 52-week high (LCU) Total Liabilities (US$m) 1.33 54.79 PE Ratio Current Ratio 6.66 EPS Year End (US$) 0.00 54.07 Dividend Payout (%) Employees 96

Brite-Tech is a company focused on water puriﬁ cation, wastewater treatment and reuse and provides consulting, engineering design, construction, installation and commissioning services. The company is also involved in the rental of portable ion-exchange resin columns, the supply of chemicals and provision of consumer products. Other activities include provision of analytical laboratory and environmental monitoring services. It operates principally in Malaysia. Brite Tech listed on the stock exchange in 2002.

In 2004, Brite Tech acquired a 70% stake in Sincere United Sdn Bhd for RM4.12 million cash. Sincere is involved in the supply of water- treatment chemicals, raw materials used in the manufacture of water distribution pipes for the water industry and raw materials used in pipelines for the oil and gas industry. Sincere has experience of the Chinese market and the acquisition was intended to allow Brite-Tech to expand its operations in China. Brite-Tech has a JV in Xin Yi city, Guangdong for water treatment in partnership with Eco Water Ltd (Singapore). Brite-Tech provides services and products for water treatment for the project, while Eco Water is a specialist system provider for treatment of sewage and industrial wastewater.

System equipment and ancillary products accounted for 53% of 2004 revenues and environmental products & services, 47%. In 2004, sales and net income were down on 2003 and the share price has been falling. Shares have lost half their value over the course of 2005. The company is 45% owned by its Executive Chairman, Pang Wee See.

CDS Technologies

32 Hartnett Drive 2005 FINANCIALS Seaford 3198 Sales (US$m) 42.98 Victoria AUSTRALIA Sales 1 yr change (%) -1.46 +61 2 9645 8000 EBITDA (US$m) 3.76 www.copawater.com.au Net Income (US$m) 3.28 : Contact Net Income 1 yr change (%) 5.32 Mike J. Froud, Chief Executive Acc. Receivables (days) 74.53

LISTING DATA Return on Assets 15.66 CDX-AU Quote Symbol Return on Equity 27.95 Current Market Cap (US$m) 62.33 2.80 Share Price on 24/01/06 (LCU) Total Assets (US$m) 23.86 3.10 Share Price 52-week high (LCU) Total Liabilities (US$m) 8.34 16.62 PE Ratio Current Ratio 1.91 EPS Year End (US$) 0.10 21.23 Dividend Payout (%) Employees 190

CDS Technologies develops, manufactures and sells water and wastewater treatment products. The Group operates in Australia, the United States of America and the United Kingdom. 20% of turnover is generated in Australia. In Australia, the company operates through Copa Water, the result of a merger with Triwater.

Key products and services for the Pacifi c wastewater, stormwater and water recycling markets include a proprietary technology for a non- blocking, non-mechanical screening system and the non-membrane fi ne solids separator for recovering water directly from sewers for recycling. Copa provides turnkey construction and operations and management services. CDS has been building up its sales and profi ts and its future prospects look favourable for further expansion.

433 Water Market Asia - Company Proﬁ les: Other Active Players

China Everbright International

Room 2703 27th/F Far East Finance Centre 2005 FINANCIALS 16 Harcourt Road Sales (US$m) 8.39 Hong Kong Sales 1 yr change (%) -21.97 HONG KONG SAR EBITDA (US$m) 6.30 +852 2804 1886 www.ebchina.com Net Income (US$m) 11.16 Net Income 1 yr change (%) 52.68 : Contact Acc. Receivables (days) 184.90 Wang Mingquan, Executive Chairman Chen Xiaoping, CEO Return on Assets 5.07 Return on Equity 8.69 LISTING DATA 257-HK Quote Symbol Total Assets (US$m) 263.94 156.15 Current Market Cap (US$m) Total Liabilities (US$m) 124.63 0.50 Share Price on 24/01/06 (LCU) Current Ratio 7.16 Share Price 52-week high (LCU) 0.60 n/a PE Ratio Employees 130 EPS Year End (US$) 0.00 Dividend Payout (%) 11.75

China Everbright’s activities are now focused on infrastructure investment and operation. Other activities include property investment, management and development; environmental protection investment; environmental protection project management and consultancy; securities trading and investment holding.

The company has streamlined its activities in the last two years in a successful attempt to improve its proﬁ tability. Operations are carried out in Hong Kong and the PRC. Its two sister companies, China Everbright Ltd (a ﬁ nancial services company) and China Everbright Technology are also listed on the HKSE.

Everbright is an investor in 2 wastewater projects in Qingdao and in Zibo, both in Shandong province.

China Evergreen Environmental

5/F, Guowei Building 2005 FINANCIALS 73 Xianlie Middle Road Sales (US$m) n/a Guanzhou Sales 1 yr change (%) n/a Guangdong CHINA EBITDA (US$m) n/a +86 20 843 2790 Net Income (US$m) n/a : Contact Net Income 1 yr change (%) n/a Acc. Receivables (days) n/a LISTING DATA CEEC-U Quote Symbol Return on Assets n/a n/a Current Market Cap (US$m) Return on Equity n/a Share Price on 24/01/06 (LCU) 0.45 0.43 Share Price 52-week high (LCU) Total Assets (US$m) n/a n/a PE Ratio Total Liabilities (US$m) n/a n/a EPS Year End (US$) Current Ratio n/a Dividend Payout (%) n/a Employees n/a

China Evergreen Environmental Corp. (CEEC) provides wastewater turnkey engineering, equipment and chemical trading, as well as invests, manages and operates its water treatment facilities through build, operate and transfer (BOT) arrangements in the People’s Republic of China (PRC).

The company focuses on developing, as well as applying bio-chemical treatment technology and process for wastewater treatment. CEEC has successfully developed and patented its own wastewater treatment technology, the MHA Biological Treatment Process Technology and GM Bio-Carrier (GMB). CEEC was formerly known as Discovery Investment Inc. until it changed its name in November 2004.

It is involved in 3 wastewater BOTs in the PRC in Shandong, Henan and Hebei provinces.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 434 Water Market Asia - Company Proﬁ les: Other Active Players

China Water Company

19th Floor, Jardine House, Central 2005 FINANCIALS Hong Kong Sales (US$m) n/a HONG KONG SAR Sales 1 yr change (%) n/a +852 2525 8055 EBITDA (US$m) n/a www.chinawater.com.hk Net Income (US$m) n/a : Contact Net Income 1 yr change (%) n/a Carey Anderson, Chairman Acc. Receivables (days) n/a [email protected] Return on Assets n/a LISTING DATA Return on Equity n/a Quote Symbol n/a n/a Current Market Cap (US$m) Total Assets (US$m) n/a n/a Share Price on 24/01/06 (LCU) Total Liabilities (US$m) n/a n/a Share Price 52-week high (LCU) Current Ratio n/a PE Ratio n/a n/a EPS Year End (US$) Employees n/a Dividend Payout (%) n/a

The China Water Company was set up in 1996 and since then has seen a number of different companies invest and divest. Thames Water took a 48.8% interest in June 2002, buying out Laing of the UK (which had previously acquired Hyder’s stake in 2001) for US$20m and injecting a further US$50m of new capital.

In summer 2003, Hongkong Land and Hong Lim Investments sold a combined stake of 46 per cent to Sime Darby (Malaysia) and a company associated with the Kadoorie family of Hong Kong for US$70.4m. Hongkong Land and Hong Lim retain a small minority interest.

CWC was one of the most active players in the PRC water market in 2000-2002. It subsequently restructured its deals to reﬂ ect the government regulation against guaranteed rates of return in foreign invested projects. Since then, the company has signed one further deal, at the end of 2004, for the concession in Fuzhou Economic and Technological Zone.

Citic Paci c

32nd Floor CITIC Tower 2005 FINANCIALS 1 Tim Mei Avenue Central Sales (US$m) 2,947.74 Hong Kong Sales 1 yr change (%) -12.48 HONG KONG SAR EBITDA (US$m) 382.11 +852 2820 2111 www.citicpaciﬁ c.com Net Income (US$m) 460.71 Net Income 1 yr change (%) 174.41 : Contact Acc. Receivables (days) 60.73 Larry Yung Chi, Executive Chairman Return on Assets 6.92 LISTING DATA Return on Equity 9.19 Quote Symbol 267-HK 6,461.91 Current Market Cap (US$m) Total Assets (US$m) 7,660.38 22.10 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 2,569.63 23.95 Share Price 52-week high (LCU) Current Ratio 1.67 PE Ratio 13.96 0.21 EPS Year End (US$) Employees 15,915 Dividend Payout (%) 61.13

Citic Paciﬁ c activities fall into ﬁ ve areas: power and civil infrastructure, communications, marketing and distribution, property and industrial manufacturing. The Power and Civil Infrastructure division constructs power stations; manages and operates plants; constructs transport infrastructure and operates water, wastewater and waste treatment facilities. Civil infrastructure accounted for 25% of turnover in 2003, but only 2% in 2004. 96% of the company’s turnover is in China and Hong Kong.

The company’s ﬁ rst water investment was in Nanjing in 1996. The company did not make any further investments in the sector until it linked up with Veolia for a project in Zunyi (Guizhou) in 2004. The two companies partnered for a second deal in 2005, and a third deal, in Changzhou was announced by Veolia, but CITIC’s participation in the project has not yet been conﬁ rmed.

435 Water Market Asia - Company Proﬁ les: Other Active Players

Eastern Water Resources

9/9 Vipavadeerangsit Road Talad Bangkhen 2005 FINANCIALS Laksi Sales (US$m) 43.52 Bangkok 10210 Sales 1 yr change (%) 33.54 THAILAND EBITDA (US$m) 24.85 +66 2 940 7521 www.eastwater.co.th; www.uu.co.th Net Income (US$m) 10.76 Net Income 1 yr change (%) 26.40 : Contact Acc. Receivables (days) 53.55 Wanchai Lawatanatrakul, President & Chief Executive Return on Assets 9.00 LISTING DATA Return on Equity 15.26 Quote Symbol EASTW-TH 128.81 Current Market Cap (US$m) Total Assets (US$m) 171.28 3.33 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 84.54 4.10 Share Price 52-week high (LCU) Current Ratio 3.65 PE Ratio 10.31 0.01 EPS Year End (US$) Employees 91 Dividend Payout (%) 44.92 Eastern Water Resources Development & Management is a majority publicly owned company providing development and management of water resources and distribution of water to households and industrial customers in the Eastern seaboard region of Thailand. It also offers consultancy services on clean water production and water distribution systems in factories and industrial estates, repairs and supplies all kinds of materials and equipment related to water distribution, and provides consultancy services on the maintenance of water pipelines.

East Water has several JV projects in Thailand. It operates through subsidiaries Global Water, Universal Utilities and Eastern Hobas Pipes Co. (50.00%). Since 2001, Universal Utilities has taken on several contracts for the Provincial Waterworks Authority: Chachoengsao Water Supply Co., Bangpakong Water Supply Co., Nakornsawan Water Supply Co. (a 25-year BOOT contract). Sattahip Water Supply Co. (10- year lease contract) and a contract for RO-desalination for Si Chang island Municipality.

It has a 49%-owned stake in the joint venture UUSG 49.00% and a 15% stake in Egcomtara Co., Ltd. which has a concession for tap water supply and distribution and wastewater in the Ratchaburi-Samut Songkhram areas. East Water’s substantial shareholders include government entities Provincial Waterworks Authority (40.64% of shares), EGCO (18.92%), Industrial Estate Authority of Thailand (4.62%) and private investors State Street Bank and Aberdeen Asset Management Asia.

Eco Water

Blk 15 No 02-08 2005 FINANCIALS Lorong 8 Toa Payoh Sales (US$m) 9.00 Singapore 319262 Sales 1 yr change (%) -18.08 SINGAPORE EBITDA (US$m) -0.11 +65 6255 5779 www.ecowater.com.sg Net Income (US$m) -0.57 Net Income 1 yr change (%) -139.91 : Contact Acc. Receivables (days) 173.03 Tan Joo Chai, Executive MD Return on Assets -4.24 LISTING DATA Return on Equity -7.13 Quote Symbol 5DE-SG 4.25 Current Market Cap (US$m) Total Assets (US$m) 15.48 0.12 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 8.25 0.16 Share Price 52-week high (LCU) Current Ratio 2.88 PE Ratio -1.33 -0.01 EPS Year End (US$) Employees 68 Dividend Payout (%) 0.00 Eco Water provides equipment and services for wastewater treatment and the construction of sewage treatment plants. It operates chieﬂ y in Singapore and Malaysia. Industrial clients include palm oil factories, textile manufacturing plants, food and beverage factories, manufacturers of rubber and latex-related products, recycled paper, and electroplating industries.

The company was originally Malaysian and has its origins in the rubber plantation company Ramatex. Since its separation from Ramatex and listing, it has carried out wastewater treatment projects for housing developments in Malaysia and for rubber and textile manufacturers in Namibia (ramatex investment) and in Thailand (latex business). In India, they have a project for the treatment of bio-medical waste. The company has a fully owned subsidiary in Yunnan, PRC which carries out the group’s hydroelectric projects in China.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 436 Water Market Asia - Company Proﬁ les: Other Active Players

General Electric Water

GE Asia Paciﬁ c 2005 FINANCIALS 10 Tanjong Penjuru Crescent Sales (US$m) 151,299.00 Singapore 608973 Sales 1 yr change (%) 13.26 SINGAPORE EBITDA (US$m) 41,135.00 +65 6267 4885 www.gewater.com Net Income (US$m) 16,592.00 Net Income 1 yr change (%) 6.43 : Contact Acc. Receivables (days) 29.70

LISTING DATA Return on Assets 3.78 GE-N Quote Symbol Return on Equity 20.24 Current Market Cap (US$m) 352,592.99 36.50 Share Price on 24/01/06 (LCU) Total Assets (US$m) 750,330.00 37.34 Share Price 52-week high (LCU) Total Liabilities (US$m) 623,663.00 19.16 PE Ratio Current Ratio 0.85 EPS Year End (US$) 1.59 49.89 Dividend Payout (%) Employees 300,000 Financial information relates to listed parent company GE General Electric is one of the world’s largest companies and operates across a wide range of sectors. In November 2004, GE signalled its interest in the water/environmental technologies sector through the acquisition of membrane technology company Ionics. The company’s vast ﬁ nancial resources have funded a spate of recent acquisitions and it is expected to become a major player in the area of industrial water and wastewater treatment. GE’s water activities are led by the GE Infrastructure and Process Technologies group.

General Electric’s water treatment business is growing at a double-digit rate, and the company says its sales could reach US$10bn in 10 years, up from US$2bn in 2005. Growth will be organic as well as through acquisitions according to Colin Sabol, chief marketing ofﬁ cer at GE Infrastructure Water & Process Technologies.

In mid-2005 the company launched its ‘Ecomagination’ strategy “bring to market new technologies that will help customers meet pressing environmental challenges.” The strategy involves doubling the company’s spending on R&D for environmental technologies to US$1.5bn/ year. GE IPT plans to focus on municipal desalination, reuse and industrial pre-treatment using high-end membrane technology. The development of the water business will be supported by GE’s deep ﬁ nancial resources and its extensive network of sales personnel. The company has been in talks with Zenon, manufacturer of the ZeeWeed membrane bioreactor but no deal has been concluded. GE also plans to increase its share of the ﬂ ow measurement market using in-house technology.

Guangdong Investment

28F and 29/F Guangdong Investment Tower 2005 FINANCIALS 148 Connaught Road Central Sales (US$m) 657.30 Hong Kong Sales 1 yr change (%) -1.07 HONG KONG SAR EBITDA (US$m) 342.48 +852 2860 4368 Net Income (US$m) 147.95 : Contact Net Income 1 yr change (%) 3.88 Zhang Hui, MD Acc. Receivables (days) 38.40

LISTING DATA Return on Assets 4.39 270-HK Quote Symbol Return on Equity 12.05 Current Market Cap (US$m) 2,299.08 2.60 Share Price on 24/01/06 (LCU) Total Assets (US$m) 3,947.01 3.25 Share Price 52-week high (LCU) Total Liabilities (US$m) 2,399.93 15.24 PE Ratio Current Ratio 1.67 EPS Year End (US$) 0.03 11.91 Dividend Payout (%) Employees 3,623 Guangdong Investment is a red chip company - a majority state owned conglomerate listed in Hong Kong. GI has interests in water, power and transport infrastructure; department stores and hotel operation; and property development. Operations are carried out in mainland China.

GI’s most proﬁ table business is Dongshen Water Supply which sells raw water to Hong Kong, and the cities of Shenzhen and Dongguan, In the year to 2004, water sales generated HK$1.7bn in revenue, up 8% on the previous year, and accounted for 64% of total sales. Rev- enues were up on the back of increases in water tariffs in the mainland cities of Shenzhen and Dongguan. 2005 was a successful year for the company with net proﬁ ts up 50%.

437 Water Market Asia - Company Proﬁ les: Other Active Players

Hong Kong & China Gas Company

23rd Floor 2005 FINANCIALS 363 Java Road Sales (US$m) 1,049.05 North Point Sales 1 yr change (%) 11.87 HONG KONG SAR EBITDA (US$m) 516.69 : Contact Net Income (US$m) 392.62 Alfred Chan Wing Kin, MD Net Income 1 yr change (%) 0.03 Acc. Receivables (days) 73.16 LISTING DATA 3-HK Quote Symbol Return on Assets 14.05 12,123.99 Current Market Cap (US$m) Return on Equity 18.56 Share Price on 24/01/06 (LCU) 16.05 17.50 Share Price 52-week high (LCU) Total Assets (US$m) 3,023.92 30.54 PE Ratio Total Liabilities (US$m) 742.44 0.07 EPS Year End (US$) Current Ratio 1.73 Dividend Payout (%) 64.66 Employees 9,715

The Group’s principal activities are the production, distribution and marketing of gas and related activities in Hong Kong. Other activities include investment holding, infrastructure investment, building contracting, group ﬁ nancing, appliance testing, restaurant and property development. Recently, Towngas has been moving into the water and wastewater sectors.

In mid-2005, Towngas announced an investment of RMB970m through a municipal joint venture for water service supply in Wujian (Jiangsu). Towngas has an 80% stake in the Huayan Water JV. Towngas management is looking for long-term projects, offering low risk and stable returns, most probably in the richer coastal areas of the mainland - it has expressed its intention to expand and is in discussions with other cities for water treatment and supply contracts.

In January 2006, Towngas was involved in BOO/BOT projects in China, in Wuhu, Wujiang and Suzhou.

Intan Utilities

11th Floor Menara Berjaya 2005 FINANCIALS KL Plaza 179 Jalan Bukit Bintang Sales (US$m) 26.36 Kuala Lumpur 55100 Sales 1 yr change (%) 27.31 MALAYSIA EBITDA (US$m) 11.70 +60 3 2935 8888 (Berjaya) www.intan.com.my Net Income (US$m) 3.10 Net Income 1 yr change (%) 82.77 : Contact Acc. Receivables (days) 57.43

LISTING DATA Return on Assets 5.35 INTAN-KU Quote Symbol Return on Equity 7.45 Current Market Cap (US$m) 142.29 1.44 Share Price on 24/01/06 (LCU) Total Assets (US$m) 63.93 3.72 Share Price 52-week high (LCU) Total Liabilities (US$m) 15.72 n/a PE Ratio Current Ratio 2.03 EPS Year End (US$) 0.03 32.75 Dividend Payout (%) Employees 513

Intan Utilities is principally involved in manufacturing, distribution and trading of semiconductor components. However, it was one of the ﬁ rst private companies to enter Malaysia’s water sector in the mid-1990s in a water supply and distribution contract in Perak state. Operations are carried out in Malaysia, the United States of America and Japan.

In 2004, Veolia sold its 30% stake in the business to existing shareholders, triggering a restructuring of the business. Intan then shifted its focus and in the following year acquired retail interests that have increased company revenues 5-fold. As of the beginning of 2006, Intan was planning to divest its proﬁ table water interests to focus on the retail sector but did not have any interested buyers.

Intan is controlled by business tycoon Vincent Tan who heads the Berjaya Group of companies, one of Malaysia’s major business groups with annual revenue of almost RMB3bn. The diversiﬁ ed group has interests in ﬁ nancial services, retail, travel and tourism, construction and other services.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 438 Water Market Asia - Company Proﬁ les: Other Active Players

Interchina Holdings Company

45th Floor Far East Finance Centre 2005 FINANCIALS 16 Harcourt Road Admiralty Sales (US$m) 11.48 Hong Kong Sales 1 yr change (%) 25.89 HONG KONG SAR EBITDA (US$m) 2.71 +852 2528 9910 Net Income (US$m) -3.38 : Contact Net Income 1 yr change (%) -275.24 Zhang Yang Richard, Executive Chairman Acc. Receivables (days) n/a

LISTING DATA Return on Assets -0.43 202-HK Quote Symbol Return on Equity -3.34 Current Market Cap (US$m) 12.69 0.22 Share Price on 24/01/06 (LCU) Total Assets (US$m) 219.73 0.24 Share Price 52-week high (LCU) Total Liabilities (US$m) 118.73 -1.24 PE Ratio Current Ratio n/a EPS Year End (US$) 0.00 0.00 Dividend Payout (%) Employees 340 Interchina Holdings is a diversifi ed company listed on the HKSE with business activities in mainland China. The company’s principal activities are property development and fi nancial services but it is also involved in water treatment and environmental protection services, city development, infrastructure and construction. The environment business makes up only 3% of the group’s turnover. ICH’s fi rst water supply project for Hangzhou City, Shaanxi, was completed in 2003. The company has invested in a second BOT project for wastewater treatment in Hebei.

In 2003, ICH increased its shareholding in Interchina Aihua (Tianjin) Municipal & Environmental Engineering Co to 90%. The company is intended to serve as a platform for ICH to extend its activities in the water sector. The company has also entered into an agreement with the Anhui Provincial Government giving ICH preferred status for all future projects in various cities in Anhui. ICH is prioritising medium-sized projects to deliver a reliable revenue stream for the company. In 2005, ICH secured a further contract for the construction and operation of two wastewater plants in Zhouzhou, Hebei with an investment value of US$15m. The projects will be carried out by ICH’s 93%-owned subsidiary Inter-China Water Treatment Ltd.

Jaks Resources

Lot 526, Persiaran Subang Permai Sungai 2005 FINANCIALS Penaga Industrial Park Sales (US$m) 57.17 Subang Jaya 47500 Sales 1 yr change (%) n/a Selangor MALAYSIA EBITDA (US$m) 6.96 : Contact Net Income (US$m) 8.52 Ang Lam Poah, CEO & MD Net Income 1 yr change (%) n/a Acc. Receivables (days) n/a LISTING DATA JKRBFJKRBF QQuoteuote SSymbolymbol Return on Assets n/a 60.10 Current Market Cap (US$m) Return on Equity n/a Share Price on 24/01/06 (LCU) n/a n/a Share Price 52-week high (LCU) Total Assets (US$m) 156.29 25.00 PE Ratio Total Liabilities (US$m) 41.99 0.03 EPS Year End (US$) Current Ratio 1.62 Dividend Payout (%) 0.00 Employees 286

Jaks Resources is principally a manufacturer of pipes and steel hollow sections. It is involved in water supply construction projects, including the construction of reservoirs, water reticulation works and pipe laying. Jaks construction activities include sub-contracting, general contracting and supply of building materials. It produces and sells a range of steel products for water supply and other purposes.

The company operates primarily in Malaysia but also has interests in China. In 2005, the company was awarded a concession to provide water services in Weifang City, Shandong. The 50-year water concession provides for a JV, Weifang-JAKS Beihei Water Management Ltd Co, to supply treated water for industrial use in the city. Jaks holds a 75% equity interest in the JV. The balance is owned by local utility Weifang Beihei Water.

Jaks has signed two other deals in China: the Weifang Port Extension project and a project to clean up the Bailing River.

439 Water Market Asia - Company Proﬁ les: Other Active Players

Keppel

No 18-01 Keppel Bay Tower 2005 FINANCIALS 1 HarbourFront Avenue Sales (US$m) 2,427.89 Singapore 98632 Sales 1 yr change (%) -33.36 SINGAPORE EBITDA (US$m) 379.37 +65 6267 6800 (Keppel Seeghers Engineering) www.kepcorp.com Net Income (US$m) 286.40 Net Income 1 yr change (%) 17.45 : Contact Acc. Receivables (days) 105.42 Lim Chee Onn, Executive Chairman Return on Assets 4.90 LISTING DATA Return on Equity 16.15 Quote Symbol K02-SG 6,125.93 Current Market Cap (US$m) Total Assets (US$m) 6,432.21 8.60 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 3,829.01 13.30 Share Price 52-week high (LCU) Current Ratio 1.19 PE Ratio 21.93 0.37 EPS Year End (US$) Employees 22,186 Dividend Payout (%) 26.57

Keppel Corporation is one of Singapore’s largest companies. It is engaged in offshore oil-rig construction, shipbuilding, ship repair and conversion, infrastructure and property development. In the infrastructure sector, Keppel is involved in network and utilities engineering services and power generation.

Keppel Integrated Engineering Ltd (KIE), the environmental engineering division of KC, provides technologies and services for the treatment of municipal solid waste, hazardous waste, wastewater, potable water and biosolids. It was awarded the contract for Singapore’s largest water reuse project, a 20-year DBOO contract for the Ulu Pandan plant. The plant will produce 116,000 m3/day of recycled water and 46,000m3/day of industrial water on completion, and employs membrane technology. The technology was developed by KIE’s R&D subsidiary, Seghers Keppel Technology Group (Belgium) and has been used in plants in the Netherlands and Belgium. KIE’s expected revenue for its work on the plant is SG$300 million from its completion in 2006.

Through Ulu Pandan, KIE intends to establish itself as a key turnkey contractor in the water sector on the back of its in-house technologies; the Unibrane membrane bioreactor, which reduces necessary plant size and has municipal and industrial applications and its Unitank wastewater treatment system. Offshore and marine activities account for the bulk of KC’s business at 60% of revenues in 2004 while infrastructure accounted for 19% but the water sector is a growth area for KIE.

Kobelco Eco-Solutions

4-78 Wakinohama-Cho 1-Chome 2005 FINANCIALS Chuo-Ku 651-0072 Sales (US$m) 481.92 Kobe Sales 1 yr change (%) 82.85 JAPAN EBITDA (US$m) 19.99 +81 78 232 8018? www.kobelco-eco.co.jp/english/engindex.htm Net Income (US$m) 1.51 Net Income 1 yr change (%) 110.27 : Contact Acc. Receivables (days) 151.98 Hiroshi Fukada, Senior MD Return on Assets 0.65 LISTING DATA Return on Equity 0.64 Quote Symbol 6299-OK 204.84 Current Market Cap (US$m) Total Assets (US$m) 496.68 230.00 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 364.44 340.00 Share Price 52-week high (LCU) Current Ratio 1.10 PE Ratio 22.42 0.03 EPS Year End (US$) Employees 952 Dividend Payout (%) 0.00 Kobelco Eco-Solutions (formerly known as Shinko Pantec) manufactures industrial plant and machinery in the water, waste, chemicals and food production sectors and other environmental equipment. Its wastewater treatment systems are mainly for industrial clients in the steel sector. KES has developed innovative technologies used in a variety of industrial processes, for the use of byproducts from sewerage treatment and for the production of pure hydrogen from water, the High-purity Hydrogen-oxygen Generator.

KES is a subsidiary of Kobe Steel, one of Japan’s major industrial companies. The company was created in 2003 when Kobe Steel and wholly owned subsidiary Shinko Pantec merged their environmental activities to form a single company that would be well placed to expand in the growing market for environmental solutions and technologies.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 440 Water Market Asia - Company Proﬁ les: Other Active Players

Kurita Water

4-7 Nishi-Shinjuku 3-Chome 2005 FINANCIALS Shinjuku-Ku 160-8383 Sales (US$m) 1,411.25 Tokyo Sales 1 yr change (%) 3.67 JAPAN EBITDA (US$m) 180.85 +81 3 3347 3111 www.kurita.co.jp/english Net Income (US$m) 81.17 Net Income 1 yr change (%) 54.20 : Contact Acc. Receivables (days) 154.56 Tomiaki Ishida, Senior MD Return on Assets 4.99 LISTING DATA Return on Equity 6.86 Quote Symbol 6370-TO 2,817.24 Current Market Cap (US$m) Total Assets (US$m) 1,742.90 1,474.00 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 496.14 2,865.00 Share Price 52-week high (LCU) Current Ratio 2.77 PE Ratio 36.23 0.62 EPS Year End (US$) Employees 3,383 Dividend Payout (%) 24.36

Kurita Water Industries is Japan’s largest manufacturer of water treatment equipment. Its water-related activities include equipment for industrial wastewater treatment, sewerage, leisure use, water puriﬁ cation and construction, engineering and related maintenance services. In its water supply business, Kurita installs ultrapure water production systems and other equipment at customers’ factories and uses it to provide processed water. Kurita retains ownership of the equipment after installation and provides upkeep and maintenance services. Water treatment equipment makes up two-thirds of turnover, with the rest generated by the water chemicals business. In 2005, Kurita Water Industries announced plans to expand its ultrapure-water supply business for industrial clients.

In fi scal 2005, Kurita will have made capital investments of around JPY12bn (US$102m) on water processing equipment for liquid crystal and semiconductor manufacturers. Kurita intends to strengthen the long-term contracting side of its business as a stable profi t source. In 2006, the company hopes to raise sales from the operations to over JPY9bn, which would constitute a 64% increase on 2005’s expected result. The company owns proprietary technologies in several other areas, including a technology for the aerobic digestion of organic sludge. Kurita withdrew from the municipal wastewater sector several years ago after accusations of corruption and has since focused exclusively on solutions for private sector clients. Kurita is active in the Chinese market where it planned to generated sales of JPY1bn through chemicals sales in fi scal 2005. Kurita has been selling general-purpose water treatment products in China but planned to move into tailored industrial products in response to vigorous price competition from local suppliers. The company generates 86% of sales in Japan and 12% elsewhere in Asia.

Ludowici

12 Victoria Avenue 2005 FINANCIALS Castle Hill 2154 Sales (US$m) 93.26 New South Wales AUSTRALIA Sales 1 yr change (%) 27.42 +61 2 9634 0016 EBITDA (US$m) 10.63 www.ludoenviron.com Net Income (US$m) 4.51 : Contact Net Income 1 yr change (%) 23.25 Glenn T. Turner, CEO & MD Acc. Receivables (days) 46.25

LISTING DATA Return on Assets 8.37 LDW-AU Quote Symbol Return on Equity 11.42 Current Market Cap (US$m) 84.82 4.46 Share Price on 24/01/06 (LCU) Total Assets (US$m) 68.79 7.45 Share Price 52-week high (LCU) Total Liabilities (US$m) 26.56 15.26 PE Ratio Current Ratio 1.47 EPS Year End (US$) 0.28 76.34 Dividend Payout (%) Employees 491

Ludowici is a diversiﬁ ed industrial company. Its water sector activities are carried out through wholly-owned subsidiary Ludowici Environ- mental (formerly Acron Noble) which was acquired in 2002. In addition to supplying equipment, LE is an integrated service supplier offering transportable systems, leasing and BOO/BOOT structures with a focus on small wastewater systems serving 40-5000 people.

In 2005, LE acquired Queensland company Watergates sp Pty Ltd which specialises in the design, fabrication and marketing of water control gates used in municipal STPs and natural and man made waterways including irrigation. The purchase is expected to add AU$3m in sales per annum. Ludowici has operations in Australia, New Zealand and the USA and sells its products throughout the world.

441 Water Market Asia - Company Proﬁ les: Other Active Players

Maezawa

7-2 Yaesu 2-Chome 2005 FINANCIALS Chuo-Ku Sales (US$m) 339.44 Tokyo 104-8351 Sales 1 yr change (%) -2.66 JAPAN EBITDA (US$m) 12.95 +81 3 3281 5521 www.maezawa.co.jp/index_e.html Net Income (US$m) 5.27 Net Income 1 yr change (%) 111.35 : Contact Acc. Receivables (days) 102.62 Takashi Yuishiro, Senior MD Return on Assets 1.23 LISTING DATA Return on Equity 2.55 Quote Symbol 6489-TO 161.29 Current Market Cap (US$m) Total Assets (US$m) 441.19 605.00 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 223.71 1,078.00 Share Price 52-week high (LCU) Current Ratio 1.57 PE Ratio n/a 0.25 EPS Year End (US$) Employees 917 Dividend Payout (%) 28.82 Maezawa manufactures and markets water puriﬁ cation, supply and sewage treatment equipment. The equipment includes water treatment plants, sludge treatment equipment, valves, and gates. The Group is also involved in the related construction works. Maezawa is a key player in the construction and commissioning of plant in the Japanese municipal water and wastewater markets.

Maezawa also has a strong R&D capability and has developed a process for extracting phosphates from sewage for use as fertiliser in collaboration with Hitachi Plant Engineering and Construction Company. The group sustained a net loss in 2005, as in 2003, on declining sales, the result of tight municipal budgets and the company’s failure to win any large-lot contracts.

Multi-CON Systems

Number 03 - B 2005 FINANCIALS 69 Sungei Kadut Drive Sales (US$m) 42.84 Singapore 729568 Sales 1 yr change (%) 11.52 SINGAPORE EBITDA (US$m) 5.67 +65 6891 6119 www.multicon.com.sg Net Income (US$m) 2.28 Net Income 1 yr change (%) 0.76 : Contact Acc. Receivables (days) 143.83 Chan Siew Hoong, Executive Chairman Return on Assets 9.90 LISTING DATA Return on Equity 42.42 Quote Symbol 5GN-SG 3.34 Current Market Cap (US$m) Total Assets (US$m) 35.75 n/a Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 27.64 n/a Share Price 52-week high (LCU) Current Ratio 1.05 PE Ratio 2.81 0.02 EPS Year End (US$) Employees 389 Dividend Payout (%) 0.00 Multi-Con Systems is a specialist engineering company based in Singapore providing construction engineering and consultancy services. In the last few years, it has developed its water and wastewater treatment business and offers design, build, commissioning and O&M services in the sector in an effort to diversify out of Singapore’s stagnant construction sector.

In 2002, MCS became involved in the treatment of water in Cambodia for municipal and industrial use, including the commissioning of primary water treatment systems. The Group operates in Singapore, Malaysia, India, Thailand, and Cambodia. MCS listed on the stock exchange in May 2005. The IPO brought in net proceeds of about SG$2.6 million which is funding the expansion of MCS’ engineering business in Thailand and Vietnam and the water treatment business in Cambodia. Group revenue increased by 12% to SG$69.9m FY 2004, driven by higher earnings in the structural engineering section of the business.

In 2004, MCS acquired New Con Pte. Ltd. which contributed a further SG$0.5m to revenues during the year. MCS is pursuing a strategy of overseas expansion, focusing on specialist engineering activities in Thailand and Vietnam. Water treatment is the second most important business segment for the group. MCS is one of the largest private operators in the Cambodian water sector through its water treatment plant in Korthan Village, 4 DBO contracts and 3 DBL contracts secured under the Cambodia Provincial and Peri-Urban Water Supply and Sanitation Project funded by the World Bank. The company plans to take over the management, operation and upgrading of a plant in Kampong Chhnang Town from the Cambodian government. Construction on the DBO projects has begun while the 3 DBL contracts are in the design stage. Construction works for the DBOs are expected to be completed in 2006 or early 2007.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 442 Water Market Asia - Company Proﬁ les: Other Active Players

Nanhai Developments

No 43 Guicheng Nangui East Road 2005 FINANCIALS Nanhai District, Sales (US$m) 32.91 Foshan City 528200 Sales 1 yr change (%) 6.66 Guangdong CHINA EBITDA (US$m) 20.13 : Contact Net Income (US$m) 8.64 Hu Rong Qiang, President Net Income 1 yr change (%) 11.65 Acc. Receivables (days) 1.31 LISTING DATA 600323-SH Quote Symbol Return on Assets 8.00 227.63 Current Market Cap (US$m) Return on Equity 9.25 Share Price on 24/01/06 (LCU) 7.45 9.19 Share Price 52-week high (LCU) Total Assets (US$m) 129.11 n/a PE Ratio Total Liabilities (US$m) 32.11 0.04 EPS Year End (US$) Current Ratio 0.63 Dividend Payout (%) 58.31 Employees 331

The Nanhai Development Co. is a trading, property development and infrastructure company. It moved into the construction of bridges and roads in 1999 and has since focused increasingly on its activities in the production and supply of running water and the development of water treatment facilities.

NDC provides design, installation and technology consultancy services in the sector. It has two projects in Nanhai for the construction of water treatment plants and plans to expand its water supply business further and to move into the growing wastewater sector. In 2004, the Bill & Melinda Gates Foundation bought more than 500k shares in Nanhai Development, becoming the group’s 9th largest shareholder.

New World Development Company

30th Floor New World Tower 2005 FINANCIALS 18 Queen’s Road Central Sales (US$m) 3,288.94 Hong Kong Sales 1 yr change (%) 21.83 HONG KONG SAR EBITDA (US$m) -208.95 +852 2131 3823 www.nwsh.com.hk/eng/home/ﬂ ag_overview.asp Net Income (US$m) -125.16 Net Income 1 yr change (%) 79.71 : Contact Acc. Receivables (days) 129.44 Cheng Yu-Tung, Executive Chairman Return on Assets -0.26 LISTING DATA Return on Equity -1.86 Quote Symbol 17-HK 4,976.02 Current Market Cap (US$m) Total Assets (US$m) 14,383.43 8.70 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 5,639.29 13.20 Share Price 52-week high (LCU) Current Ratio 2.02 PE Ratio 12.67 -0.04 EPS Year End (US$) Employees 30,000 Dividend Payout (%) n/a

New World Development Co is a diversiﬁ ed conglomerate based in Hong Kong. In 1997, New World acquired Chow Tai Fook Enterprises’ 50 per cent stake in Sino-French Holdings for HK$1 billion and became Suez’ partner.

It owns 50% of the JV Sino-French Holdings with Suez which is the investment vehicle for the group’s water activities in mainland China, where it was involved in 17 projects in December 2005, including the Macao concession and in Shanghai industrial parks. NWDC was instrumental in shaping Suez’ strategy in the PRC. The partners have been investing in small-scale diversiﬁ ed projects for the past seven years and are now looking at distribution-oriented, bigger deals in China’s most afﬂ uent cities such as Dalian or Tianjin.

In addition to infrastructure, NWDC’s principal activities are the provision of construction and engineering services, telecoms, department stores, property development, tourism facilities and services. A third of the group’s turnover is generated in mainland China, with the rest coming from activities in Hong Kong. New World is a well established investor in the Chinese water sector, but overall the share of infrastructure in group revenues has been declining in the last few years.

443 Water Market Asia - Company Proﬁ les: Other Active Players

Obayashi

4-33 Kitahama Higashi 2005 FINANCIALS Chuo-Ku Sales (US$m) 12,940.81 Osaka 540-0031 Sales 1 yr change (%) 0.39 JAPAN EBITDA (US$m) 519.80 +81 3 5769 1014 (inv rel) www.obayashi.co.jp/english Net Income (US$m) 203.71 Net Income 1 yr change (%) 578.39 : Contact Acc. Receivables (days) 113.92 Norio Wakimura, President Return on Assets 1.26 LISTING DATA Return on Equity 8.15 Quote Symbol 1802-TO 5,478.68 Current Market Cap (US$m) Total Assets (US$m) 17,445.26 646.00 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 13,956.12 958.00 Share Price 52-week high (LCU) Current Ratio 0.87 PE Ratio 25.80 0.28 EPS Year End (US$) Employees 13,695 Dividend Payout (%) 20.37 Obayashi is a construction and engineering fi rm in the top 5 general contractors in Japan. Civil engineering activities are carried out by the construction division which also covers residential and non-residential construction. Like other Japanese companies, Obayashi has been faced with a tough operating environment due to the decline in public projects. However, private project orders are improving. The company plans to aggressively promote sales in the fi elds of environmental renewal, urban development and large-scale overseas projects and to develop a new profi t base in PFI (Private Finance Initiative).

In Japan, Obayashi has achieved a leading position in the PFI market winning orders for nine PFI projects. Outside Japan, Obayashi has recently carried out major civil engineering projects in Singapore, Taiwan, China, Thailand and Laos. In the environmental sector, Obayashi carries out remediation for soil and underground water contamination, water recovery and sludge treatment services, construction of water and wastewater treatment plants and organic waste reuse activities. It has recently carried out reservoir and discharge projects. 90% of the group’s turnover comes from business in Japan.

The bulk of the group’s turnover and profi ts come from its construction activities. Turnover for construction in the year to March 2005 stood at JPY1349bn and profi ts were JPY37.5bn in the same period, constituting 96% and 85% of total turnover and profi t respectively. Obayashi is currently constructing Japan’s largest seawater desalination plant in Fukuoka Prefecture using RO technology.

Organo

2-8 Shinsuna 1-Chome 2005 FINANCIALS Koto-Ku Sales (US$m) 665.27 Tokyo 136-8631 Sales 1 yr change (%) 3.69 JAPAN EBITDA (US$m) 48.66 +81 3 5635 5100 www.organo.co.jp/english/ Net Income (US$m) 19.13 Net Income 1 yr change (%) 35.65 : Contact Acc. Receivables (days) 159.09 Kiyoshi Hashimoto, President Return on Assets 2.90 LISTING DATA Return on Equity 6.77 Quote Symbol 6368-TO 433.42 Current Market Cap (US$m) Total Assets (US$m) 736.95 542.00 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 440.35 945.00 Share Price 52-week high (LCU) Current Ratio 1.42 PE Ratio 30.33 0.32 EPS Year End (US$) Employees 1,387 Dividend Payout (%) 23.22 Organo offers water and wastewater treatment products and services to industrial and municipal customers. It is a relatively small company. Organo’s clients include thermal and nuclear power stations, electronics, semiconductor and liquid crystal manufacturers who require high quality water for production. Products include ultrapure water systems, desalination systems and high-speed ﬁ ltration equipment as part of the water treatment equipment division. The municipal section offers a full range of wastewater treatment technologies for treatment and reuse.

For industrial customers, Organo offers tailored systems to treat and discharge wastewater such as closed systems, treatment systems for semiconductor manufacturers, power stations wastewater treatment, denitriﬁ cation and dephosphorization systems. Wastewater treatment accounts for about 80% of the company’s turnover. Organo’s business is carried out principally in Japan but the group has subsidiary companies in several Asian countries and in the UK.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 444 Water Market Asia - Company Proﬁ les: Other Active Players

Passavant Roedinger

Beijing Representative Ofﬁ ce Rm.D6A, Block D, Fuhua Mansion 2005 FINANCIALS No. 8 Chaoyangmenbei Ave., Dongcheng District Sales (US$m) 7,391.16 Beijing 100027 Sales 1 yr change (%) 19.24 CHINA EBITDA (US$m) 273.88 +86 1065 5440 20 www.passavant-roediger-anlagenbau.de Net Income (US$m) 69.59 Net Income 1 yr change (%) -59.33 : Contact Acc. Receivables (days) 73.49

LISTING DATA Return on Assets 2.03 GBF-FF Quote Symbol Return on Equity 4.59 Current Market Cap (US$m) 1,734.60 30.10 Share Price on 24/01/06 (LCU) Total Assets (US$m) 4,903.97 46.22 Share Price 52-week high (LCU) Total Liabilities (US$m) 3,367.40 28.79 PE Ratio Current Ratio 1.09 EPS Year End (US$) 1.89 93.16 Dividend Payout (%) Employees 49,852 Financial information relates to listed parent company Bilginger Berger

Passavant is a 100% owned subsidiary of Bilﬁ nger Berger, a large engineering group based in Germany, and is active in the construction of water and wastewater facilities in China and elsewhere in Asia. Water and wastewater activities are carried out by group subsidiary Passavant-Roedinger which is an established international operator.

Passavant has established a strong competitive reputation in the Chinese wastewater market. Prominent projects include a 600,000m3/day treatment plant in Hangzhou, two plants in Kunming serving a population of 370,000, the massive Jining wastewater plant (1.15 million pe) and the Tengzhou wastewater plant in Shandong. 26% of the Bilginger Group’s revenue comes from Asia-Paciﬁ c and 4% of the group’s overall revenue came from environmental services.

PBA Holdings

32nd Floor Komtar 2005 FINANCIALS Georgetown 10000 Sales (US$m) 40.46 Penang MALAYSIA Sales 1 yr change (%) 3.20 +60 4 263 4200 EBITDA (US$m) 19.06 www.pba.com.my Net Income (US$m) 10.48 : Contact Net Income 1 yr change (%) -1.96 Koh Tsu Koon, Executive Chairman Acc. Receivables (days) 64.88

LISTING DATA Return on Assets 5.48 PBA-KU Quote Symbol Return on Equity 8.11 Current Market Cap (US$m) 131.40 1.82 Share Price on 24/01/06 (LCU) Total Assets (US$m) 204.61 1.72 Share Price 52-week high (LCU) Total Liabilities (US$m) 69.20 n/a PE Ratio Current Ratio 1.81 EPS Year End (US$) 0.03 41.55 Dividend Payout (%) Employees 1,025

PBA Holdings is the holding company for Penang’s water concessionaire. The company is majority owned by the Penang state government and was listed on the Malaysian stock exchange in 2002. It is regarded as one of Malaysia’s most efﬁ cient water companies offering low tariffs and achieving low rates of NRW.

PBA has expressed concerns about the plan to harmonise tariffs across Malaysia as part of the federal government’s restructuring of the water sector fearing that this will mean an increase in tariffs in Malaysia. Low tariffs are seen as a pull factor for manufacturing investment which drives the economy of Penang. In 2003, the group entered into two contracts for the construction of water treatment plant in Xiangji Province in China (Yi Chun) but its investment strategy has not been aggressive.

The company’s board is headed by the State’s chief executive and is concerned to balance the quality and cost of service to consumers in Penang with the interests of its ﬁ nancial investors. It has not pursued any further activities in the mainland Chinese market.

445 Water Market Asia - Company Proﬁ les: Other Active Players

PJ Bumi

Lot 1-3-1 Wisma Prima Peninsular 2005 FINANCIALS Jalan Setiawangsa 11 Taman Setiawangsa Sales (US$m) 18.32 Kuala Lumpur 54200 Sales 1 yr change (%) -11.32 MALAYSIA EBITDA (US$m) 2.57 : Contact Net Income (US$m) 0.76 Ahmad Muhammad, Executive Chairman Net Income 1 yr change (%) -74.61 Acc. Receivables (days) 240.43 LISTING DATA PJBUMI-KU Quote Symbol Return on Assets 3.00 5.29 Current Market Cap (US$m) Return on Equity 3.86 Share Price on 24/01/06 (LCU) 1.37 2.12 Share Price 52-week high (LCU) Total Assets (US$m) 39.02 n/a PE Ratio Total Liabilities (US$m) 18.62 0.02 EPS Year End (US$) Current Ratio 1.17 Dividend Payout (%) n/a Employees 520

PJBumi Bhd, formerly known as Pembinaan Jayabumi (Sarawak), is involved in the design, manufacture, trade, installation, construction and maintenance of sewerage treatment systems and plants, ﬁ bre reinforced plastic products, petroleum storage tanks and environmental services. Operations of the company are carried out mainly in Malaysia.

In 2005, the group set up a 60%-owned JV with the Khartoum Water & Services Company to bid for a wastewater treatment project in Sudan’s capital.

QED Occtech

23 Wheeler Street 2005 FINANCIALS Belmont 6104 Sales (US$m) 2.40 Western Australia AUSTRALIA Sales 1 yr change (%) 11.18 +61 8 9416 0500 EBITDA (US$m) -3.26 www.qedocctech.com Net Income (US$m) -4.25 : Contact Net Income 1 yr change (%) -112.23 Douglas H. Miller, Executive Chairman Acc. Receivables (days) 71.37

LISTING DATA Return on Assets -59.16 QED-AU Quote Symbol Return on Equity -63.32 Current Market Cap (US$m) 7.45 0.01 Share Price on 24/01/06 (LCU) Total Assets (US$m) 3.28 0.08 Share Price 52-week high (LCU) Total Liabilities (US$m) 0.71 -3.73 PE Ratio Current Ratio 1.02 EPS Year End (US$) -0.02 0.00 Dividend Payout (%) Employees n/a

QED Occtech is an Australian technology company working in the areas of waste water treatment and biomass/biosolids management offering integrated solutions to industrial clients. It develops technologies in-house for commercialisation. It operates primarily in Australia and also has activities in the US, Malaysia and Japan.

Its wastewater treatment plants are designed to recover water, and other valuable components from the waste stream for use or the extraction of components that may have an adverse impact on the environment or subsequent processing operations to meet environmental discharge standards.

Its clients are drawn from agricultural and primary industry, food and beverages, industrial, mining and mineral processing and selected parts of the municipal sector.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 446 Water Market Asia - Company Proﬁ les: Other Active Players

Qianjiang Water

No 47 Chishan Bu Road 2005 FINANCIALS Hangzhou City 310013 Sales (US$m) 19.01 Zhejiang CHINA Sales 1 yr change (%) -27.97 +86 571 8797 4386 EBITDA (US$m) 10.19 www.qjwater.com Net Income (US$m) 2.00 : Contact Net Income 1 yr change (%) -42.72 Zhang Di Sheng, President Acc. Receivables (days) 368.83

LISTING DATA Return on Assets 2.14 600283-SH Quote Symbol Return on Equity 1.86 Current Market Cap (US$m) 126.93 4.19 Share Price on 24/01/06 (LCU) Total Assets (US$m) 198.34 4.38 Share Price 52-week high (LCU) Total Liabilities (US$m) 79.35 53.19 PE Ratio Current Ratio 1.18 EPS Year End (US$) 0.01 86.32 Dividend Payout (%) Employees 843

Qianjiang Water Resources was established in 1998 and listed in 2000. It provides utility services including water supply, electric power, hydropower and water resource development and conservancy projects. The company is based in Zhejaing Province where it has 4 projects for water supply, two in the city of Hangzhou, one in Shengzhou and a further project in Zhoushan.

The group carries out further activities in the IT and travel sectors. Sales and net income have been declining since 2002. Sales fell 40% in this period while net income fell from RMB112m in 2002 to RMB19m in 2004. Despite the company’s poor performance, its shares have kept pace with the Shanghai market. Water activities account for half of the company’s overall turnover.

Shanghai Raw Water

No 1540 Beiai Road 2005 FINANCIALS Pudong New District Sales (US$m) 117.35 Shanghai 200085 Sales 1 yr change (%) 0.17 CHINA EBITDA (US$m) 91.84 +86 21 6356 4899 Net Income (US$m) 52.38 : Contact Net Income 1 yr change (%) 0.98 Shou Pei Bai, President Acc. Receivables (days) 53.12

LISTING DATA Return on Assets 7.21 600649-SH Quote Symbol Return on Equity 7.96 Current Market Cap (US$m) 1,288.92 6.04 Share Price on 24/01/06 (LCU) Total Assets (US$m) 761.75 5.81 Share Price 52-week high (LCU) Total Liabilities (US$m) 62.65 23.83 PE Ratio Current Ratio 3.47 EPS Year End (US$) 0.03 n/a Dividend Payout (%) Employees 663

Shanghai Municipal Raw Water Co. is 52.42% owned by the Shanghai Municipal Government. Its main business is the development of water sources and the supply of raw water to Shanghai’s water utility companies, pipe installation, facility construction and wastewater collection and treatment.

Raw Water is the monopoly provider of raw water to publicly owned Shanghai Shibei Water and Shinan companies and the public-private JV water utility in Shanghai Pudong. Three-quarters of its turnover comes from raw water sales, while wastewater treatment accounts for most of the remainder.

447 Water Market Asia - Company Proﬁ les: Other Active Players

Sino-French

718, Avenida do Conselheiro Borja 2005 FINANCIALS MACAU Sales (US$m) n/a +853 220 440 Sales 1 yr change (%) n/a www.sinofrench.com/ep1.asp EBITDA (US$m) n/a : Contact Net Income (US$m) n/a Steve Clark, Managing Director Net Income 1 yr change (%) n/a [email protected] Acc. Receivables (days) n/a

LISTING DATA Return on Assets n/a n/a Quote Symbol Return on Equity n/a Current Market Cap (US$m) n/a n/a Share Price on 24/01/06 (LCU) Total Assets (US$m) n/a n/a Share Price 52-week high (LCU) Total Liabilities (US$m) n/a n/a PE Ratio Current Ratio n/a EPS Year End (US$) n/a n/a Dividend Payout (%) Employees n/a

Suez operates in China through Sino-French Water Development, a subsidiary of Sino-French Holdings. Sino-French Holdings is a 50-50 joint venture formed in 1985 by the then Lyonnaise des Eaux Group and Chow Tai Fook Enterprises, a privately owned company which controls 35 per cent of the New World Group. In 1997 Chow Tai Fook’s 50 per cent stake in Sino-French Holdings was sold to New World Infrastructure. The JV is involved in 19 projects in the PRC and Macau with stakes from 50 to 90 per cent. Its investment commitment relative to its different stakes represents US$522 million.

In January 2006, Sino-French had not signed any new deals since 2004. However, in November 2005, the company signed a new JV with the Chongqing Water Industry Holdings Co, with a registered capital of US$30m, and expected to invest in about RMB2bn in projects in and around Chongqing in the following two years, including in wastewater, which would be a ﬁ rst for Sino-French.

Suido Kiko Kaishi

48-16 Sakuragaoka 5-Chome 2005 FINANCIALS Setagaya-Ku Sales (US$m) 193.84 Tokyo 156-0054 Sales 1 yr change (%) 3.68 JAPAN EBITDA (US$m) 6.43 www.suiki.co.jp/english/cooporate.html Net Income (US$m) 1.53 : Contact Net Income 1 yr change (%) -22.44 Isamu Kobayashi, President Acc. Receivables (days) 168.31

LISTING DATA Return on Assets 0.95 6403-JA Quote Symbol Return on Equity 2.87 Current Market Cap (US$m) 69.09 300.00 Share Price on 24/01/06 (LCU) Total Assets (US$m) 194.73 400.00 Share Price 52-week high (LCU) Total Liabilities (US$m) 133.92 77.73 PE Ratio Current Ratio 1.55 EPS Year End (US$) 0.10 23.27 Dividend Payout (%) Employees 448

Suido Kiko Kaisha is a manufacturing company that produces and sells water treatment machinery and equipment, and carries out maintenance, inspection and installation works.

Its range covers precipitating equipment, ﬁ lters, chemical injectors, sludge treatment equipment, chlorine injectors, chemical injectors, automatic valves, tubes, neutralization equipment, industrial waste-water treatment facilities, rainwater recycling systems and saline water purifying equipment. The company also has real estate activities. Outside its home market of Japan, SK has investments in China and Bangladesh.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 448 Water Market Asia - Company Proﬁ les: Other Active Players

Thames Water (RWE)

Thames Water Utilities Ltd 2005 FINANCIALS PO Box 436 Sales (US$m) 55,721.48 Swindon SN38 1TU Sales 1 yr change (%) -4.15 UK EBITDA (US$m) 12,650.01 +44 118 959 1159 www.rwethameswater.com Net Income (US$m) 2,904.60 Net Income 1 yr change (%) 124.24 : Contact Acc. Receivables (days) 121.46

LISTING DATA Return on Assets 3.82 RWE-FF Quote Symbol Return on Equity 30.47 Current Market Cap (US$m) 43,086.32 40.60 Share Price on 24/01/06 (LCU) Total Assets (US$m) 122,500.01 66.50 Share Price 52-week high (LCU) Total Liabilities (US$m) 107,286.56 16.94 PE Ratio Current Ratio 1.62 EPS Year End (US$) 5.16 43.94 Dividend Payout (%) Employees 97,777 Financial information relates to listed parent company RWE Thames is currently owned by RWE AG, a multi-utility company based in Germany. Thames Water is one of the world’s largest water companies. It has been very active globally, including in Asia, but has retreated from its investments as far as possible in the last few years. Several Thames projects have been terminated - including its major investment in Shanghai Da Chang, and the Kelantan water concession in Malaysia. Other investments have run into difﬁ culties, especially the water concession for the Eastern area of Jakarta, where Thames sustained signiﬁ cant losses.

The company has threatened to terminate the concession on several occasions and as of January 2006 is understood to be in discussions to withdraw from its contract, but the terms of its departure have not yet been settled. In 2004, Thames sold off three of its operating units in Asia: Thames Water Projects (Malaysia), Thames Water Projects (Australia) Pty Ltd and Thames Water Projects (Singapore) Pte. All three were acquired by Australia’s United Group for US$10.45m.

In 2005, Thames sold its 50% stake in the Thai Tap Water Supply project in Thailand, operator of the Nakhom Pathom project for US$91m to its Thai JV partner, and disposed of further assets in Australia. Thames still holds a stake in the China Water Company, its investment vehicle for most of its mainland China projects. However, it has expressed its intention to dispose of this asset as well.

In October 2005, Thames’ parent company RWE announced that it intended to move out of the water sector. A partial ﬂ otation of Thames is a strong possibility.

The Environmental Group

Unit 3 2005 FINANCIALS 9 Packard Avenue Sales (US$m) 15.30 Castle Hill 2154 Sales 1 yr change (%) 30.48 New South Wales AUSTRALIA EBITDA (US$m) 0.75 +61 2 8858 3499 www.environmental.com.au Net Income (US$m) 0.36 Net Income 1 yr change (%) -30.19 : Contact Acc. Receivables (days) 82.96 Mike Williamson, Managing Director Return on Assets 4.02 LISTING DATA Return on Equity 8.44 Quote Symbol EGL-AU 7.66 Current Market Cap (US$m) Total Assets (US$m) 9.13 0.25 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 4.30 0.30 Share Price 52-week high (LCU) Current Ratio 1.58 PE Ratio -8.82 0.01 EPS Year End (US$) Employees 41 Dividend Payout (%) 0.00

The Group’s principal activity is designing and applying innovative gas, vapour, water, wastewater and pressure sewer solutions providing clean air and clean water to a diverse range of public and private sector customers throughout Australia and the region. It operates mainly in Australia with some activities in Singapore and Malaysia.

In December 2005, the Group bought Anglian’s interests (Anglian Water Pty Ltd) in Australia including the Red Cliff and West Wadonga water treatment plants.

449 Water Market Asia - Company Proﬁ les: Other Active Players

Trans eld Services

Level 12 Maritime Towers 2005 FINANCIALS 201 Kent Street Sales (US$m) 857.06 Sydney 2000 Sales 1 yr change (%) 19.79 New South Wales AUSTRALIA EBITDA (US$m) 56.73 www.transﬁ eldservices.com.au/industry_sectors/water.htm Net Income (US$m) 47.53 : Contact Net Income 1 yr change (%) 154.60 Peter Watson, MD Acc. Receivables (days) 55.40

LISTING DATA Return on Assets 12.07 TSE-AU Quote Symbol Return on Equity 34.63 Current Market Cap (US$m) 955.25 6.75 Share Price on 24/01/06 (LCU) Total Assets (US$m) 588.00 8.78 Share Price 52-week high (LCU) Total Liabilities (US$m) 418.72 29.49 PE Ratio Current Ratio 1.20 EPS Year End (US$) 0.34 28.32 Dividend Payout (%) Employees 5,274

Transfi eld is an active player in the Australian and New Zealand water and power markets. Its operations and maintenance division provides outsourced services for structural, mechanical, civil, instrumentation and electrical maintenance and manages facilities and systems serving clients such as power stations, oil refi neries, water suppliers and rail lines. The infrastructure ownership and management division has stakes in six infrastructure projects, four power stations and the MacArthur and Yan Yean water fi ltration plants. It operates mainly in Australia and New Zealand. Its annual net profi t was AU$41.2m in the year to June 2005, down 40% on the previous year. This fall was due to a one-off tax benefi t in the earlier period.

Revenues were boosted by two major acquisitions during 2004 and the fi rst half of 2005 as well as a number of new contracts, taking revenue up 22% A$1.51bn in the same period. The company is looking for further contracts overseas. It is now planning to extend its operations through acquisitions, targeting the Middle East market where it is seeking partnerships with established companies. Transfi eld raised A$97m in 2005 which will be used to fund further acquisitions. In December 2005, Transfi eld was awarded a new contract for a wastewater treatment and recycling facility in Gippsland, Victoria (Australia) with a budget of A$128m.

Tsukishima Kikai

17-15 Tsukuda 2-Chome 2005 FINANCIALS Chuo-Ku Sales (US$m) 665.08 Tokyo 104-0051 Sales 1 yr change (%) -5.37 Tokyo JAPAN EBITDA (US$m) 52.91 www.tsk-g.co.jp/en/company Net Income (US$m) 23.46 : Contact Net Income 1 yr change (%) 179.61 Toshio Tanei, Senior MD Acc. Receivables (days) 133.44

LISTING DATA Return on Assets 3.00 6332-TO Quote Symbol Return on Equity 5.96 Current Market Cap (US$m) 560.97 790.00 Share Price on 24/01/06 (LCU) Total Assets (US$m) 874.92 1,520.00 Share Price 52-week high (LCU) Total Liabilities (US$m) 436.79 25.58 PE Ratio Current Ratio 1.65 EPS Year End (US$) 0.50 28.02 Dividend Payout (%) Employees 1,998

Tsukishima Kikai designs, manufactures and supplies machinery primarily for industrial machines and equipment for plants including water and wastewater treatment plants, chemical plants, food and sugar reﬁ ning. The Group is also involved in manufacturing crude oil storage tanks, gas tanks and other machinery and equipment and providing installation, repair and maintenance service.

Machinery makers Kubota Corp. and Tsukishima Kikai Co. concluded a business and capital tie-up agreement in July 2005 for joint operations of water and sewerage related equipment. Under the agreement, Kubota will acquire up to 3.6 million, or 7.89%, of outstanding shares in Tsukishima, while Tsukishima will obtain up to 5 million, or 0.38% of outstanding shares in Kubota.

The two companies expect to improve their proﬁ tability by jointly developing new products and mutually supplying each other’s products as the business environment has deteriorated due to a rising penetration rate of water supply and sewerage systems and falling public works projects.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 450 Water Market Asia - Company Proﬁ les: Other Active Players

TWIC

Tamilnadu Water Investment Company Contact: Wescare Towers, 3rd Floor Mr Sheshabri Prakash, Director 18,Cenotaph Road Teynampet, Chennai-600 018 Tamil Nadu INDIA +91 44 52111566 The Tamilnadu Water Investment Company (TWIC) is one of the most active local private sector participants in India’s water sector. It is putting together three water reuse projects, all in the state of Tamil Nadu, with an estimated value in the region of US$100m. These projects are in different levels of development. Tendering for contracts is underway for a 60,000m3/d zero liquid discharge project for the dyeing industry in Tirupur. TWIC will shortly be tendering for the pre-treatment works. There has been a 2-month delay in the completion of the construction package, which will now be ready at the end of February. TWIC is expecting to catch up on the time lost and the December 2006 commissioning deadline has not changed.

The Ambur/Vaniyambadi project is a 12,000m3/d efﬂ uent recycling project (in six units) for the leather industry, the municipal client has requested a pilot test before the project goes ahead. The contract for the pilot has been awarded and the outcome of this stage will be considered in mid-2006.

The third project, a municipal wastewater recycling project with a capacity of 15,000m3/d to 20,000m3/d in the Sriperumbadur area of Chen- nai, has been making slower progress. TWIC is still in discussions with the local authority over the ﬁ nal capacity of the project as several new investors have moved into the industrial area that the project is designed to serve.

TWIC has a unique role in the industry, which they describe as a ‘catalyst,’ putting together all of the elements in project design but without taking on the role of developer or themselves providing fi nance for the project. TWIC works with municipalities or industry groups interested in water reuse or desalination schemes but who have no experience of public-private partnerships. TWIC takes on responsibility for project design, planning and implementation of tendering and award of contracts and will also arrange fi nancing. This fi nal stage is aided by their close links with IL&FS, the public Indian fi nancial institution focused on infrastructure development. TWIC was able to organize the largest local currency fi nancing of an emerging market water project to have reached fi nancial close for the Rs10.9 billion ($250 million) Tirupur Area Development Corporation’s water supply project. In the future, TWIC is considering taking on the role of operator and extending its scope to include urban water supply projects as well as water reuse and desalination.

United Envirotech

11-00 PWC Building 2005 FINANCIALS 8 Cross Street Sales (US$m) 7.39 Singapore 48424 Sales 1 yr change (%) 18.77 SINGAPORE EBITDA (US$m) 3.95 +65 6775 2026 www.unitedenvirotech.com Net Income (US$m) 3.80 Net Income 1 yr change (%) -4.79 : Contact Acc. Receivables (days) 238.31 Lin Yucheng, Chairman & CEO Return on Assets 61.57 LISTING DATA Return on Equity 114.93 Quote Symbol U19-SG 92.23 Current Market Cap (US$m) Total Assets (US$m) 23.70 0.45 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 5.55 0.57 Share Price 52-week high (LCU) Current Ratio 3.66 PE Ratio 17.90 0.02 EPS Year End (US$) Employees 80 Dividend Payout (%) 0.00

United Envirotech’s central activity is the development and sale of membrane technologies. The company designs and installs integrated environmental engineering solutions for water and wastewater treatment based on its proprietary technology. Operations of the Group are carried out in the PRC. The holding company of United Envirotech Ltd is registered in Singapore and is listed on the main board of Singapore Stock Exchange. UE operates in China through its two wholly owned subsidiaries, NOVO Envirotech (Guangzhou) Co. Ltd and Tianjin Motian Water Engineering & Technology Co. Ltd. The company has clients in a wide range of industries, including the chemical, petrochemical, pharmaceutical and wastewater treatment industries.

Major projects include an industrial wastewater reclamation plant for Sinopec Guangzhou Branch - the largest reuse plant in the PRC that uses local Continuous Microﬁ ltration (CMF) and Reverse Osmosis (RO) technology. UE also developed and installed an advanced wastewater treatment plant using membrane bioreactor (MBR) technology for Sinopec, which is one of the largest membrane bioreactor systems in Asia. UE continues to engage in R&D in membrane technology by developing new applications in membrane puriﬁ cation and design-integrated systems for environmental engineering solutions.

451 Water Market Asia - Company Proﬁ les: Other Active Players

United Group

124 Paciﬁ c Highway 2005 FINANCIALS St Leonards 2065 Sales (US$m) 750.15 New South Wales AUSTRALIA Sales 1 yr change (%) 25.92 +61 2 9462 1444 EBITDA (US$m) 43.06 www.unitedgroupltd.com Net Income (US$m) 20.25 : Contact Net Income 1 yr change (%) 32.71 Richard A. Leupen, MD Acc. Receivables (days) 44.03 [email protected] Return on Assets 7.86 LISTING DATA Return on Equity 17.35 Quote Symbol UGL-AU 1,054.15 Current Market Cap (US$m) Total Assets (US$m) 321.33 6.30 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 195.75 11.81 Share Price 52-week high (LCU) Current Ratio 1.34 PE Ratio 28.61 0.20 EPS Year End (US$) Employees 4,112 Dividend Payout (%) 89.94

United Group is a construction conglomerate with six core sectors of rail, water, property, power, resources and defence. Its infrastructure division operates in Australia, New Zealand and South-East Asia offering construction, engineering, operational and maintenance services to the water, power, road and rail transport, and defence sectors and works closely with technology partners, Balfour Beatty and GE.

In 2004, UG bought up Thames Water Projects’ businesses in Australia, Malaysia and Singapore for US$10.45m. In December 2005, UG announced several new water projects, including a DB sludge treatment contract for Sydney water; a design and build contract for an advanced water treatment facility at Bootawa dam (NZ); a water treatment plant for Waitaki District Council (NZ) and design and construction of a water treatment plant for Kaeng Khoi 2 Power plant in Thailand. UG’s infrastructure order book stood at over A$1bn in December 2005 out of around A$4.3 billion for the whole group.

United Water Australia

180 Greenhill Road, Parkside 2005 FINANCIALS GPO Box 1875 Sales (US$m) n/a Adelaide SA 5001 Sales 1 yr change (%) n/a South Australia AUSTRALIA EBITDA (US$m) n/a +61 8 8301 2700 www.uwi.com.au Net Income (US$m) n/a Net Income 1 yr change (%) n/a : Contact Acc. Receivables (days) n/a Philippe Laval, Managing Director Return on Assets n/a LISTING DATA Return on Equity n/a Quote Symbol n/a n/a Current Market Cap (US$m) Total Assets (US$m) n/a n/a Share Price on 24/01/06 (LCU) Total Liabilities (US$m) n/a n/a Share Price 52-week high (LCU) Current Ratio n/a PE Ratio n/a n/a EPS Year End (US$) Employees n/a Dividend Payout (%) n/a

United Water Australia is a JV between Veolia and Haliburton KBR, the engineering arm of the Halliburton Company. Established in 1995, United Water is the largest private water company operating in Australia and New Zealand, where it provides water and wastewater services to 1.5 million people through 8 water and wastewater projects. Thames Water formerly held a stake in the company which it has now sold to Veolia.

UWA has a 15-year O&M contract for South Australian Water Corporation (SA Water), awarded in January 1996, a 25-year O&M contract with Thames Water for two water treatment plants in Ballarat, Victoria and water and wastewater services contracts in New Zealand for Papakura, Takanini and Drury in the Auckland region, the Ruapehu District and the Thames-Coromandel District Council.

In June 2004, UWA purchased AWI (NZ) Limited and its “Clearwater Wellington” operations. On July 1, 2004, United Water began the management, maintenance and operation of the treatment facilities at Moa Point and Karori West, in a contract that will last until 2019.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 452 Water Market Asia - Company Proﬁ les: Other Active Players

VA Tech Wabag

No. 7 Guanghua Road, Han Wei 2005 FINANCIALS Plaza # 18 B1/2, Chaoyang District Sales (US$m) n/a Beijing 100004 CHINA Sales 1 yr change (%) n/a + 86 (10) 65 61 -40 52 ext. 611 EBITDA (US$m) n/a www.vatechwabag.com Net Income (US$m) n/a : Contact Net Income 1 yr change (%) n/a [email protected] Acc. Receivables (days) n/a

VA Tech Wabag is an active player in the international water market, operating through 20 companies and distribution branches worldwide. It provides construction, consultancy and ﬁ nancing, and operation and management services for water and wastewater projects. In Asia, Wabag is active in India, Malaysia, Singapore, Vietnam and the PRC.

The company offers a selection of technological solutions including thermal desalination (as in the Balikpapan (Indonesia) ME seawater desalination plant for the petrochemicals industry. In 2004, Wabag was awarded a contract for a drinking water treatment plant in Quanjiao (Anhui, PRC) in 2004. In the previous year, Wabag had been awarded a contract in Beijing for sludge treatment of the city’s Xiaohongmen Wastewater Treatment Plant, a project that was co-ﬁ nanced by the World Bank and the Municipality of Beijing.

Wabag was acquired by Siemens in December 2004, after the deal was reviewed and approved by the European Commission over competition concerns. Siemens acquired 97.15% of VA Tech stock for around EUR1bn. The integration of the two companies has not yet been completed, but in Asia, Siemens is planning to use VA Tech’s experience in Anhui, China as a springboard for expanding its municipal operations in the PRC. Before the acquisition, Wabag was successfully expanding in North Africa, Central and Eastern Europe, China and the Middle East. The company has also been active in India.

Wuhan Sanzhen Industrial

5th Floor Dongfang Commercial 2005 FINANCIALS Development Road Sales (US$m) 20.55 Wuhan City 430023 Sales 1 yr change (%) 6.05 Hubei CHINA EBITDA (US$m) 10.15 +86 27 8560 0546 www.whkg.com.cn Net Income (US$m) 4.31 Net Income 1 yr change (%) 18.50 : Contact Acc. Receivables (days) 177.75 Tu Li Jun, President Return on Assets 2.46 LISTING DATA Return on Equity 2.63 Quote Symbol 600168-SH 207.72 Current Market Cap (US$m) Total Assets (US$m) 178.71 4.17 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 12.95 4.65 Share Price 52-week high (LCU) Current Ratio 3.65 PE Ratio 60.63 0.01 EPS Year End (US$) Employees 423 Dividend Payout (%) 74.28

Wuhan Sanzhen Industry Co. manages Wuhan’s water supply and drainage system. It is also engaged in investment and construction of road, bridges and infrastructure projects. Other activities include provision of industrial support services, power supply and communications.

453 Water Market Asia - Company Proﬁ les: Other Active Players

WWE Holdings

No 3 Jalan Apollo U5/194 2005 FINANCIALS Bandar Pinggiran Subang Seksyen U5 Sales (US$m) 8.44 Shah Alam 40150 Sales 1 yr change (%) 143.81 Selangor MALAYSIA EBITDA (US$m) -1.26 +60 3 784 713 33 www.wwe.com.my Net Income (US$m) -1.03 Net Income 1 yr change (%) 67.98 : Contact Acc. Receivables (days) 421.82 Rozali Ismail, Executive Chairman Return on Assets -3.74 LISTING DATA Return on Equity -6.28 Quote Symbol WWE-KU 6.61 Current Market Cap (US$m) Total Assets (US$m) 22.93 1.65 Share Price on 24/01/06 (LCU) Total Liabilities (US$m) 7.33 1.70 Share Price 52-week high (LCU) Current Ratio 1.95 PE Ratio -18.46 -0.03 EPS Year End (US$) Employees 83 Dividend Payout (%) 0.00

WWE Holdings is a technology company concentrating on the provision of engineering services related to the conception, design, fabrication, installation and commissioning of water, wastewater treatment, environmental facilities and construction activities. The operations of the Group are mainly carried out in Malaysia but WWE is also undertaking projects in Saudi Arabia.

WWE Holdings Bhd. started out in 1989 as Fresh Frozen Aquatic Products Sdn. Bhd. The company changed its name and focus in 1990 and listed on the stock exchange in 1996. WWE offers turnkey contractors for industrial and municipal clients relating to a variety of water, wastewater treatment and environmental facilities services and engages in long term contracts for systems operation.

YTL Power

7th Floor Yeoh Tiong Lay Plaza 2005 FINANCIALS 55 Jalan Bukit Bintang Sales (US$m) 891.29 Kuala Lumpur 55100 Sales 1 yr change (%) 6.96 MALAYSIA EBITDA (US$m) 515.92 +44 1225 526 000 (Wessex Water) +60 3 2142 6633 (YTL Malaysia) Net Income (US$m) 161.33 www.ytl.com.my; www.wessexwater.co.uk Net Income 1 yr change (%) 1.59 Acc. Receivables (days) 91.46 Contact: Yeoh Tiong Lay, Executive Chairman Return on Assets 5.48 Return on Equity 26.98 LISTING DATA YTLPOWR-KU Quote Symbol Total Assets (US$m) 5,414.89 3,100.02 Current Market Cap (US$m) Total Liabilities (US$m) 4,214.76 1.73 Share Price on 24/01/06 (LCU) Current Ratio 3.37 Share Price 52-week high (LCU) 2.32 14.24 PE Ratio Employees 2,026 EPS Year End (US$) 0.07 Dividend Payout (%) 52.97 YTL Power International Bhd is a diversiﬁ ed Malaysian company. Its core businesses include construction, power generation, cement and other construction material manufacturing, property development and leisure, hotel and resort operations. It is one of the largest independent power producers in Malaysia.

The group’s involvement in the water sector began in 2002 when it acquired 100% of Wessex Water (UK) which provides regulated water and wastewater services to households and businesses. YTL also operates a major power plant in Indonesia - Paiton II - and owns a signiﬁ cant share of power transmission company ElectraNet in Australia. The utilities division is the company’s main revenue earner but water constitutes only a small part of the utilities division.

The company has recently carried out acquisitions on the power side of the business and acquired 35% of Jawa Power (Indonesia) in December 2004, which has given a boost to the company’s revenues.

Opportunities in the Water & Wastewater Sectors in Asia & the Paciﬁ c 454