Chinese Proverb

“When you want to test the depth of a stream, don’t use both feet.“ Chinese Proverb

Acknowledgments The authors would like to thank for their contribution to this report (in alphabetical order)

Elisha Arad, IDE Gireesh Bhat, Hyfl ux Stephen Buonagura, SITIndustrie Lily Cai, Vontron Jackie Cao, Brack Capital Yousheng Chang, Beifang Leslie Chapple, Hyfl ux Haichen Cong, Chinese Desalination Association Charles Desportes, Entropie (Veolia) Xiong Fan, Development Centre of Water Treatment Technlogy Susanna Floth , Aqualia Congjie Gao, Chinese Academy of Engineering André Hansen, Danfoss Guofeng Huang , ROPV Access Xiazhen Jia, Tianjin Waterworks

Zhizhong Li, Aqualia Xiaolin Liu, Degrémont Jing Liu, LH International Binghui Liu, MegaVision Runming Pang, Koch Guoling Ruan, Tianjin Institute of Seawater Desalination Beat Patrick Schneider, Calder Spike Shao , LH International Albert Sone, Pump Engineering Mitch Summerfi eld , Siemens Yongwen Tan , Xidoumen Jianguo Tang, Shanghai Water Authority Hattie Wang, ERI Daxin Wang, Dow Sherry Wang, Qianqu Zhaohui Wang, Beidouxing David Wu, GE Jacky Wu, MemShell Kun Yang, Chinese Desalination Association Jason Zhao, Hydranautics Market Nancy Zheng, Motimo

He Zhu, Jun He Law Offi ces

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

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China sion.

GWI MARKET ACCESS: DESALINATION IN CHINA 淡化海水市场Drivers, Competition and Access in the Chinese Desalination Sector Table of Contents 5 Minute Report 10 Things you need to know about Chinese desalination 4 5 Recommendations 5 Who’s Who 6 The Map of Chinese desalination 7

The Brief From Liaoning to Zhejiang: planning for desalination 8 Drivers Projected Capacity How Projects Get to Market 10 Institutional Set Up The Project List Market Development and Potential 13 Market Developments Market Size Municipal vs. Industrial Clients Research & Technology Trends: past, present, future 15 Brief History Research Trends The Future: RO or Thermal? Competition Analysis 20 Developers & EPC Companies Can the Chinese make RO membranes? ERD, HP Pumps and Pressure Vessels Reality Check 25 Risks 2010-15 What is realistic?

By Invitation: Jun He’s George Zhu 30 Selected legal issues on developing desalination projects in China

Economics: 34 Market development and forecast Unit cost analysis

The List: Planned, awarded and operational projects 46

Case Studies Huangdao MED and RO 66 Tianjin TEDA MED 68 Huanghua MED 70 Yuhuan RO 71

The Players Projects: Key active players 73 Projects: Other active players 77 Projects: New Entrants 80 Equipment: Membranes 82 Equipment: HP Pumps/ERD 92 Equipment: Pressure Vessels 94 Equipment: Metals and Alloys 96

Glossary 97

1. In the coastal north of China, the supply and b) the burden of fi nancing for munici- gap of fresh water is already a reality and palities. Private fi nancing of desalination is badly hurting the Chinese economy. The projects has so far failed to take off because relevant area stretches from the province of municipal clients are reluctant to sign long- Zhejiang to that of Liaoning and represents term purchase agreements. 25% of Chinese annual GDP. The main cities 6. Procurement for small desalination facili- where desalination projects will be devel- ties is done under turnkey contracts but this oped are Tianjin, Dalian and Qingdao. The is not the norm in China and larger projects south of China also has a severe brackish will not be procured as turnkey. Municipali- water problem. ties choose to pick erection teams and tend 2. Desalination, as a source of fresh water, to contract separately for each aspect of a has received full offi cial support in 2004 and project. Developers also have to release all the central government is gradually enact- their designs to the local Design Institute, ing legislation which requires large water- the approval of which is necessary for con- intensive businesses (electricity, chemicals, struction to start. etc.) to have self-suffi cient water supply 7. Local competition originates in the re- and to use desalination in coastal areas. search and academic sector. A couple of Municipal water tariff reform is ongoing in desalination research institutes under the coastal areas and a convergence between SOA have been working on desalination water tariff s and the cost of desalination is for several decades. A handful of active in- expected by 2010-2015. dividuals, the “professor-entrepreneurs”, 3. In 2006, online installed capacity in China have set up corporate entities attached to (including HK and Macau) was 380,000m3/ research institutes which compete with for- d. Forecast desalination capacity for 2012- eign companies for project development 15 is 2.5Mm3/d. The size of the desalination contracts and the supply of membranes project market (capex) was US$55-70m in and other equipment. These research insti- 2006 and should reach US$600-860m in tutes work hand-in-hand with the local de- 2012-15. sign institutes mentioned above (they can 4. There is little or no regulation of the sec- be one and the same). In 2006, the “profes- tor. Desalination projects fall under the sor-entrepreneurs” are a dominant force in State Development and Reform Commis- the Chinese desalination market. However, sion and the State Oceanic Administration, their future ability to compete for large and not the Ministry of Construction which scale projects may be limited. regulates the water sector. When desalina- 8. The municipal and industrial markets for tion becomes more mainstream and proj- desalination are not evolving at the same ects are larger, the sector will pass to MoC pace. Industrial solutions have so far domi- control. nated the market in terms of installed ca- 5. There is no target for desalination capac- pacity. Water tariff reform in cities is ongo- ity in China. The offi cial ‘targets’ often men- ing and tariff levels will not reach suffi cient tioned are only an indication of how much levels for another 5 years at least. However, desalination capacity is scheduled to come the bulk of planned capacity for industrial online according to two infl uential Chinese application in China is still to come and its desalination research institutes. Neither is timing is equally uncertain because pro- there a ministerial level approval process. posed plants are mostly linked to nuclear Projects are proposed for grant funding power stations and other very large projects

5Minute Report (such as the relocation of the Beijing steel (10% of capex) to NDRC by municipalities and the remainder of fi nancing has to be industry to the coast) so delays are likely. In- raised locally. For all practical purposes, dustrial clients will still use the majority of desalination projects are approved and ne- planned capacity. gotiated at the municipal level. For this rea- 9. The use of desalination processes in Chi- son, many projects will not become a reality na is diff erent from world averages. China because of a) the low level of water tariff s is a young desalination market and there is

4 (C)2007 * GWI MARKET ACCESS: DESALINATION IN CHINA 5 MINUTE REPORT wider use (and planned use) of MED, while pressure vessels, full-MED solutions but most of the few existing MSF facilities have limited in size) and the products that only been decommissioned. RO is the dominant foreign companies can provide (SWRO technology in terms of number of projects membranes, energy recovery devices, high but the planned capacity for the power and pressure pumps, and large scale, complex petrochemical sectors will mostly use MED. MED solutions). With the help of design Nuclear desalination should play an impor- institutes, Chinese makers are catching up. tant role in China beyond 2010. Most foreign equipment makers reckon 10. The equipment market is split between that they will face direct Chinese competi- what Chinese suppliers can already provide tion within fi ve years if they do not develop (pre-treatment for RO, BWRO membranes, a new generation of systems.

Five Recommendations 1. Get in touch: The Chinese desalination market is a small world. Meet the “professor-entrepreneurs” and develop a strong relationship (see Who’s Who, next page). They are involved in everything from advising the government to bidding for projects, administrating tenders or approving designs. A good fi rst step would be to become involved in the follow-up of Professor Ruan’s RO/MED project in Huangdao (See The List) 2. Have a Chinese face: Find a decent Chinese project developer with experience and contacts in the sector and buy them out. This is how Siemens or Dow intend to maintain their lead in the sector. 3. Go local: There is not much point courting people in Beijing to get a desalination project. Everything, from project proposal to fi nancing to water tariff reform is a local aff air. Find the municipalities that have the cash and the vision to develop tomorrow’s projects. 4. Embrace it: Equipment makers should get involved early and develop their brand name around ‘pilot’ or ‘model’ projects (the professor-entrepreneurs can be very helpful for this). This is the best way to secure orders when the larger projects will come to market. Some patience is, however, required. The risks are signifi cant (especially copycats) but the alternative (waiting for the Chinese desalination market to develop) is a non-starter. If you do not gradually give away your products to the Chinese market, your competitors will and before you know it, Chinese makers will be competing against you at home! 5. Steady on: Unlike equipment makers, developers and investors should hold their horses. If you want to fi nance a project in the Chinese debt market, you will have to give corporate guarantees (unless you have rich partners, like Veolia). If, like Hyfl ux, you cannot aff ord to put the cost of a desalination BOT on your balance sheet, you will have to go to the international debt market. There, you will need to show a long-term water purchase agreement, but, for now, Chinese municipalities will not sign one. Ideally, one would develop their desalination brand now by selling equipment and thus be in a good position to invest in service contracts later, when the market has evolved.

Wine & Dine... In Tianjin Desalination Decision-Makers Haishan Zhao Vice-Chairman, Tian- 吃饭 jin Municipal Sc. & Tech. Commission In Qingdao Dai Xianglong Mayor Liu Mingjun Director General, Develop ment and Reform Committee Huang Xingguo Vice-Mayor Wang Anming Director General, Science and Technology Bureau Dongliang Yang Vice-Mayor Hu Shaojun Vice-Mayor Zhang Yuanfu Vice-Mayor In Zhejiang Province Zhao Zebin Director General and Sec. of Party Committee, Oceans Xiang Qin Vice-Mayor and Fisheries Bureau Hangzhou City Yu Rui Director General, Water Conservancy Bureau Zhang Jinru Vice-Mayor Zhang Wen Director General, Engineering and Public Utility Bureau Shaoxing City

Elsewhere in Shandong At the State Oceanic Administration Huang Weilian Vice-Mayor Weifang City Qinghai Zhou Director General, Yu Yongji Deputy Mayor Weihai City Dpt of Sc. and Tech. Song Yuanfang Mayor Weihai City (Beijing)

(C)2007 * GWI MARKET ACCESS: DESALINATION IN CHINA 5 5 MINUTE REPORT Who’s Who: The Professor-Entrepreneurs Gao Congjie, PhD教授-商人 +86 13805791803 [email protected] Tan Yongwen, PhD +86 13805792661 Specialisation: RO [email protected] Director Specialisation: RO Development Centre of Water Treatment Technology (Director), Vice Director and Chief Engineer Desalination and Water Re-use Society of China (Chairman) Development Centre of Water Treatment Professor Gao is a bit the father of the Chinese desalination pro- Technology gramme and the prima inter pares amongst the professor-entre- Tan Yongwen is the business brain of the preneurs. He is an academician and commands great respect in Hangzhou Development Center and its cor- the sector. He is more active on the RO side but is the reference porate arm Xidoumen. He’s responsible for point for all desalination research in China. He may be less involved the development of half of China’s RO proj- in the business side of desalination than other professors. ects (by number of projects), mostly in Zhe- jiang and Liaoning. Tan was instrumental in ...also at the Development Center of Water Treatment Techonology introducing ERI and Grundfos to the Chi- Wang Shougen, Deputy Director nese market and establishing their brand Fan Xiong, Professor +86 13957117160 [email protected] name in the market. Like his alter-ego in Address: State Oceanic Administration Tianjin (Ruan), Tan is generally a supporter 50 Wenyi West Road, Hangzhou, 310012, Zhejiang of made-in-China desalination. +86 571 88935329 fax: +86 571 88935430 Ruan Guo Ling, PhD +86 13802092197 [email protected] VC/VCE Specialisation: MSF/MED Ma Xuehu, Professor Chief Engineer Specialisation: Thermal processes, Vapour Tianjin Institute of Seawater Desalination and Multipurpose Utili- compression distillation sation Dalian University of Technology Professor Ruan is an engineer and researcher specialised in dis- Nuclear Energy and Desalination tillation processes. He is also in charge of most water tenders in Tsinghua University, Institute of Nuclear En- the Tianjin development zone. His research institute is responsible ergy Technology, Energy Science Building for the development of the fi rst made-in-China MED project in +86 10 62784833 fax:+86 10 62771150 Huangdao (See Case Study). He was also heavily involved in the Jia Haijun, Professor, [email protected] development of the TEDA desalination project by Veolia. Ruan is Wu Shaorong, Researcher, [email protected] one of the most vocal advocates in favour of developing made-in- inghua.edu.cn China desalination. He’s also an experienced businessman. Desalination Pre-Treatment ...also at the Institute of Seawater Desalination and Multipurpose Utilisation Ma Jinghuan, PhD [email protected] Zhao Liang, Researcher Specialisation: Flocculation Address: State Oceanic Administration Tianjin University of Science and Technol- 1 East Keyan Lu, PO Box 52, Nankai District, Tianjin, 300192 ogy, 29, 13th Street, TEDA Tianjin +86 22 87898199 fax: +86 22 87892549 www.sdmu.com.cn +86 22 60601156 fax: +86 22 60600358 www.tust.edu.cn Ma Shihu, Professor Developed the fi rst pre-treatment solu- Specialisation: Hollow Fibre Membrane tion for seawater desalination adapted to Tianjin Polytechnic/Motimo the conditions of the Bohai Sea in 2003. Ma Shihu is 32 and a graduate of Tianjin University. He joined the 100m3/d and 1,000m3/d pilot projects for Motian Company (of Tianjin Polytechnic University, now Motimo) pre-treatment off ering pre-treated water in 2002. He mainly works on sewage reclamation and SWRO. at 5NTU, a 50% removal rate of COD and a Wang Shichang, PhD [email protected] unit cost of RMB0.18/m3 (including electric- Specialisation: Pre-Treatment, Exotic Desalination Methods, ERD ity at RMB0.5/kWh). He is also working on a Director ceramic membrane fi ltration solution with Desalination and Membrane Technology Research Centre ua nit cost of RMB0.17/m3. Pilot projects are School of Chemical Engineering and Technology, Tianjin Univer- being developed and should reach fruition sity +86 22 27890515 fax: +86 22 27404078 in 2007. Professor Wang created the Tianjin University Desalination Re- Zhiang Jingdong [email protected] search Centre in 2000. It is staff ed with 5 professors and 4 associ- Specialisation: Pre-Treatment (UF) ate-professors as well as 50 undergraduate students. The fi rst Chi- Wuhan University nese MSF unit was developed at Tianjin University in 1980s. Since Department of Environmental Engineering, then, research has covered MSF, MED, RO and EDI. The research College of Resources and Environmental centre also provided consulting work on several recent desalina- Science, Wuhan 430079 tion projects. Associates: Lixin Xie, Baoan Li, Zhi Wang, Pingli Li +86 27 6877 5699 fax: +86 27 6877 3516

6 (C)2007 * GWI MARKET ACCESS: DESALINATION IN CHINA 5MINUTE REPORT 350000 300000 250000 200000 150000 C apacity m 3/d 6 - 10 6 - Planned Awarded Operational 1 - 61 - 1 - 0 44 - 6544 - 35 10 - 44 35 - D esalination C apacity Brackish Groundwater (%) Groundwater Brackish Zhejiang Shanghai Jiangsu Liaoning Shandong Tianjin Fujian Hebei Henan Guangdong Shanxi Hainan Shaanxi China Desalination Map China Desalination

1. Planning for Desalination salination as a national high-tech industry (Seawater Utilisation Plan 2005). Drivers A year earlier, the Energy Reform Commis- Chinese government planners currently cat- sion and the SDRC had issued directive 864 egorise desalination as the third potential [2004], which requires that coal-fi red power source of fresh water. The fi rst one is ground- plants being built or planned in water-de- water and the second water recycling. If fi cient areas be prohibited from accessing these two sources of supply are enough to groundwater, that their use of surface wa- cover forecast demand for household and ter be strictly controlled and that, in coastal business use, then planners are unlikely to areas, combined power and desalination recommend the development of desalina- systems be preferred. tion projects. This trend is spreading to other industries However, in some parts of the country, the as water supply solutions are increasingly absence of conventional solutions has made being tied with industrial development. desalination a necessary choice. Big coastal For chemical and petrochemical zones, the cities are increasingly suff ering because government sets limits on the abstraction of of water shortages. China’s industry lost surface and groundwater, and developers RMB200bn (US$24.7bn) in output value an- must present a water source development nually from 2001 to 2005 due to water short- plan as a condition for project approval. ages, according to the statistics released by the State Flood Control and Drought Relief Such developments suggest that the future Centre in 2006 (Some Chinese offi cials put of the desalination sector in China will be, in the fi gure at RMB300bn). part, driven by large industrial projects for chemicals and oil & gas industries and pow- The north of China is the most aff ected. Four er plants, including several planned nuclear provinces in particular (Tianjin, Shandong, plants which will have integrated desalina- Hebei and Liaoning) are expected to have tion facilities. A further boost to desalina- a combined demand gap of 16.6 to 25.5 bil- tion demand is coming from the relocation lion cubic metres a year by 2010. of heavy industry from Beijing and other These four provinces represent 25 percent inland facilities to designated new develop- of China’s GDP. Their annual per capita wa- ment zones on the coast. ter availability is only 413m3. In the coastal China also has a serious brackish water areas of Tianjin, Hebei and Liaoning (Bohai problem in certain areas including in the Sea), water resources are 153m3 per capita south and is just starting to address it. (See per year. (See box: China’s Water Resources) box: Brackish Water, A Worsening Situation) In this context, desalination has recently Another pivotal factor: recent offi cial received increased political support. In July speeches and comments by top Chinese 2005, the State Oceanic Administration

The Brief offi cials from the all-powerful Ministry of (SOA), the State Development and Reform Construction (Qiu 2006), make it clear that Commission (SDRC) and the Ministry of Fi- the RMB250bn, ‘South-to-North Water Di- nance (MOF) issued a “special plan for the version Project’, which is meant to trans- use of water”, affi rming full central govern- port 44.8 billion cubic meters of water a ment support for the development of de- year northward by 2050, will not deliver its promisesi. As a new generation of leaders emerges, Contents Chinese pragmatism may eventually tame a 1. Planning for desalination taste for pharaonic projects and push R&D- 2. How projects get to market driven solutions to China’s water problems. 3. Market Development The gradual but certain realisation of these 4. Research & Technology Trends problems by the Chinese leadership makes 5. Competition Analysis China’s 18,000 kilometers of coastline seem 6. Reality Check like a potentially attractive source of water. Indeed, water from the diversion project

8 (C)2007 * GWI MARKET ACCESS: DESALINATION IN CHINA PLANNING FOR DESALINATION is expected to cost between US$0.6 and US$2.4/m3, while desalination solutions China’s Water Resources should deliver (in China) output unit costs Fresh water supply is still abundant at the country level with of around US$0.5 to US$0.85/m3. (Lin and total water reserves of 24,124 km3/year but average per cap- Han 2003) (See Unit Cost Analysis p40) ita supply is only 2,171 m3/year, which is less than a quarter In this context, the key coastal provinces of the world’s average. Also, the fl ow of the country’s northern are implementing ambitious tariff reforms rivers (Yellow River, Huaihe River, etc.) is only one eighth of which should precipitate the long awaited the fl ow of the southern rivers (Yangtze River, Zhujiang River, convergence between conventional and etc.). desalination treatment costs. But tarrifs are In 2003, the 12 coastal provinces, autonomous regions and decided at the local level and thus diff er- municipalities, represented 15% of the country’s land, 40% of ences between municipalities can be great. its population, and 67% of GDP. Average resources per capita Table 2 shows that, based on an annual tar- were 1,266m3. iff increase of 10% between 2005 and 2010 Likewise, average per capita water consumption in China is (in some coastal cities, it was actually 16.5% 412m3/d, but in the coastal north average per capita water annually between 2000 and 2005), Chinese consumption is about 269m3/d, while in the southern coastal offi cials predict a convergence between de- provinces, it is about 560m3/d. salination and treatment costs for surface or groundwater by 2010.

A number of foreign fi rms (e.g. GE) share Table 1: Brackish Water the belief that within 5 years the price of Province Brackish Ground Water (%) tap water will have increased by a suffi cient Tianjin 65.46 margin, at which stage the municipal de- Hebei 22.70 salination market will reach the break even Shanxi 4.54 point. In the meantime, most projected ca- Inner Mongolia 9.09 pacity is geared towards industrial uses (see Jilin 5.76 Heilongjiang 1.26 below). Shanghai 35.76 Projected Desalination Capacity Jiangsu 36.20 Fujian 0.28 The development programme sponsored Shandong 35.30 by SDRC envisions three to four “industrial Henan 3.80 bases” for the desalination industry, and Guangdong 0.80 ii three to fi ve “pilot cities” where new de- Tibet 9.90 salination projects will be encouraged and Gansu 8.30 supported as of 2010. Ningxia 43.80 The three “State-level pilots for seawater de- Hong Kong 0.60 salination and comprehensive utilization”, (Source: Haicheng 2006) chosen for the Seawater Utilisation Plan Chart 1: Forecast 2012-15 Desalination Capacity issued jointly by SDRC, SOA and the Min- 2.5Mm3/d istry of Finance in 2005 are Tianjin, Dalian Res t of China and Qingdao (See boxes: Pilot Cities). Two 7% to four desalination “engineering research Shandong 25% Zhejiang centres” should also be supported under 13% the plan. These are likely to be Hangzhou, Tianjin, Qingdao and Dalian. According to SDRC fi gures released in Oc- tober 2006, Chinese desalination projects Hebei 14% are meant to have reached a capacity of 800,000-1Mm3 per day by 2010, which Tianjin should cover 16-24% of the demand gap in 22% coastal areas. Liaoning 19% Our own research suggests that offi cial fi gures are somewhat underestimated because they do not take into account most Table 2: Projected Water Costs of the captive industrial capacity (see below RMB/m3 2005 2010 on how the SDRC fi gure is calculated). We Residential tap 2-3.7 3-6 estimate that by 2012-15, installed desali- Industrial tap 2.7-5 4-8 nation capacity in China will have reached Desalination 3.6-5 3-4 2.5Mm3/d. (See Market Analysis p34) (Source: Tan 2006)

Desalination facilities are proposed all along Brackish Water: A Worsening Situation the coast line from Zhejiang to Liaoning. China suff ers from a severe brackish water problem (See table Chart 1 shows the forecast capacity for the 1 and map p7). In 2000-2002, Chinese authorities surveyed un- fi ve provinces where desalination is being derground water resources. Available groundwater resources developed and the rest of the country. were estimated at 923.472 km3/year, a third of which (352.778 The quantum leap for the Chinese desalina- km3) could be abstracted yearly. Brackish water accounted for tion market should happen during the 11th 19.848 km3 of the annual abstraction volume. fi ve-year plan (FYP), which comes to an end The level of brackish water is also increasing with the gradual in 2010. By 2015-20, desalination capacity infi ltration of seawater in the groundwater reserves of coastal should have reached 2.5 to 3Mm3 per day areas, especially in Liaoning, Hebei, Shandong, Guangxi and or 26 to 37% of the demand gap depending Hainan. The Bohai Sea (Tianjin, Hebei, Liaoning) is probably on provinces. the most prominent example. In 2003, a total area of 2,457km2 2. How Projects Get to Market suff ered from seawater intrusion. This represents an annual increase of 62km2 since the 1980s around the Bohai Sea, when Institutional Set Up the aff ected area was estimated to be 937km2. The institutional framework regulating In the south, excessive salt in fresh water supply is also a grow- the Chinese desalination sector is often ill ing problem. The Pearl River estuary (Guangdong) suff ers understood. In reality, there is seldom any particularly from salt tides as a result of decreasing rainfall regulation of the sector. The Chinese gov- in recent years. The situation worsened in March 2006 as the ernment does not yet see desalination as biggest ever salt tide hit the area, gravely aff ecting supplies of a fully fl edged industrial sector, but more drinking water in the densely populated region. Hong Kong as an experimental one, requiring support, and Macao rely largely on water resources from Guangdong. that should be left to develop organically before the “right” path is determined and The treatment of brackish water is gradually gaining in impor- fi xed by Beijing. tance in these regions as well as in the central parts of China where the authorities are trying to address public health con- This is why the otherwise all-powerful Min- cerns due to the consumption of brackish water by the rural istry of Construction (MoC) is conspicuously population. Chinese researchers estimate that 38 million peo- absent from the sector’s regulation, fi nanc- ple are aff ected by such problems (Haicheng 2006). ing and conference circuit. Instead, Chinese desalination is under the umbrella of the Treated brackish water is a potentially important source of wa- SDRC. ter for agricultural and even household use in some regions. Business opportunities have also started to develop, includ- Technically a higher body of government ing a pilot project for brackish water treatment in villages and than the MoC, the SDRC has two assets: small towns in Gansu. A 100,000m3/d brackish water project prestige and funding (but not the kind of is also being developed in Dongguan (Guangdong) by Xidou- political kudos found in the higher levels of men, the leading Chinese desalination fi rm (see The Players). the MoC). The SDRC is typically active in na- Chinese companies can already compete with foreign compa- scent sectors like desalination which require nies in the Brackish water segment of desalination. fi nancial support but do not always off er immediate rewards and have not become part of mainstream infrastructure markets and procurement. NCMEDRI North China Municial Engineering Design and Research Institute Yuan Shuming [email protected] The other governmental body often found 99, Qixiangtai Lu Hexi District, Tianjin, 300074 in the Chinese desalination circuit is the +86 22 23545183 fax: +86 22 23545555 www.cnwg.com.cn State Oceanic Administration. The SOA has no power and little money. It also has no Formerly under the powerful Ministry of Construction, the in- real decision-making capacity in the sec- stitute is now a part of the China Architecture Design and Re- tor, and is primarily a research organisation search Group, a state-owned body governed by the National responsible for monitoring sea pollution, Asset Management Committee. It holds the important right studying and conservation of coastal wild- to undertake turnkey contract engineering, environmental as- life etc. However, the SOA is the cradle of sessment and project engineering supervision. a small but highly infl uential group of key Originally founded in 1952, the institute is the kind of super Chinese individuals in the sector. They are -engineering specialist body that only socialist states can cre- the “professor-entrepreneurs” (see next sec- ate, with hundreds of engineers, researchers, and one “nation- tion). al master” i.e. a member of the State Academy of Engineering. This absence of regulation in the sector has The institute was heavily involved in the development of the two simple consequences: LT-MED 10,000m3/d project designed by Entropie (Veolia) in - There is no offi cial central government tar- Tianjin (TEDA). get for installed desalination capacity

Pilot City One - Tianjin (Tianjin Autonomous Municipality) Following a special meeting on the development of the Chinese economy in 2005, the State Council, China’s highest political authority, designated Tianjin as the pivotal economic development area for the north of Chi- na. Chinese leaders now also insist that economic development be “scientifi c”, by which they no longer mean centrally-planned but environmentally friendly. As a consequence, Tianjin is the fi rst place where Chinese desalination will become a reality on a large scale. The city will capture about a quarter of all capacity installed by 2010. Tianjin offi cials say they plan to use 150Mm3/yr (411,000m3/d) of desalinated water by 2010 and 500Mm3/yr by 2020. Our research puts the 2012-15 fi gure at about 550,000m3/d (See Market Analysis). The municipality has strong government support to turn Tianjin into a full-scale desalination research centre that integrates research and development (R&D), production and project development. The development of local manufacturing of desalination equipment is a priority, with the Baocheng Group seen as a future leader in thermal plants manufacturing and Motimo as the leading Tianjin-based membrane maker (see The Players). In the long run, the Tianjin government wants the city to become a major exporter of desalination technology. Foreign fi rms are welcome but even in offi cial presentations the requirements of technology transfer are onerous for fi rms whose competitive edge lies in their technology. Existing desalination capacity in Tianjin was mostly built under the 10th FYP (2001-05) or before and amounts to 30,000m3/d. Planned projects, which include the rather avant-garde 100,000m3/d SinoSpring/Hyfl ux project in Dagang, amount to 470,000m3/d, not including extension phases. By 2020, Tianjin also intends to fea- ture the key “model projects” of the Chinese desalination sector, including a 250,000m3/d MED project and the upgraded version of SinoSpring at 150,000m3/d (RO). Seawater purifi cation is also being developed in Tianjin (Liu 2006). The largest proposed project consists of developing between 750,000 and 1Mm3/d of seawater purifi cation capacity and a new “pillar industry” of water purifi cation in Tianjin. Specifi c technology has been developed since 1987 by the Tianjin University of Science and Technology (powder activated carbon plus fl oatation) which promises clean seawater at RMB1/ m3 for aquaculture and recreational purposes. A system of pre-treatment and tanks is envisaged all along the northern coast line of the municipality. Seawater fi ltration projects like this one could become a source of high quality seawater in the Bohai Sea area, making RO a more viable solution. This fi rst project is located in the municipality’s Ligang new development area and may begin development in 2007. Tianjin Water Group is interested in the project, as is Veolia in a JV with Bohai Chemical (Veolia is also trying to JV with TWG for this project). The project includes the provision of water to a Hong Kong entertain- ment company for a new aquarium or water park and for the cooling of power plants. This is the fi rst step in the use of seawater in this part of Tianjin.

- There is no offi cial central government ap- Entreprises’ desalination projects are pro- proval process for projects posed by local governments to SDRC, which The oft quoted 2010 “target” of 1Mm3/d for can choose whether or not to support them installed desalination capacity in China is fi nancially. If it decides to back the project, not a target. It is an estimate of the total ca- SDRC provides the equivalent of 10% of the pacity of all planned and ongoing projects project’s capex. which will be online in 2010. This estimate is The rest of the project fi nancing must come prepared for the central government by the from the provincial level, local governments Tianjin and Hangzhou desalination research and bank loans. The relevant provincial gov- institutes (see next section) and is meant to ernment is normally required to match 50% be an accurate representation of how much of the funding from the central government, desalination capacity will come online dur- e.g. if SDRC gives RMB1bn, the province is ing the plan period. required to invest RMB500m. The provincial Neither do desalination projects need spe- government allocates funding to counties cifi c approval at the ministerial level. Indus- (rural local governments), which are also trial projects are mostly private ventures meant to contribute to the fi nancing of the and municipal projects are usually put for- project. Procurement is then taken forward ward by the local authorities that will ap- at the local level. (See box: Procurement prove them. Only integrated power and de- Rules and Design Institutes) salination projects fall under national power Unsurprisingly, even if municipalities make regulations and so always require specifi c it to the SDRC short list, a number of the approvalIII. Municipal and State-Owned planned ventures will never happen be-

cause the remaining 90% of capex can nev- of regulation or even of offi cial targets for er be secured. In eff ect, only the rich prov- installed capacity, there is no offi cial list to inces like Zhejiang are able to make such speak of. investments, whereas poorer provinces like Desalination projects, along with other Tianjin fi nd it a lot more diffi cult. projects supported by SDRC, are a way for This is why new projects are likely to go local governments to attract central govern- ahead faster in Zhejiang or Shandong than ment fi nancing into the local construction in the north. Unlike in other sectors, private and equipment market. Municipalities an- fi nancing has not proven to be a quick fi x nounce their intention to build desalination for less well endowed municipalities. In De- projects (thus entering the list of “planned” cember 2006 (at the time of writing), not a projects), encourage local fi rms to become single private fi nancing had been closed for involved and put in a proposal to the SDRC. a desalination project in China. (See box: Initially, all sorts of desalination propos- Desalination Project Finance: Mission Im- als were submitted to SDRC, including for possible?) very small projects. Since 2005, only larger The Project List ones (in excess of 50,000m3/d) are consid- This institutional set up goes a long way in ered (the threshold had previously been in- explaining the long list of offi cially “planned” creased to 10,000m3/d). desalination projects which so often con- This tends to infl ate the size of proposed fuses foreign developers. In the absence project but also eliminates the small-town

Pilot City Two – Qingdao (Shandong Province) Qingdao is a port city which is currently developing as a steel producing region (new steel mills are under construction). In September 2006, a plan to develop the seawater desalination industry of Qingdao was approved by SDRC, SOA, the Tianjin Research Institute for Seawater Desalination, Tianjin University and other institutions (i.e. the “professor-entrepreneurs”, see Who’s Who). This plan is the fi rst of its kind in China and should play a role in integrating desalination in future planning for other coastal cities. According to this plan, seawater desalination capacity is expected to reach 180,000-200,000m3/d in 2010 with an annual output value of RMB6bn (US$741m), and 350,000-400,000 m3/d by 2020 with an annual output value of RMB12bn. By 2010, 10% of tap water in Qingdao should come from desalination. The municipal government expects that the development of seawater desalination in the city will also promote the development of other sectors such as equipment manufacturing, polymer materials and technical services, which are meant to generate a combined output value of RMB20bn by 2010 and up to RMB40bn by 2020. Our research suggests existing and planned capacity in Qingdao of up to 250,000m3/d by 2012, but details of the subsequent wave of projects have not yet been announced. While Shandong will capture the largest share (25%) of forecast capacity (600,000m3/d by 2012-15), this is mainly due to a number of large nuclear power plant projects. Qingdao represents only a fraction of existing and future projects in Shandong. In Qingdao, the price of surface water is currently RMB3/m3 and the output price of desalinated water will be RMB5/m3. The overall water treatment costs should thus only have to rise to RMB3.2/m3 (for 10% of supply via desalination), according to Professor Gao (See Who’s Who). In December 2005, Qingdao started off ering subsidised tariff s to businesses using desalinated water. Tianjin and Dalian are the cities where experiments with foreign investors/designs are taking place, while Qingdao is the place where Chinese researchers are on a mission to create the fi rst all-Chinese desalination projects. Two pilot 3,000m3/d (LT-MED and RO) projects that are the fi rst of this kind have been built in Qin- gdao at the Huangdao Power Plant. The MED plant has been operating since March 2005. The RO project was commissioned in March 2006. According to Ruan Guoling (see Who’s Who), the tests show that the plant meets its design specifi cations, despite the small footprint of the power plant. The desalination units used are said to be 30% cheaper than foreign made ones. (See Case Studies) The success of the two pilot projects in Huangdao means that Professor Ruan’s team is pushing hard for the exclusive use of their proprietary technology to build the full scale, 206,000m3/d (50% LT-MED, 50% RO) plant planned for the power plant. 18,000m3/d of capacity will be used to supply fresh water to the city (including the Qingdao Economic & Technical Development Zone) with the remainder going to the power plant. The Qingdao Government is supportive of this and the central government has been asked to approve the plan. To date, it is not clear if international bidders will even be invited to bid for/participate in the project. Professor Ruan promises a plant that meets international standards.

Other Pilot Cities and Areas Dalian (Liaoning Province): The city of Dalian is the third “pilot city” to have received the central government’s seal of approval for desalination. It is a key port and an industrial hub. Operational desalination capacity in Dalian reached 34,000m3/d at the end of 2006. Another 335,000m3/d is planned for development over the next decade. Dalian is where Hyfl ux is developing the fi rst desalination BOO in China. Like Tianjin, it is situated on the Bohai Sea where poor seawater conditions can signifi cantly increase treatment costs. Zhoushan (Zhejiang Province) is a series of islands where a number of small-scale projects have been developed, principally by Xidoumen, the leading Chinese desalination company (and a branch of the Hangzhou Centre for Desalination Research). Cumulative planned capacity will reach almost 100,000m3/d by 2012-15. Overall, the province of Zhejiang should account for 13% of installed capacity over the forecast period, but the islands are one of the only locations where desalinated water makes up a large proportion of local drinking water supply. Tangshan (Hebei Province): Two planned projects (Caofeidian 1 and 2) will bring 250,000m3/d to Tangshan by 2010. Caofeidian is a giant harbour; through massive investment from SOEs, local, provincial and central government, the area will be transformed into an industrial hub with large port terminals, power plants and iron, steel and petrochemical production. In 2005, the government approved the relocation of the Capital Steel & Iron Plant (CSIP) from Beijing to Caofeidian. CSIP, the nation’s fourth biggest steel producer, is constructing a 15-million-ton plant in Caofeidian, in cooperation with the Tangshan Iron and Steel Corporation. Caofeidian is intended to be an industrial centre as well as a model of the “cyclical economy” – using by-products and waste products in other production processes. Waste gas from the steel plant will be collected to generate cheap electricity, which will be used for desalination. In southern China, the development of a desalination industrial centre will be pushed in Huizhou, Guangdong province. RO projects already exist on islands (Hainan) and development zones like the ones of Shenzhen and Guangzhou have a small number of industrial projects. In the Pearl River Delta, a 100,000m3/day brackish RO project is also in development. hopefuls from this grant-grabbing game. By ture sectors. 2010, subsidisies for desalination projects in the future, Larger installations will re- from SDRC should have come to an end ac- quire authorisations and permits that only cording to Tan Yongwen (See Who’s Who), the MoC and their counterparts in the re- and most (but not all) of the “projects that gions are allowed to deliver. Small projects never happen” should gradually disappear will still be approved at the local level. Until from the list of planned installations. desalination projects are large enough and The same infl ationary phenomenon can under the umbrella of the MoC, at which also be observed with desalination “pilot stage they may be structured like – or be cities.” While the central government did integrated with – independent electricity designate three cities as deserving special generation projects, the structure of the support for desalination, “pilot cities” are sector will remain extremely local and frag- springing up all along the northern coast- mented. line. The professor-entrepreneurs joke that soon all coastal cities in China will be “pilot 3. Market Development and Potential cities” for desalination. Market Development Two developments will transform the sec- The Chinese desalination programme was tor’s institutional framework: desalination fi rst launched by the State Commission of is going to become more common and de- Science and Technology in 1967-69, and salination projects are going to be larger. At covered electro-dialysis (ED), reverse osmo- the moment, the development of a desali- sis (RO) and distillation technologies. The nation project in China demands little infra- fi st projects were experimental small scale structure, especially for membrane-based systems and, until recently, sector develop- projects. ment has been slow. Moreover, as desalination and power gen- In 1981, a 200m3/d ED project was put in eration projects are developed, the MoC service on Xisha Island (Hainan). In 1997, will also have to be involved. Thus, as the a 500m3/d RO project was installed on desalination sector matures, control will Shengshan Island (Shengsi county, in Zhe- start to shift towards the Ministry of Con- jiang) (Tan, Shen et al. 2000). In 2000, two struction and procurement will follow the 1,000m3/d RO projects were developed better established rules of other infrastruc- Chandgdao (Shandong) (Fan, Zhang et al.

Table 3: China Desalination Yearly Market Size by Process ity had reached 180,000m3/d. At the end of Distillation RO 2006, 77 projects were in operation in China low est. high est. low est. high est. and online capacity had almost reached the 2001 $0 $0 $23,875,000 $28,650,000 380,000m3/d mark. Taking into account the 2002 $0 $0 $1,984,375 $2,381,250 likely delay in the implementation of some 2003 $700,000 $1,050,000 $21,359,375 $25,631,250 planned projects, our forecast for cumula- 2004 $3,000,000 $4,500,000 $20,156,250 $24,187,500 tive online capacity for 2012-15 is at least 2005 $60,000,000 $90,000,000 $13,487,500 $16,185,000 2.5Mm3/d. (See Market Analysis for a more 2006 $10,000,000 $15,000,000 $45,190,000 $54,228,000 detailed review) 2007 $20,000,000 $30,000,000 $281,000,000 $337,200,000 2008 $10,000,000 $15,000,000 $7,062,500 $8,475,000 Another important aspect of the Chinese 2009 $240,000,000 $360,000,000 $84,375,000 $101,250,000 desalination market, as the previous ex- 2010 $460,000,000 $690,000,000 $143,750,000 $172,500,000 amples suggest, is the level of local involve- ment. So far desalination in China has not 2003) and Shengsi (Zhejiang). been an FDI-driven sector. However, proj- All such demonstration or pilot projects ects have been small and have relied on im- were fi nanced by the State Commission of ported technologies. Science and Technology. In 2003, a 5,000m3/ Market size d RO project was commissioned in Shidao According to our research the Chinese (Roncheng city, Shandong) as the fi rst stage market for desalination projects was worth of a 10,000m3/d project fi nanced by SDRC US$55-70m in 2006 and should reach (Tan, Zhang et al. 2004). In 2004, the fi rst US$600-850m by 2010-12iv (see Table 3). SDRC-funded LT-MED (low temperature This fi gure is calculated by multiplying the MED) project was developed in Huangdao planned installed capacity by our low and (Shandong) with a capacity of 3,000m3/d. high estimates of capex unit costs for distil- The pace of development has considerably lation and RO processes (i.e. it is an estimate accelerated since then. According to our of future order books rather than actually research, by 2003, cumulative online capac- invoiced amounts).

Procurement Rules and Design Institutes Two aspects of Chinese municipal procurement are especially worthy of mention: the form of procurement contracts and the role played by local design institutes. Chinese municipal procurement contracts tend to take the same form for all utilities: municipalities like to break down the project into multiple contracts to keep control of the process. In 1997, the World Bank tried to change habits and funded a number of projects to be procured under turnkey contracts. Hangzhou in Zheji- ang was one of the fi rst cities to experiment with the programme. They hated it. Especially the part where the contractor (a foreign fi rm making wastewater plants) fi nished the project for less than the allocated project cost. Chinese authorities prefer to break up projects into several equipment contracts (‘performance contracts’), and thus be in a position to hand out favours, while retaining full control over design, supervision and construction. Thus, if a foreign company wins the tender to build, say, a water treatment plant, it will provide the design and most of the equipment, but the plant erection will be done by a company chosen by the local government (either a company belonging to the local government or chosen through tendering). There is no direct contractual link between the construction contractor and the foreign company. The latter only gets to monitor the construction process and control quality and progress. It also bears the risk of incurring penalties or not being paid if the project is not fi nished on time or underperforms, but it does not choose the erection team, and cannot impose penalties on the construction company if things do not go well. Some municipalities allegedly pick very bad erection teams. The foreign company is also obliged to work with the local design institute. Under the current regulations, a foreign company will submit all design drawings to the local design institute before construction starts. These designs must then be approved by the local design institute. Constructions plans that do not bear the seal of approval (quite literally, the “chop”) of the design institute will not be acted upon by local construction companies. This process is how a lot of unoffi cial “technology transfer” happens in China. According to major equipment makers in the water and wastewater sector, the products they marketed in China fi ve to seven years ago have now been copied to perfection and become ‘classics’ of the Chinese water and wastewater sector (Degremont’s AQUAZUR V® is a case in point). The local design institutes work hand-in-hand with local universities and researchers. Universities and research centres also have corporate arms (like Xidoumen, the RO company of the Hangzhou Desalination Research Centre, Beida Jade Bird, the company working on nuclear MED (Beijing University), etc) which can become serious competitors.

While the RO market is by far the largest to- Almost all municipal projects in existence day, the forecast size of the distillation mar- or planned use RO. However, a few large ket is much greater. Planned MED projects municipal MED projects are planned and, are large plants and they will represent 80% at the 2012 horizon, the split in municipal of the market in dollar terms by 2010-12. In desalination capacity should be in favour of the future, the largest number of projects MED by a factor of 1 to 2. will remain RO projects (see Market Devel- Two factors will determine the industrial opment). Thus, while there will be many vs. municipal split in the future: water tariff more opportunities in the RO market, the reform and how much municipal govern- really sizeable ones will be in the MED mar- ments care about drinking water standards. ket. The current dominance of industrial cus- Clients: Industrial vs. Municipal tomers is simply explained by the fact that Industrial end users account for the ma- companies are ready to pay for good qual- jority of installed desalination capacity in ity water in excess of the price of municipal China. Industrial facilities include power tap water. plants, chemical, petrochemical, pharma- As tariff reform is implemented, this diff er- ceuticals, electronics, etc. These industries ence should gradually disappear. However, are equipped with small-scale desalination the extent to which municipalities will wish plants for continuous and clean supply of to pump high-quality desalinated water in water. These small-scale desalination plants their network remains diffi cult to predict. predominantly employ RO. Industries cannot aff ord to use low quality This is mainly due to its low energy require- water, while local governments often can ments, high fl exibility under fl uctuating wa- aff ord to have citizens receive non-potable ter demand, easier operability in compari- water. son to thermal desalination plants, and the In this context, municipal desalination could effi ciency of the process is independent of be challenged by water recycling for exam- the source water. MED represents one quar- ple. It is a fact that while Chinese munici- ter of the number of projects. However, in palities do not prioritise quality, they need capacity terms, both technologies should to produce large volumes. They also value be more or less even by 2012 with about large projects. (See below: Reality Check) 600,000m3/d of industrial RO capacity and 550,000m3/d in industrial MED capacity. 4. Research & Technology Trends: past, present, future Both the industrial and municipal sectors are likely to witness an increased uptake of Since the beginning of the Chinese de- desalination water but the industrial sec- salination research programme in the late tor will retain the lead for at least another 1950s, progress has been slow but has re- 5 years. According to our research, indus- cently been accelerating. The SOA may be trial customers dominate the market both a toothless organisation when it comes to for current capacity (2006) with 78% of in- political and fi nancial power but a handful stalled capacity and future capacity (2012) of “professor-entrepreneurs” have emerged with 82% of capacity. from the various research centres and universities that fall under SOA control. The picture is similar in terms of number of projects: industrial users represent the Some of them saw the promise of the sec- majority of operational project’s customers tor early on. These SOA researchers have and of future projects’ as well (60% of proj- been working on desalination technologies ects have industrial customers in 2006 and for sometimes more than twenty years and 75% will have in 2012 – See Market Analy- have been instrumental in the develop- sis). This is partly a refl ection of the new ment, the recognition at the highest level regulation of the power and chemical sec- and the technical advancement of what is tors and the requirement that they become the Chinese desalination sector today. (See autonomous in terms of water supply. Who’s Who) On the municipal side, water shortages are A Brief History driving the need for desalination in islands In 1958, Chinese researchers started focus- and in the coastal north. With the help of ing on seawater desalination via electrodi- the Hangzhou Research Centre, some island alysis. Between 1967 and 1969, the National municipalities in Zhejiang have recognized Scientifi c Committee and the State Ocean that this process is a more reliable source of Administration joined forces to set up a water than piping water from the mainland. nationwide seawater desalination research

Desalination Project Finance: Mission Impossible? Hyfl ux is the only foreign investor currently trying to develop desalination projects in China on a project fi nance basis (limited recourse), even though there are other hopefuls like Brack Infrastructure (See The Play- ers). Hyfl ux has secured two projects with the municipalities of Dalian and Tianjin, but it has proven diffi cult to go past the MoU stage. This can seem surprising in a country which has seen plenty of private fi nancing in the water sector in recent years. However, fi nancing a desalination BOT is more like closing an IPP than signing a water concession agreement. There is no uniform decision-making process for desalination projects. For a BOT/BOO-type deal, the approval process is same as that for other municipal utilities. The so-called “concession model contract” promoted by the Ministry of Construction will apply to a desalination BOT/BOO. Legal advisers in China agree that this model contract favours the government, is very technical and does not deal well with commercial issues. The Chinese government is pushing this model concession contract as a way to minimise local government liability/ responsibility vis-à-vis investors. However, those investors with enough bargaining power can change or avoid the model contract altogether. When it comes to fi nancing, all major Chinese banks have been involved in infrastructure projects especially the China Development Bank. But decisions are taken by local branches of banks and few of them are familiar with limited recourse project fi nance. Thus, in most cases (but not all) Chinese banks will require corporate guarantees simply because it is just their way of doing business. In some cases, the Chinese JV partner will have given a guarantee for a large loan, part of which will be used for a JV with a foreign partner. The foreign party then does not have to provide any guarantee to the Chinese bank (this is how Veolia operates in China). These issues are usually easier to address in the power sector, because Chinese power companies benefi t from preferential conditions from banks. If the developer cannot aff ord to give a corporate guarantee (like Hyfl ux) then limited recourse fi nancing is the only way forward and, as Hyfl ux intends to, one has to go to the international loan market. A long term off - take agreement of some sort is then essential, especially the off -take pricing formula, given the input costs risk faced by a desalination project (energy, feed water, etc). This is a key diff erence between desalination project fi nance and other water fi nancings: higher exposure to input price risks, especially energy. A long-term water purchase agreement (service agreement) is not a guaranteed rate of return (offi cially illegal since 2002) but should suffi ce to convince a commercial bank. The real problem is that local governments are unfamiliar with long-term service agreements and are very reluctant to sign them. By all accounts, local government offi cials do not understand project fi nance, life-cycle costing or asset valuation, especially in the operating period (this is even true in the power sector). And even if they do understand, they are likely to pretend not to. This is why Hyfl ux struggles (and still was at the time of writing) to sign long-term purchase agreements for its desalination BOOs. And until it does it cannot close fi nancing (or start building). In Dalian, it is not even clear whether the client is the municipality. The local government is allegedly trying to pass on the risk of demand to industrial users.

programme looking into electrodialysis, re- pacity. The installation was completed in verse osmosis, distillation and any kind of 1998. With a level of water conductivity of seawater desalination technology deemed 2.7~7 μs/cm the system produced 45m3/h. of interest. (Ruan and Yin 2006) Distillation In the early 1990s, the Tianjin Municipal The fi rst steps in Chinese distillation date Science and Technology Commission sup- back to the 1960s, when the Research In- ported the development of a 100m3/d stitute 704 (Shanghai) developed a 5m3/d MSF test project. After that, the Tianjin In- steam distillation system based on cylinder stitute of Seawater Desalination developed heat recovery from diesel engines on war- a 30m3/d vapour compression distillation ships. By 1981, the fi rst Chinese MSF (multi- unit, a 30m3/d pressurised steam distilla- stage fl ash) unit had been developed and tion unit and a vertical tube steam distilla- tested in a Tianjin laboratory and yielded tion unit (operating temperature 72°C) as 72m3/d. In 1987, the fi rst industrial-size MSF well as 30m3/d OTE/VC system. A few years units were installed in Tianjin: 2x3,000m3/d later, Chinese researchers in Tianjin had de- provided by US-based Envra Supersystems veloped and tested a 1,200m3/d MSF unit. or ESCO (Zhang, Xie et al. 2005). In 1994, Hebei Electric Power Equipment Company MSF technology was introduced from Ja- participated in the development of an in- pan with a pilot project of 1,200 m3/d ca- dustrial application and, in 1998, a 3,000m3/ d MSF unit was tested successfully. The pro-

Key Chinese Desalination Research Institutes Reverse Osmosis and Membrane Technology - The Development Centre of Water Treatment Tech., Hangzhou (Prof. Gao, Prof. Tan) - China Oceanic Institute, Tianjin - Ocean University of China (OUC) Qingdao - Beijing Chemistry University (membrane distillation) - Zhejiang University (membrane distillation) Thermal Distillation - Tianjin University (Prof. Wang) (MSF) - Tianjin Institute of Seawater Desalination & Multipurpose Utilisation (Prof. Ruan) - Dalian Science & Tech University (Prof. Ma Xue Hu) - Tsinghua University (Professor Jia Haijun) http://www.coi.gov.cn/eoverview/index.html & http://www.coi.gov.cn/ (in Chinese) cess included 3 evaporator sectors, includ- Since the 7th fi ve year plan (1986-1990), ing 27 vessel stages. (Ma and Du 1999) reverse osmosis has featured amongst key Professor Ruan’s (see Who’s Who) Institute national research projects. The 7th FYP of Seawater Desalination in Tianjin then period saw the completion and develop- developed a 60m3/d LT-MED system which ment of Chinese-made low salinity reverse became operational in 2003. The water pro- osmosis membrane components and the duced was used for bottled water sold in construction of island-based demonstra- Tianjin. This work kick-started the Chinese tion projects. Through the 8th and 9th FYP LT-MED programme. In June 2004, another (1991-2000), research continued and new Chinese-made LT-MED unit was successfully composite polyamide membranes were tested at the Huangdao power plant in Qin- developed with a combination of locally gdao. The project was also led by Professor developed technology and imported prod- Ruan. The installed capacity is 3,000m3/d, ucts. at 6kWh/m3 with 9 eff ects (see Case Study). The fi rst milestone of Chinese-made RO ap- Recently, the University of Tsinghua (Bei- plications was laid in Shengzhou (Zhoushan jing), has developed a pilot MED unit with in Zhejiang Province) by Professor Gao (see dual tower stacked vertical evaporation Who’s Who) where, in 1997, a 500 m3/d RO tubes, designed to have an upper brine demonstration project was built with per- temperature of 120°C, a seawater mass fl ow formance comparable to those of Western of 3,300kg/h and a yield of about 180kg/h. systems of the same capacity (Ruan and Yin This Chinese-made system includes the 2006). steam generator, evaporator and pre-heat- Today, more than 10 SWRO pilot projects er, the fi nal condenser and seawater tank, have been developed by Chinese research and is coupled with a nuclear reactor. (Jia institutes and their corporate arms, the and Jiang 2003) Whilst this design is only largest of which has a 10,000m3/d capacity. at the pilot stage, the researchers working The fi rst partly Chinese-made SWRO system on the project predict that with a nuclear with performance comparable to western heating reactor of 200MW, their MED sys- systems was developed in 2004 in Huang- tem would produce 160,000m3/d. (Wu and dao (Qingdao). The system had its own en- Zheng 2002) ergy recovery device (pressure exchange) Reverse Osmosis and an energy recovery rate of 94 percent. It requires 4.5kWh/m3 (see Case Study). SWRO research in China also goes back to the 1960s. In 1965, the chemistry depart- Research Trends ment of the Shandong Sea Institute devel- China is making an important R&D eff ort oped the fi rst Chinese-made reverse os- in the area of desalination, as the number mosis CA asymmetrical test system. Later of papers, doctoral theses and researchers during the 1970s, hollow fi bre membranes attests. China probably ranks third behind research also started in China, including the US and Japan in the eff ort going into fi rst steps towards industrial production. desalination research. Chinese universities

Nuclear Plans Shandong Province is planning to build 3 nuclear power projects by 2010. The 3 projects are the Haiyang Nuclear Power Station in Yantai, Rushan Nuclear Power Station and Rongcheng Power Station in Weihai. The three plants are quite similar, with an annual capacity of 4 to 6GW and an investment of RMB40bn (US$4.8bn) to RMB80bn (US$9.6bn) for each project. To date, the National Development and Reform Commission and the Ministry of Sci- ence and Technology have approved the preliminary feasibility reports for the Haiyang and Rushan plants. But all three projects are still waiting for the fi nal approval from the central government. Jilin Province is also considering building the province’s fi rst-ever nuclear power plant. China Electric Power Investment Corporation plans to invest RMB40bn to build a nuclear power station with a capacity of 4GW. The company has already invested over RMB10m on preliminary construction. Jingyu, a county in north-east China’s Jilin Prov- ince, has been selected as the site for the plant because of its geological features after research done by the company and a local institution.

are now pushing forward the development nation has, in principle, been approved by the development of an indigenous desali- Chinese researchers and politicians. China nation sector. will, in the coming decades, procure nine The two dominant research centres are new nuclear power plants (it currently has in Tianjin and Hangzhou under the State four). In Zhejiang and Shandong, the deci- Oceanic Administration. In Tianjin, recent sion to develop desalination plants along- research has focused on distillation tech- side nuclear facilities is being translated nologies, while Hangzhou is where most into action. According to the SOA, most Chinese RO research is done. The reason for new nuclear power plants along the coast this split has to do with the local conditions and north of Zhejiang will include a desali- (especially the quality of feed water) and nation production project. (See box: Nucle- also with the early development of research ar Plans) on these topics in these cities. For this reason, nuclear desalination is, A new research centre is currently being set rightly, perceived as the next frontier in up in Hangzhou to develop more effi cient Chinese desalination research. Recently Chinese membranes. Broadly speaking, Chinese scientists have developed atomic most Chinese academics advocate the de- reactors to provide heating to desalinate velopment of hybrid plants with both distil- seawater, by burning used fuel from nuclear lation and RO elements. power stations under normal pressure. A pilot project will be established in the coastal Unusually for China, the main hurdle is size. city of Yingkou, with daily capacity 80,000 Chinese research institutes have developed m3/d. China is also funding nuclear desali- successful small pilot projects, but scaling nation research in Morocco at Tan-Tan on up is where Professor Ruan’s and Tan’s re- the Atlantic coast, using a 10MW reactor search teams encounter most problems. For with 8,000m3/d capacity (MED). RO, Chinese-made equipment still needs improvement of membrane performance, According to one of the main researchers high pressure pumps and energy recovery. on the topic, Professor Haijun Jia from Tsin- For thermal processes, unit footprint and ghua University, nuclear desalination is only peak temperature are the main problems. an economic issue in China, not a technical one. There are less public concerns about An important R&D eff ort is currently being making “nuclear water” in China and 10 reac- put in nuclear desalination. Nuclear desali- tors at 100,000m3/d each would be enough

Table 4: Made-in-China RO Systems Today 2010 Local makers market share 40% 70% Unit costs RMB4,500-5,500/m3/d RMB4,000-5,000/m3/d Energy consumption 3.8-5.5kWh/m3 3.5-3.8kWh/m3 Output cost RMB4.5-5.5/m3 RMB4-5/m3 (Gao 2006)

18 (C)2007 * GWI MARKET ACCESS: DESALINATION IN CHINA RESEARCH & TECHNOLOGY to supply the city of Beijing. The University An experiment was carried out on the Bohai of Tsinghua has had a pilot nuclear desali- Sea coast (Huanghua, Hebei Province) dur- nation project since 1998 (5MWt). In 2003, ing the 2005 winter, to estimate the cost of the 200MW/160,00m3/d MED design that peforming sea ice collection and desalina- Tsinghua researchers have been working tion. Based on this research, the cost of col- on was approved by the State Development lecting sea ice is estimated at RMB1.3/m3 and Planning Commission. of ice, to which must be added the cost of The fi rst argument that Professor Jia puts RO treatment (including pre-treatment and forward in favour of nuclear desalination RO processes) at between RMB3.9-6.4/m3 in China is that RO systems still require im- of water produced. One of the potential ported technology (high pressure pumps, uses of this technology is to recover energy energy recovery devices and SWRO mem- during the sea ice melting process to make branes) and that nuclear-powered thermal (fresh water) ice. desalination would not. Realistic or not, this The Future: RO or Thermal? kind of argument is likely to infl uence fu- As there is no offi cial target for desalina- ture planning decisions. tion capacity (see above), there is not one Chinese research institutes are also con- for the future RO/distillation split. One of stantly experimenting with new desalina- the obvious parameters driving the choice tion technologies. Recent experiments and of process is geography and the associated avenues of research include: issue of feed water quality. However, local Dewvaporation: a desalination process in perceptions might play an even greater which a humidifi cation and a dehumidifi - role. According to our research, in the me- cation processes are simultaneously per- dium term, MED and RO will compete for formed in one continuous contact tower. the fi rst place in terms of installed capacity, Experiments for seawater desalination were because MED will be used for some of the conducted in the Qinhuangdao Peninsula larger power sector projects, but by number area with feed water at TDS 50,000ppm. A of projects, RO will remain the most used scaling inhibitor Sokalan PM 10-I provided technology, especially in the municipal sec- by BASF was used during a 24-day continu- tor and with Chinese clients in general. ous fi eld test without cleaning the tube So far the record is in favour of RO. More wall surface. The heat transfer coeffi cient RO projects have been developed and and fresh water productivity was found to competition is becoming fi erce. However, be very stable. The tower was made up of plant size is still small by international stan- a vertical shell-tube desalination unit with dard. The largest RO project in China is the brass tube, mixed graphite-polypropylene Huaneng Yuhuan Power plant project with tube and self-making polypropylene tube, a capacity of 34,560m3/d and single units respectively. Low-grade heat and solar of 5,760m3/d (Liu and Pang 2005). Not the heating system are used. kind of mammoth that one is used to in Membrane distillation: A direct contact the Middle East. But the professor-entre- membrane distillation (DCMD) study was preneurs are optimistic that Chinese-made carried out in Tianjin for desalinating Bohai RO can take over a signifi cant share of the Sea water using polypropylene hollow fi bre market in fi ve years. According to Professor membranes (fi ber I.D. 400μm, wall thickness Gao, by 2010 Chinese RO units will reach 200μm, pore size 0.2μm and porosity 70%). capacities of 20,000m3/d and some 100- The TDS value of Tianjin Bohai Sea water is 300,000m3/d demonstration projects will around 31,000mg/l. The DCMD water fl ux be online, especially in Qingdao and Tianjin, proved to be the same as that of RO at an with nuclear power projects. He also fore- operating temperature of 75°C, and two casts a 30% drop in the cost of equipment times higher than RO at 90°C. A new mem- and a 20% drop in the overall cost of water brane distillation experiment with a capac- production. Table 4 summarises his esti- ity of 10m3/d is being developed. mate and forecast of what made-in-China RO can achieve. Sea ice desalination: Over 100bn m3 of sea ice can be found in the Bohai Sea every win- The distillation sector still has to develop ter. Once melted, the collected ice can gen- the kind of reputation that RO now enjoys erate brackish water of much lower salinity in China. There are only three recent ‘refer- than seawater. This brackish water is more ences’ in the Chinese thermal sector: TEDA suitable for RO treatment than direct SWRO and Huanghua, both LT-MED plants and in the Bohai Sea area. both built by Veolia (Entropie and Sidem), and Huangdao, developed by Professor

Ruan in Qingdao. North China has dirty, is an increasingly competitive market with highly saline seawater which makes RO many small-to-medium scale applications costly because of pre-treatment, even po- in demand in industrial sectors and it will tentially uneconomic. gradually take off with municipalities in Still, even in the north of China, develop- places where a decent supply of feed water ers interested in distillation fi nd themselves can be found. faced with a diffi cult task when pitching Distillation is not a very competitive market their technology to local offi cials. Chinese (there really are but three active players in clients fi nd it diffi cult to understand why the market and only two have built plants), they should pick a technology which costs so it can be more diffi cult to break in, but it a third or even 50% more than RO up-front. should mechanically benefi t from the pro- This phenomenon is akin to the problems curement decisions regarding the power faced by Hyfl ux when trying to secure a sector in coastal areas. In the long run, those long term purchase agreement (see box: that are in a position to off er both solutions Desalination Project Finance, Mission Im- in an integrated manner will be the best possible?). In Chinese municipalities, and to placed to respond to desalination demand a large extent in SOEs too, investment and in the Chinese market. This certainly is what operations budgeting is done separately, Professor Ruan has in mind. and little or no eff ort is made to take “life- cycle costs” into account. Thus, one of the 5. Competition Analysis favourite catchwords of the plant equip- Economic nationalism certainly plays its ment salesman (“My product can lower part in Chinese desalination, maybe even your LCC!”) falls on deaf hears. more than in other sectors. While the strategic and sensitive nature of the water sector Furthermore, new technological develop- has not stopped foreign companies from ments and projects (seawater fi ltration at thriving in China, Chinese desalination is a RMB1/m3 in Tianjin, frozen seawater desali- small world and revolves around the “pro- nation, etc.) may make RO more viable in the fessor-entrepreneurs” who are on a mission north of China. Thus not all northern proj- to show what Chinese engineers can do ects will necessarily use distillation. Howev- and also stand to gain personally in terms er, two factors work in favour of distillation of prestige, career advancement and fi nan- processes over RO: in the short term, most cial profi t from the development of made- future large projects are linked to (nuclear) in-China desalination. The primary objec- power plants and this favours distillation tive of the two pilot projects in Huangdao (even though it does not exclude RO). (Qingdao) developed by Professor Ruan is In the medium term, MSF/MED has a fun- to demonstrate the feasibility of made-in- damental strategic advantage over RO: Chi- China desalination, including project inte- nese companies can do it. Professor Ruan’s gration, and at a lower price than foreign- Huangdao project is 95% made-in-China made units. (See Case Studies) and performs well. If his team can make larger units soon, he will have a strong Developers and EPC Contractors comparative advantage. Indeed, Professor Profi ts for developers in the Chinese de- Ruan has been involved at the design stage salination sector are still to materialise. Only in Entropie’s 10,000m3/d TEDA project and one company is active as a fully-fl edged “de- his team learns fast. (See box: Procurement veloper” (i.e. investor) in the Chinese desali- Rules and Design Institutes) Amongst those nation sector: Hyfl ux. So far, with very little who are trying to sell MSF/MED in China, it is result and long delays. Other hopefuls are often predicted that RO will cost more than Brack Infrastructure and IDE from Israel, and announced. Some put the ex post output the Spanish and Italian usual suspects. But price of Yuhuan at RMB7/m3, others even it is not even clear if these future entrants call the Hyfl ux project in Tianjin “a lie.” would go for the BOT/BOO-type projects favoured by Hyfl ux. Asked if he had any inter- Whether or not the critics of RO are right est in BOTs, the manager of a Chinese maker about the long term costs of pre-treatment of power plant parts who is now pitching to in China, there is enough space for both build MSF plants, replied: “I don’t want to technologies to develop in the Chinese lose money!” market at the moment. In the long run, a number of projects are likely to combine In eff ect, most existing projects have been distillation and RO. Hybridation certainly developed on an EPC/turnkey basis and is what the scientists who advise SDRC on then handed over to a client for operations. these matters recommend (Gao 2006). RO It is worth mentioning that this is an oddity

20 (C)2007 * GWI MARKET ACCESS: DESALINATION IN CHINA COMPETITION ANALYSIS in China, where turnkey is not the norm for op larger capacity plants soon, as is the plan municipal projects, which are normally de- in Huangdao (200,000m3/d by 2010). veloped under separate contracts (See box: To avoid being outfl anked by Chinese com- Procurement Rules and Design Institutes panies, foreign players in the RO market p14). Until now, the level of technicality have made a number of acquisitions: and the small size of projects made system integrators the only companies capable of - Heng Tong Water Treatment Engineering, delivering projects, especially RO ones. As a packager of reverse-osmosis, membrane projects grow larger, Chinese municipal and other water treatment systems, was procurement ways start to prevail again: in bought by ITT in 2004. However, this has not TEDA, Entropie did not deliver the project turned into a stream of projects. Hen Tong themselves. They could only provide the does not have any desalination projects at design and then monitored a contractor the moment, even though it did compete and an erection team chosen by the Chi- for a small project in Shandong (200m3/d) nese client (Baocheng Steel). unsuccessfully. Competition in the project delivery market - In July 2006, Dow bought the Chinese UF has thus been limited and only a few play- membrane company Zhejiang Omex Envi- ers have established themselves as reliable ronmental Engineering (originally the Chi- suppliers of full desalination solutions. It nese subsidiary of a Texas-based Omexell). remains diffi cult to predict which of the for- Prior to being bought by Dow, OEE had se- eign developers or the Chinese will benefi t cured its fi rst 10,800m3/d SWRO project in most when the market takes off . Hebei. OEE can act as a designer and project developer as well which gives Dow the The RO market is characterised by numerous opportunity to off er full RO solutions. small-to-medium size opportunities and segmented competition: on the one hand, - In June 2006, Bejing CNC, which developed there is very high competition in the pre- the Yuhuan (Zhejiang) Power Plant project treatment and pressure vessel segments (35,500m3/day, the biggest RO project in with hundred of local companies produc- operation in 2006 in China) was acquired ing MF/UF membranes and gravity fi lters, by Siemens. CNC benefi ts from a strong re- as well as good local PV makers (ROPV in lationship with SDRC, especially for power Harbin). On the other hand, there is “regu- plant projects. This might prove to be a very lar” competition between foreign makers smart move on the part of Siemens. CNC in the RO membrane and HP Pumps/ERD also is a project developer, a competence segments, with nascent competition from a that Siemens had been lacking so far in handful of Chinese makers. China (apart from a couple of small RO project delivered by US Filter, another Siemens In this context, foreign equipment makers acquisition). have an advantage in some of the key parts of the RO market and can hope to main- By number of projects, the professor-en- tain that lead for another fi ve years or sov. trepreneurs dominate the current state of However, the RO market leader by number aff airs, along with a German provider of of projects developed is a Chinese com- small-scale solutions (Prominent). In terms pany: Xidoumen, the project development of installed capacity, Siemens and GE are branch of the Hangzhou Desalination Re- fi rst but a look at recently awarded proj- search Institute (See table 5 and 6). ects (table 5b and 6b) shows a diff erent picture. As far as projects that have already While Xidoumen buys ERI, Grundfos, Hy- been awarded are concerned, the profes- dranautics or Dow equipment, they have al- sor-entrepreneurs are taking a clear lead, ready demonstrated that they could cut out especially as Hyfl ux’ projects continue to be the middle man in the person of the foreign delayed. project integrator/EPC. This is also what another Chinese company, Beijing CNC, was in The distillation market presents a diff erent the process of demonstrating when it was competitive picture. Opportunities are less bought by Siemens in June 2006. The main numerous than in the RO market but they constraint for Chinese companies is plant are more sizeable; they are also more uncer- size. Professor Gao says that Xidoumen tain in the short run. But local competition is needs to evolve towards 10,000-20,000m3/ more direct than in the RO market: Chinese d units and plants of 100,000 m3/d. By 2020, companies can already design and make he plans to develop plants with a capacity MED plants as in Huangdao but, again, they of 300,000m3/d. He insists that hybridisa- are limited in size (3,000m3/d MED was the tion will allow Chinese companies to devel- threshold in 2006).

Table 5: Most Active Developers by Number of Operational Projects Plant Supplier ED MED MSF MVC RO Total Xidoumen 1 16 17 ProMinent 8 8 Tianjin Institute of Seawater Desalination 1 1 2 4 Siemens (CNC) 2 2 Fangdar 2 2 GE 2 2 4 H&W 2 2 Peninsula Water 2 2 Ace Water 1 1 Veolia (Bekox) 1 1 Graver Water Systems 1 1 Guanxi Yuchai Group 1 1 Hydropro 1 1 Kobelco Eco Solutions 1 1 MT Freshwater Marine Technology 1 1 Omex Environmental Engineering 1 1 Siemens (US Filters) 1 1 Veolia (Entropie) 1 1 Veolia (Sidem) 1 1

Table 5b: Awarded Projects (not yet operational) Plant Supplier MED RO Tianjin Institute of Seawater Desalination 3 3 CNC 1 Hyflux 2 Xidoumen 6

Table 6: Most Active Developers by Installed Capacity Plant Supplier ED MED MSF MVC RO Total Siemens (CNC) 50,060 50,060 GE 3,000 29,592 32,592 Xidoumen 600 22,180 22,780 Fangdar 11,520 11,520 Omex Environmental Engineering 10,800 10,800 Veolia (Bekox) 10,000 10,000 ProMinent 7,924 7,924 Graver Water Systems 6,235 6,235 Tianjin Institute of Seawater Desalination 3,000 60 4,000 7,060 Peninsula Water 4,000 4,000 Guanxi Yuchai Group 2,000 2,000 H&W 1,000 1,000 Ace Water 420 420 MT Freshwater Marine Technology 360 360 Kobelco Eco Solutions 140 140 Siemens (US Filters) 120 120 Hydropro 100 100 Veolia (Sidem) 60,000 60,000 Veolia (Entropie) 10,000 10,000

Table 6b: Awarded Projects by Capacity (not yet operational) Plant Supplier MED RO Hyflux 200,000 Xidoumen 192,000 CNC 21,600 Tianjin Institute of Seawater Desalination 200,000

Table 7: Cost Advantage of Chinese MED Construction 20% cheaper Operation 40% cheaper Maintenance 40-60% cheaper (Source: Ruan 2006)

At the moment, only foreign developers ment makers’ survival in the Chinese mar- can make larger plants and Chinese-made ket. Professor Gao reckons that in 10 years, MED units tend to have a larger foot-print Chinese companies will have 20-30% of the and be less effi cient but they are also less project development market and that Chi- costly (Table 7). nese companies could reach the 10,000m3/ To stay ahead of local competition, Entropie d threshold in the next 2-3 years. and Sidem off er advanced systems, some- In the distillation sector, the competition times with tailored design (see Case Stud- landscape has remained more stable than ies). By the time the large Chinese MED in RO: Veolia is the leader (through Entro- projects come to market, the technical lead pie and Sidem), and IDE is moving forward, of foreign makers will have shrunk. Chinese recently secured a partnership with Beida researchers and their corporate shadows Jade Bird (Beijing University). An interesting are constantly testing and implementing case is LHI, playing the outsider and propos- new designsvi. ing Italian MSF technology (See The Play- Between releasing their designs to local ers). In less than two years, Professor Ruan’s design institutes and not being able to pick company will also be bidding against all of the erection team or indeed some of the the above. key contractors, foreign makers lose their Equipment makers competitive edge in only a few years. Pro- The Chinese desalination equipment mar- fessor Ruan is the Vice Chief Engineer of the ket is every bit a quandary. You have to get main MED research institute in Tianjin, he is involved now to benefi t from the high mar- also the main point of contact for all desali- gin business on products that cannot yet be nation project tendering in TEDA and he is manufactured by Chinese companies. Even the head of the company that develops the with R&D, most players in the market reckon future competition of foreign MED provid- that, in 4 years, it will be a lot more diffi cult ers. This is almost as if Veolia had to hand to make money because local competition over their design and bid details to Suez in will have copied foreign products almost to order to be allowed to bid for a project. perfection. This is also happening in other sectors (See However, now is also the hardest time to box: Procurement Rules and Design Insti- enter this market because the direction in tutes) and the range of products and tech- which it is heading is diffi cult to predict, it is nologies which characterises a particular diffi cult to tell serious projects from chime- sector is what determines foreign equip- ras and having the right Chinese contacts

Table 8: Membrane Companies Active in the Chinese Desalination Market Name Made in China RO Membranes Market Entry Ownership Asahi Kasei no no 1975 Foreign Siemens no no 1980 Foreign Pall yes yes 1993 Foreign Hyflux no yes 1994 Foreign Hydranautics no yes 1996 Foreign Dow no yes 1998 Foreign CSM no yes 2000 Foreign Omexell yes no 2000 Foreign Koch no yes 2002 Foreign Toray no yes 2003 Foreign Motimo yes no 1974 Local Bei Fang yes yes 1984 Local Qianqiu yes no 1992 Local Tianwei yes no 1996 Local Zhaojin Motian yes yes 1998 Local MegaVision yes no 2001 Local Shijie yes no 2001 Local Vontron yes yes 2003 Local Beidouxing yes yes 2005 Local

remains crucial. charge US$130 for a 4” membrane and Can the Chinese make RO membranes? US$400 for an 8” membrane, which is on par with Korean makers and 30% cheaper The Chinese Government is committed to than US makers. Several industry insid- supporting the development of the local ers estimate total demand in 2006 to be industry. Membrane technology has been around 150,000 units. At an average price on the list of programs of recent Five-Year of US$500, the RO market in China is worth Plans (the current one included) for the US$75m in 2006. Development of Science and Technology formulated by the Ministry of Science and As for pre-treatment products, UF & MF Technology. The sector is also receiving spe- membranes are produced by hundreds of cial funds from SDRC for further develop- Chinese companies. In a Special Public Re- ment and applications. Outside the munici- port on “Organising and Realising the Mem- pal water sector, the expansion of China’s brane Technology Industrialisation” by the petrochemical, medical, pharmaceutical, State Planning Commission (2001), Chinese electrical and food industries is also pulling UF and MF membrane standards are meant demand for membranes in China. to have achieved the 1990 international standard by 2005, while RO and NF mem- A number of market participants argue that branes are planned to have reached the Chinese companies cannot produce decent “demonstration stage.” Most people in the RO membranes. There certainly are Chinese market recognise that the Chinese mem- company selling RO membranes and in- brane industry has met the expectations of creasingly SWRO membranes. Whether or the State Planning Commission. According not these Chinese-made membranes will to offi cials, China will eventually develop a have a detrimental impact on project life- system of “seawater utilisation standards” cycle costs is matter for discussion, but not both as a way to regulate the industry and necessarily one that sways municipal clients of protecting national champions (“Seawa- (see Reality Check below). Beidouxing, the ter Utilisation Report” SDRC, SOA, MoF). second company of the Hangzhou Desali- nation Research Centre has set up 2 com- Today however, there remains a big gap be- posite RO membrane production lines, in tween Chinese players and foreign ones in Hangzhou (Zhejiang) and in Guiyang (Gui- membrane manufacturing. Most of the RO zhou), with production capacities just be- membranes currently supplied in China are low 2Mm2/yr. According to Professor Gao, supplied by large foreign corporations (See four companies can produce composite RO Table 8). In our survey of the membrane membranes in China. market, the company that was most fre- quently mentioned as a key competitor in - The “8271” factory (Bei Fang) in Liaoning China was Dow, followed by Hydranautics, - Zhaojin Motian in Shandongvi followed by Toray, Koch and GE (Toboyo has barely entered the Chinese RO market, they - Beidouxing in Hangzhou say thay have troubles fi nding out which - Huitong (Vontron) in Guizhou projects are real and which are not). These companies cannot yet produce mem- Because these groups are resisting tech- branes up to the quality of foreign makers’ nology transfers the vast majority of mem- (they have a salt rejection ratio of 94-99.4% branes used in China are also imported: compared to 99.8% for foreign made ones). 50% of MF membranes are imported, so are But they can be used for brackish water RO, 90% of RO membranes, 50% of UF mem- where they are as eff ective as foreign-made branes and nearly 100% of gas separation membranes. As with plants, the main hur- membranes (China Membrane Industry As- dle for Chinese companies is size: Chinese sociation). But these membranes are used makers can do 8” diameter membranes (the in a range of industries and the market is international standard) but cannot reach getting bigger. The UF and MF segments the 16” standard or above. For now, Chi- are growing much faster than RO and NF. nese SWRO membranes can only be used Hydranautics for example says that in the for small projects (e.g. Mayi Dao 300m3/d RO and NF sector, there are only 7-8 com- SWRO in Zhejiang). panies with which they compete in China, The prices of RO membranes in China have whereas there are hundred of competitors been going down. In 2002, an 8” RO mem- in the UF & MF markets, as Norit knows only brane sold for US$600 and in 2006 the same too well. In the UF market Koch is in a lead- 8” RO membrane goes for less than US$500. ing position but not in the kind of dominant Chinese makers can do even better. They position achieved by Hydranautics and Dow

24 (C)2007 * GWI MARKET ACCESS: DESALINATION IN CHINA REALITY CHECK in RO market. years. The 500m3/d RO project in Sheng- Motimo Group is the fi rst Chinese compa- shan (1997) had a turbine-type ERD (the ny which researched and developed PVDF fi rst in China at the time) which lowered its products and is increasingly a serious com- energy consumption to below 5.5kWh/m3. petitor in the UF segment. The company Later projects mostly used ERI’s PX system has been ear-marked to become of the pil- with energy consumption below 4kWh/m3. lars of the Tianjin “desalination engineering Chinese-made ERD are currenlty being de- centre”, under the seawater desalination veloped by engineering research centres. plan. Motimo and Vontron are the most of- Professor Wang at Tianjin University is work- ten mentioned Chinese competitors in the ing on made-in-China ERD but on a small- pre-treatment for SWRO market. scale (1,000m3/d) and testing is underway. For now, ERI’s PX dominates the market. We selected the 19 leading membrane makers in China (See The Players): just under What happened to ERI’s competition? half of them (9) are local companies, and Calder in particular, which has a strong po- more than half (11) produce in China. While sition in the ERD market globally, only has some of the Chinese membrane makers one lead in China for its Dweer: the Hyfl ux have been in existence for 30 years, usually project in Tianjin (which means they are as part of a university, the local companies unlikely to invoice any time soon). ERI, on that now compete in the Chinese mem- the other hand, managed to develop a rela- brane market (and worldwide) are very re- tionship with the professor-entrepreneurs, cent. Vontron and Beidouxing, the leading got its equipment featured in small-scale Chinese SWRO membrane makers were cre- but politically important RO projects led ated in 2003 and 2005 respectively. Most of by Professor Tan Yongwen from Xidoumen them have obtained ISO-certifi cations (but and started building a reputation in China. not all). These fi rst steps were instrumental in getting the Yuhuan project, the largest RO proj- According to our research, Hydranautics ect so far, and this has now established ERI’s currently dominates the US$75m RO market reputation in China. with total revenues of more than RMB200m (However, Vontron is increasingly consid- Chinese procurement is a world of blue ered a serious competitor price-wise, and prints: once a model has been established, even backs this up with decent customer most municipalities will apply it. This is true support). But the SWRO market is not a for two reasons: centrally planned econo- mirror image of the Chinese RO market. In mies tend to promote the standardisation SWRO the current leader is Dow (Filmtech) of projects and once a project has been with a market share that we estimate at 50% dubbed a “model”, local offi cials will choose based on a large but incomplete sample of to replicate it rather than taking the risk of the current installed capacity. Chinese RO developing a less successful venture and makers together have 5% of the SWRO mar- endangering their careers. Still, ERI does ket. face competition, from Pump Engineering or KSB for instance (See The Players), but GE is the leader of EDI membrane mar- the way it has established itself in the market with a 67% market share. When taking ket is exemplary. into account awarded projects, however, especially brackish water projects, the pic- Chinese-made high pressure pumps are ture changes considerably, with Hyfl ux and also lagging behind and there is a good win- Tianwei gaining substantial market shares dow of opportunity for foreign makers like against incumbents Dow and Hydra. Sulzer (which secured an order of its HP506- 100 for the Yuhuan SWRO project), Danfoss ERD, HP Pumps and Pressure Vessels (which is well placed in the small RO market Chinese manufacturers still have some way thanks to the Hangzhou desalination re- to go in the domain of high pressure pumps search insitute) or KSB (Yingkou Power RO and energy recovery. But they are already project). Flowserve opened its new pump, catching up fast in the pressure vessel sec- valve and seal manufacturing facility in Su- tor with several active and successful mak- zhou (Anhui) in Agust 2006. Low pressure ers. pumps however, can be manufactured by Chinese companies. Energy Recovery Devices (ERD) are a good example of how the Chinese desalination Finally, the pressure vessel market is anoth- market works and can be the opportunity er good example of how the desalination to make money or loose some. ERD have equipment market develops. The market been used in Chinese projects for about ten leader in China is ROPV, a 100% Chinese

company based in Harbin (Heilongjiang). costs RMB1/m3 (average) and the munici- The Manager of ROPV is one of Tan Yon- pality has no immediate plan to raise tar- gwen’s best friends. As for ERI, Professor iff s above this level. Likewise, a signifi cant Tan has established ROPV has the standard increase in fuel-energy and material (steel, in Chinese RO plants. Other PV makers, copper, nickel and concrete) costs may have Chinese and foreign, have a much smaller a dramatic impact on capital and operation- share of the RO market. al cost of desalination plants. 6. Reality Check Alternatives Risks in thsi context, alternative supply solutions, especially Chinese-made ones, are likely to Despite high-level offi cial support, pilot be favoured for municipal projects. Cheap programmes and the general enthusiasm technologies are being developed to har- of Chinese engineers about the prospects ness fresh water from impure water sources. of desalination in China, a number of limita- Water recycling has been set by the Chinese tions and hurdles may limit foreign players’ government as an equally important area of entry in the sector. development than desalination, if not more Local Competition important. Local developers have a leading position Beyond the pilot areas, desalination may in today’s Chinese desalination market be- be viewed by many municipalities as the cause most projects have been small. In this last technology to develop after eliminat- segment of the market (below 50,000m3/d) ing other more cost-eff ective technologies. local competition is signifi cant, and is likely These developments will benefi t the mem- to intensify. Chinese desalination is also a brane industry in general, but water recy- small world dominated by the professor- cling projects may become direct competi- entrepreneurs and where not much gets tors of desalination projects. Likewise, the done without their being involved. In the building of new dams, in conjunction with market for larger projects, local competi- the development of the Chinese wastewa- tion is almost inexistent for now. But this ter sector may provide very competitive al- may have changed by the time these large ternative sources of supply. projects get to market. While such cost-eff ective technologies are Input Costs not as effi cient as the desalination pro- A diff erent but related challenge to the fu- cess and the resulting purity of the water ture of desalination in China is linked to the produces is much below the quality of the future cost of inputs and the eff ective cost output of desalination plants, the munici- of desalinating water vs. the eff ective level pal sector is budget constrained and may- of water tariff s in Chinese cities. ors may prefer cheaper technology such as physical fi ltration. It is a rule of public Desalination is an energy and capital inten- procurement in China that local offi cials sive process. The amount and cost of fuel will channel funds towards visible projects. consumed to desalinate seawater will be- the public fi nancing of the water sector has come one of the main factors determining lond suff ered from this. future operational costs. Similarly the materials selected and the increased cost of ma- Clients terials for desalination has a signifi cant im- The optimistic outlook on the number pact on capital costs and on maintenance. and size of future projects may also be dis- These rising costs will be a major factor in torted by the Chinese context: in China, choosing between process and technolo- capex funding is cheap and relatively easy gies (Awerbuch 2006). to come by; opex funding, especially if it is However, the kind of forecast often present- municipal, tends to be much more diffi cult ed in the industry and used in China to pro- to line up. It is (relatively) far easier to raise mote desalination as an effi cient solution to a loan for the capex of a huge project than water shortages, assumes limited changes to secure municipal budget lines for plant in future world energy and commodity pric- maintenance. es. Such forecasts also assume a permanent This could mean that some (wealthier) mu- increase in municipal water tariff s in China. nicipalities will undoubtedly prefer higher In a nutshell, it assumes that the future will unit cost solutions and passing on the bur- be like the past. However, there already are den to end users through higher tariff s i.e. exceptions of signifi cance to the rise of mu- they would chose distillation over RO. How- nicipal water tariff s: in Shanghai water still ever the feedback in the distillation market

26 (C)2007 * GWI MARKET ACCESS: DESALINATION IN CHINA REALITY CHECK tends to be that it is much harder to sell presents great opportunities and has enor- MED over RO to a municipal client. What mous growth potential. The drivers are the Chinese context surely suggests is that present and desalination technologies re- a number of municipal projects will not really can help answer some of China’s worst ceive the future level of maintenance (e.g. water problems. Other factors support membrane replacement) that equipment this trend: the decision to relocate Beijing suppliers might expect.vii and northern China’s industries along the Chinese municipalities can also prove diffi - coast and around Tianjin has already been cult when picking their private sector part- taken; the regulation requiring that power ners. Having good products and experience and chemical plants be water-suffi cient has in the market usualy is not enough. If the been passed; the cost of water shortages trend in municipal water projects is any- and seawater infi ltration has been assessed thing to go by, then the fact that Chinese and is now offi cially recognised by Chinese competitors have no experience whatsoev- authorities, central and local. All these fac- er in running water plants is not what stops tors combine to create a favourable devel- them from competing fi ercely against the opment environment for desalination proj- more experienced foreign operators. ects in the country. Another key client issue with municipal Still, a clear commitment of Chinese author- desalination is one of perception. The dif- ities in favour of desalination has not yet ferent processes are often perceived as too been made. Until targets for desalination complex and costly. Desalination is still con- capacity are included in the FYP, the Chi- sidered as emerging technology amongst nese authorities will not have demonstrat- municipal offi cals and end users are not ed such a commitment the way they have confi dent in the technology. With the ex- done in, say, the wastewater sector. But, the ception of very large projects, decision inclusion of desalination capacity targets in making is a local aff air in China and percep- the next FYP is quite likely. tion matters. Until then, the list of planned desalina- The fl ip side of that coin is the undeniable tion projects in China contains a number “fl agship” aspect of desalination projects, of “ghost” deals and chasing a project that especially in a country run by engineers: i.e. may never happen is everybody’s night- projects are built “because it can be done” mare. So which projects are realistic? As a (as Hyfl ux’ VP for Projects would say of general rule, one can say that small projects Tuas). Like in Singapore, it does not neces- will happen before larger ones. sarily mean that a long string of RO projects Municipal Clients will follow in every city. The municipal desalination market is not Institutions and Politics going to grow fast in the next fi ve years. In- Finally, the issue of competition between deed, demand for desalinated water is too technologies may also have an institutional low and the price of desalinated water too dimension. While desalination projects are high. Municipal water demand is complex. developed at the local level, sometimes The well-known statistics about the imped- with the backup of the SDRC, wastewater ing “mega-drought” and “water crisis” that recycling and water reclamation projects would make the immediate development are the preserve of the all powerful Ministry of desalination essential for China are often of Construction as part of its comprehensive misused. The Chinese water crisis has not hit water strategy for the whole of the country. every part of the country with equal force and in some part of the country it is still in The MoC will gradually take over the ad- the future (around 2015-20). The coastline ministration of desalination programmes around the Bohai Sea needs more fresh wa- as they enter the mainstream of infrastruc- ter immediately but it is an exception. One ture procurement (just like it has gradually also should not underestimate the ability of taken over the administration of pollution Chinese cities and townships to live without standards, normally the responsibility of enough water (a bit like the British manage the Ministry of Water Resources or MWR). to live without enough roads or trains). But until then, if MoC-sponsored water reuse projects were to be direct competitors Small planned projects remain realistic, and of desalination projects, it is likely that the many of them will move forward before MoC would prevail. 2010. Projects of a larger size (100,000m3/ d+) are a lot more uncertain because mu- 2010 – 2015 What is realistic? nicipal demand is diffi cult to forecast and Overall, the Chinese desalination market municipalities do not want to commit to

long-term purchase agreements for expen- Notes sive water (see Jun He’s analysis of the legal i According to Zhang Guoliang, President of issues in municipal desalination, next sec- the Administration of the “Project to Divert tion of this report). Water from the South to the North” of the Industrial Clients Ministry of Water Resources, water diverted Likewise, industrial desalination will not from the Yangtze River to Beijing will cost boom immediately. The requirement that RMB20/m3 when the projects are complet- all power plants and petrochemical indus- ed. tries be self-suffi cient in terms of their wa- ii This is reminiscent of the “pilot BOTs” ter supplies is the driving force behind the which fi rst appeared in the Chinese water future development of large scale industrial sector in the late 1990s. Instead of making desalination facilities. But while most new a fi rm decision on certain types of projects, Chinese nuclear power plants will integrate the government tentatively allows diff erent a desalination plant, this will not happen formulas to be tried out in diff erent places. before 2010. It usually reserves its fi nal judgement for a So far, there are only three projects where long time. nuclear desalination is actually planned: iii One notable exception is the case of a the Yantai plant (Shandong), the Wenling desalination project attached to a power plant (Zhejiang) and the Hongyanhe plant plant. Then approval will be conditioned by (Liaoning). The Yantai plant has been under the Power Ministry’s general approval of the discussion for several years and building project (however, this would be handled by has not yet started. Even under auspicious the power plant developer). conditions, the planning and construction iv By comparison, the market size for desali- of a nuclear power plants wll take 5-6 years. nation plants in South-East Asia (Excluding In the short run these are not ‘realistic’ proj- China) for 2005 was US$120.9 million. The ects for developers. potential desalination plants market size by Equipment 2012 is estimated to be US$494.0 million. In the mean time, equipment makers have v Most people involved in the market say the opportunity to secure a reputation (and four to fi ve years from now is the cut-off orders) in this market, which will prove es- time they cannot deliver a new generation sential to win future contracts (e.g. ERI), but of products than Chinese companies can- they face the risk of loosing their techno- not copy straight away. logical edge in the process. In most sectors, vi A new 500m3/d pilot MED project with however, this is a non-choice. If you do not vertical tube evaporation was developed in gradually give away your products to the 2006 in Dalian by the Dalian Science & Tech Chinese market, your competitors will, and University. before you know it, Chinese makers will be competing against you at home! vii This is a diff erent company from Tianjin Motian (now Motimo). Motian (膜天) simply Future Growth means membrane in Mandarin. Over the next fi ve years, the desalination viii The same problem exists in the waste- sector should come of age and become a water sector: plants are built and never op- fully fl edged industrial sector in China. At erated because budgets to operate them this point, real growth will start to occur. Af- do not exist. ter 2010, municipal tariff s will, in theory, be higher and the government (SDRC) should have ceased subsidising the industry. In 2010-2015, the market for BOT/BOO-type projects will become ripe. Municipalities will better be in a position to commit future revenues to buy desalinated water because this liability will be matched by the revenues from water tariff collection. The size of projects will gradually also increase as the large power sector and chemical projects are developed and as the municipal market becomes viable. By 2020, projects on a scale comparable to European and Middle East- ern desalination plants can be expected.

References Awerbuch, L. (2006). Impact of High Energy and Materials Cost on Desalination and Pow- er Technology. Desalination and Water Reuse International Forum and Exhibition, Tianjin, IDA. Fan, X., X. Zhang, et al. (2003). “RO Seawater Desalination Project in Changdao County, Shan- dong Province.” Technology of Water Treatment 29(1): 41-43. Gao, C. (2006). Interview. Qingdao. Haicheng, G. (2006). Brackish Water Situation in China. International Desalination Associa- tion Tianjin. Jia, H. J. and S. Y. Jiang (2003). “Dual-Tower Vertical Evaporation Tube High-Temperature MED Sea Water Desalination test Unit “ Sci. Technol. 43: 1336-1338 (in Chinese). Lin, Z. M. and Z. L. Han (2003). “Analysis of Alleviate Function of Desalination on the Water Resource Shortage in China’s Coastal Areas - Liaoning Normal University.” Nat. Sci. Ed. 26: 297-301. Liu, J. S. and S. Pang (2005). “Outline of Seawter Desalination Project for Huaneng Yuhuan Power Plant.” Technology of Water Treatment 31(11): 73-75. Liu, T. (2006). Tianjin Binhai seawater purifi cation and Utilization Study. 2006 Desalination and Water Reuse International Forum, Tianjin, International Desalination Association. Ma, J. Z. and M. Du (1999). “Multi-Stage Flash System for Sea Water Desalination and Devel- opment of Domestic Device.” Hebei Electric Power 17(Supp.): 4-8 (in Chinese). Qiu, B. (2006). Urban Water Sector in China - Development & Reform. 5th International Water Association Meeting, Beijing, Ministry of Construction. Ruan, G. and J. Yin (2006). The desalination technology cycle in the domestic economy and its application State Ocean Bureau Tianjin - Seawater Desalination and Comprehensive Uti- lization Research Institute. Ruan, G. L. (2006). Interview. Tianjin. Tan, Y. (2006). Progress of Seawater Desalination Projects in China. Unpublished Paper. Hangzhou, Zhejiang. Tan, Y., Y. Shen, et al. (2000). “500m3/d RO Seawater Desalination Demonstration Project in Shenshan.” Technology of Water Treatment 26(1): 1-6. Tan, Y., X. Zhang, et al. (2004). “Roncheng RO Seawater Demonstration Project at 10,000m3/ d Level.” Technology of Water Treatment 30(3): 157-161. Wu, S. and W. Zheng (2002). “Coupling of Nuclear Heating Rector With Desalination Process.” Desalination 142: 187-193. Zhang, L., L. Xie, et al. (2005). “Progess and Prospects of Sea Water Desalination in China.” Desalination 182: 13-18

Selected Legal Issues on Developing Desalination Projects in China by Hyfl ux and Befesa’s Legal Counsel in China

I. Introduction II. Legal Framework China is facing a tremendous challenge to The legal framework for developing a deal with water issues, especially in north- greenfi eld large-scale desalination project ern China. For example, China’s water re- in China involves laws and regulations on sources per capita are only a quarter that foreign investment, project approvals and of the global average while its economic concession regulations. Generally, for a growth rate is one of the highest in the project with total investment over US$100 world. There is a signifi cant geographic im- million, central government approvals are balance in water resources, with southern required for both the project and the estab- China having much more water resources lishment of the project company. than northern China. Depending on local rules at provincial or Most importantly, China’s existing water re- municipal levels, an infrastructure or public sources are declining and/or deteriorating utility project, such as a desalination project, signifi cantly due to imbalanced water distri- can be developed either on a concession bution, falling groundwater tables, poor ef- basis or non-concession basis. Depending fi ciency of utilization and water pollution. on local rules, a public bidding process may In order to deal with these water issues, the also be required, even though in practice PRC government has been trying to estab- other types of bidding or selection process lish a legal framework to regulate and en- have been used by local governments. courage private participation and interna- Similar to other utility projects, a desalina- tional investment in the water sector during tion project typically involves a number of the past decade. major project documents, such as construc- Private or foreign investors have in the past tion contracts, water purchase agreement, mostly been involved in water treatment land use rights contract, and operation and and wastewater treatment projects. Large- maintenance contract. scale seawater desalination projects (with a Depending on the contract structure and capacity of over 50,000 tons or 100,000 tons parties involved, there are PRC regulations per day) are still in their early stage of devel- concerning construction and construction opment and are mostly concentrated in the contracts which the investors should under- coastal cities of northern China. stand. Some of the key construction-related Similar to other types of public utility, there issues often arise during the project de- are many regulatory and practical issues velopment stage are whether and to what which make investment in the water sector extent the standard form construction con- even more challenging. Desalination proj- tract issued by the Ministry of Construction ect developers face both opportunities and (“MoC”) in must be followed and whether challenges and will need to deal with “tradi- bidding is required for the selection of con- tional” issues as well as new issues. struction contractors. This article is intended to discuss a number There will also be many approval issues for of legal issues based on some practical ex- the development of desalination project. periences in developing large scale desali- In additional to the general project and nation projects under the current Chinese foreign investment-related approvals and regulatory framework and environment. permits, the developer may need to obtain special approvals, such as a seawater intake

30 (C)2007 * GWI MARKET ACCESS: DESALINATION IN CHINA BY INVITATION permit and a desalination water supply or construction bureau/commission to de- permit, depending on local requirements. sign and grant the concession. In more eco- The water tariff approval is an important nomically developed regions, the city gov- approval for any desalination project and is ernment may engage professional bidding subject to heavy negotiation between the companies or consultants to design the off taker and the water supplier. bidding documents and conduct the bidding process. [Currently, we are not aware III. Selected Major Issues of any large-scale desalination projects be- As there are only very few large-scale de- ing developed on a concession basis.] salination projects under development in Commercial Structure China and thus there is no typical or common practice as to how such projects are Depending on how a desalination project is developed and what the common issues to be developed, the commercial structure are, facing all desalination projects. How- and structuring issues may be diff erent. ever, there are a number of legal or practi- First, the project company can be a wholly cal issues which would be important for foreign-owned enterprise or a Sino-foreign foreign investors or developers to consider joint venture enterprise. It is likely that the when developing a desalination project in Chinese partner to the joint venture is re- China. The following is a general summary lated to the local water utility but private of some important issues even though each Chinese companies can also be the Chi- project may face diff erent issues during its nese joint venture partners. Like many joint development. venture public utility projects, the Chinese Project Approval partner may be able to contribute land on which the project will be constructed as Although in theory either developers or the part of its registered capital contribution. local government may be able to propose a desalination project in a particular Chinese Second, it is possible that a long-term water coastal city, it is ultimately up to the local purchase agreement (“WPA”) will be entered government to determine whether a large- into for a desalination project. However, is- scale desalination project is required. Local sues relating to take-or-pay, tariff and tariff government’s support is vitally important at adjustment, and other major issues typical- the early project development stage, dur- ly addressed in an international non- or lim- ing the project development process and ited recourse project fi nancing may or may during the operation period of the project. not be fully refl ected in the WPA due to the general diffi culties of having a international The local, municipal-level People’s Govern- style WPA in China. ment will play a key role in the decision- making process as to how a desalination Third, the off taker is generally the local wa- project will be developed whether on a ter utility (more likely to be the local gov- negotiated basis or on a concession basis. ernment-owned water supply company). Local public utility concession rules must However, it is possible that large industrial be considered when the foreign investor in- customers may also be private off takers de- tends to develop a desalination project. pending on the amount of water that the water supply company is capable to pur- For example, based on our experience in chase. other types of public utility projects in Chi- na, it is possible that the local government Fourth, if the project company needs to ob- may have diff erent views as to how conces- tain raw seawater from a third party raw wa- sion rules of the MoC and/or provincial con- ter supplier, a long-term raw water supply cession rules will be implemented. If a de- agreement is required and the risks under salination project will not be developed on the supply agreement need to be covered a concession basis, it may be developed on and balanced in the WPA. The issue of dis- a negotiated basis and the typical project charging brine water also needs to be ad- approval is required. The feasibility study dressed. report for the project shall be approved by Finally, tariff level is usually negotiated at the relevant government development and the beginning of the project but may not be reform commission. fi nalized until the fi nal stage of the project If the local government intends to develop negotiation or the execution of the WPA. If a project on a concession basis, usually a the local government-owned water supply public bidding process is required and the company is the off taker, it usually requests local people’s government would designate the supplier to follow the government pub- or authorize the local public utility bureau lished water tariff guidelines.

Water Purchase Agreement the concession granting procedures and For a privately negotiated desalination proj- requirements, local implementation rules ect, it is typical for the developer to propose and practice may vary substantially. This a WPA and the WPA is drafted taking into may be due to, among other things, the consideration the commercial structure, the lack of practicability of the MoC regulations risk profi le of the project and of the foreign and the model concession contract drafted investor. Due to the size of large-scale de- by MoC. Moreover, the bidding process re- salination projects, foreign developers typi- quirement for granting concession rights cally contemplate project fi nancing for the also has many practical obstacles and usu- project. As such, appropriate risk allocation ally both investors and some local govern- and certain lender’s requirements should ments have hesitation about conducting a be refl ected in the WPA. real public bidding process for a concession project. However, there is no commonly accepted lender’s requirement in China. This is due With the bidding regulations not fully de- to many reasons such as the lack of mature veloped for concession projects and a non-recourse or limited recourse project fi - general lack of experience and of qualifi ed nance market or practice for Chinese banks consultants advising the government on in China. Chinese banks typically ask for a the process, the local government may not shareholder guarantee of project loans. For- be well-prepared to do it. Some local regu- eign banks nowadays play a relatively lim- lations try to provide some fl exibility as to ited role for infrastructure project fi nancing the types of bidding required in order to in China as compared to Chinese banks and address many practical issues. For example, may not, in the near term, establish the mar- the bidding process may take several forms, ket standards for project fi nance in China. such as public bidding, bidding by invitation, investment attraction or “other permit- Depending on the fi nancing options of the ted means” (as provided for in some local project company, it is recommended that regulations). the developer use an “international” style WPA as a starting point, of course, with In the past, there have been a number appropriate adjustments or amendments of major public utility concession or BOT taking into consideration PRC law issues projects which had been approved by the and project specifi c situations. Issues such central government and had been imple- as take-or-pay, payment security, tariff ad- mented based on international style docu- justments, remedies for breach of contract, mentation (such as concession agreements early termination buy-out and assets trans- and power/water purchase agreements). fer upon the expiry of contract term should These projects include the Laibin B power be carefully considered and addressed in project and Chengdu No. 6 water project. the WPA. However, many local governments may Unique issues relating to raw water supply not be ready or willing to go through the (if any) or seawater quality deterioration complicated or time-consuming process shall be specifi cally addressed and the re- and incur relatively high expenses in doing lated risks shall be covered. As the off takers a similar style formal concession project. As are usually unsophisticated in dealing with a result, the issues as to the potential legal international style documents designed consequences for the lack of concession for project fi nancing and are typically not and/or public bidding for large-scale desali- represented by qualifi ed or experienced nation projects may remain in a grey area legal counsel, the negotiation process for of law and shall be analyzed on a case by the WPA has the potential to be a real chal- case basis. lenge. Legal, commercial, political and cul- Managing Expectations tural issues are often mixed during the WPA Foreign investors which have been doing negotiation and should be managed ap- business in China probably learned that propriately and diplomatically. they need to manage many things including Concession and Bidding legal issues, business issues, technical and The regulatory regime for concession proj- governmental relationship issues. However, ects and the practice of implementing for investors who are doing their fi rst public concession projects may not necessarily utility project in China, it would be impor- match all of the time in diff erent locations. tant to manage their expectations as to the Although the concession regulations pro- diff erences concerning the Chinese legal mulgated by the MoC are very clear on system, the ways that legal documents are used, drafted and negotiated, the language

32 (C)2007 * GWI MARKET ACCESS: DESALINATION IN CHINA BY INVITATION issues, the cultural and political issues, the IV. Conclusion interaction with the government agencies Foreign developers developing an infra- and government owned companies, and structure or public utility project in China certainly the risks and how the risks are face many challenges under the current managed and allocated in diff erent types of Chinese legal framework. Many of the usual project documents. issues remain problematic such as project The legal documents or project documents approval, the long-term purchase agree- for large-scale desalination projects tend to ment (and take-or-pay arrangements) and be complex and detailed especially if the project fi nancing. developers contemplate project fi nancing. With a large-scale desalination project, is- Due to their limited experience in such sues relating to potential concession rights projects, the local governments and Chi- and bidding process (or the lack thereof) nese off takers may not be in a position to could make the development process more fully understand the contract structure and complicated. many legal and commercial arrangements During any project development process, contained in the project documents (which it is important that the developers under- are accustomed to and drafted by foreign stand the local regulations and practice and investors). determine the project development pro- This lack of experience together with lan- cess (together with the local government) guage barriers and the diffi cult of translat- on a case by case basis. They should also ing English-based complicated documents manage their expectations if they are doing into Chinese will inevitably make the con- their fi rst project in China taking into contract negotiation process frustrating. More sideration many China specifi c issues. often than not, the project development and contract negotiation processes are also an educational process for the Chinese parties. For example, over a decade ago when many foreign developers came to China to develop power projects, they typically use international style long-term power purchase agreements (“PPA”) as a starting point, Jun He advises Hyfl ux for the development which could be 50 to 100 pages long. of its two desalination projects in China After years of negotiation, most of the PPA (Huludao and Tianjin). have been reduced to less than 50 pages and became more “Chinese style” which can be better understood by Chinese counter George H. Zhu parties. Foreign investors who have over- Jun He Law Offi ces seas experience need to be prepared for [email protected] these processes when developing a desalination project in China. Beijing, China

I. Development of the Chinese Desalination The development of desalination capac- Sector (1970-2012) ity started to accelerate in the mid-90s. In 1998, the 100,00m3/d threshold was This section describes the development passed (i.e. cumulative online desalination of Chinese desalination capacity using our capacity). But as Chart 3 shows, the take unique database of projects across China. up really begins after 2000. After that date, We list both industrial (often captive) and installed capacity grew at 20-30% per year. municipal facilities, as well as those facilities By 2003, cumulative online capacity had that supply to both types of users, typically reached 180,000m3/d. At the end of 2006, found in economic development areas. 77 projects were in operation in China and For this reason, our estimates of the total online capacity had almost reached the installed capacity in China are higher than 380,000m3/d mark. the fi gures usually put forward. The diff erence is mainly due to the inclusion of cap- A look at past, present and planned projects tive facilities. reveals that most capacity remains to be developed. Almost 700,000m3/d of projects Our data spans several decades from the are planned to come online in 2010 alone. 1970s to 2012. For obvious reasons our As illustrated by Chart 1, current operation- knowledge of future capacity is limited. The al capacity represents only 14% of the total, 2011-2012 fi gures are included in tables but and recently awarded (but not yet built) should be considered partial information. projects along with planned new installa- While many new desalination projects have tions represent almost 80% of all known come to market in the past 5 years, delays desalination capacity in China. and protracted negotiations are common- place and projects are often built later than Whether or not planned capacity will actu- originally planned (See The Brief). For this ally be built according to public plans is dif- reason, we take our 2012 fi gures to really fi cult to forecast. It is likely that some of this refl ect a 2012-2015 horizon. planned capacity will really come online beyond 2010-12. See The Brief, Section 2: How Past, Present and Future Capacity Projects Come to Market for an analysis The Chinese desalination programme was of this issue (p10. Taking into account the fi rst launched by the State Commission of likely delay in project implementation our Science and Technology in 1967-69, and forecast for cumulative online capacity for covered ED, RO and distillation technolo- 2012-15 is at least 2.5Mm3/d. gies. The fi rst projects were experimental Regional Split small scale systems and until recently sector development has been slow. Table 1 and Chart 2 show the regional split between projects. Very few projects have been decommissioned (the main ones are MSF projects in Hong Kong). The main Development of the Sector (1970-2012) provinces where desalination is being de- 1. Past, Present and Future Capacity veloped are the coastal provinces of Shan- 2. Regional Split dong, Tianjin, Liaoning and Zhejiang. To 3. Users a lesser extent, the southern province of 4. Processes Guangdong is also signifi cant, mainly be- 5. Unit Sizes cause of brackish water treatment projects. 6. Feed Water In terms of number of projects (2012-15 7. Specifi c Features forecast) the most active provinces are Unit Cost Analysis Shandong (27), Zhejiang (25), Liaoning (19) 1. Desalination Economics and Tianjin (9). Projects in Zhejiang tend to 2. The China Price be smaller and focused on providing water 3. Operating Costs to islands, whereas projects in Tianjin tend 4. Market Size to be large and industrial. These levels of ac- 5. Project fi nance tivity are consistent with the development

Market Analysis of the desalination “pilot cities” as outlined

Table 1: Past, Present and Future Capacity at the 2010 Horizon Province Awarded Decommissioned Operational Planned (2012) Total Net Total** Fujian 30 30 30 Hainan 200 200 200 Macau SAR 700 700 700 Inner Mongolia 1,440 1,440 1,440 Beijing 378 1,484 1,862 1,484 Jiangsu 5,540 5,540 5,540 Shaanxi 3,456 3,600 7,056 3,600 Henan 10,920 10,920 10,920 Shanxi 16,140 16,140 16,140 Shanghai 8,954 13,440 22,394 13,440 Unknown 28,587 28,587 28,587 Guangdong 100,000 3,561 103,561 103,561 Hong Kong SAR 183,469 112 183,581 112 Zhejiang 213,600 870 78,860 41,300 334,630 333,760 Hebei 93,800 260,000 353,800 353,800 Liaoning 78,000 288 35,944 355,000 469,232 468,944 Tianjin 150,000 29,880 370,000 549,880 549,880 Shandong 20,000 41,610 550,000 611,610 611,610 China 561,600 197,415 365,848 1,576,300 2,701,163 2,503,748 * This figure is the cumulative planned capacity to be awarded between 2007-2012 ** Net Total is the difference between total and decommissioned capacity

Table 2: Capacity by User Type Decommissioned Operational Awarded Planned (2012) Total Net Total Industrial 15,387 284,584 169,600 1,291,000 1,760,571 1,745,184 Municipal 182,028 71,264 192,000 285,300 730,592 548,564 Industrial & Municipal 10,000 200,000 210,000 210,000 Total 197,415 365,848 561,600 1,576,300 2,701,163 2,503,748

Table 3: Number of Projects by User Type Decommissioned Operational Awarded Planned (2012) Total Net Total Industrial 10 46 4 21 81 71 Municipal 230574442 Industrial & Municipal 12 33 Total 12 77 11 28 128 116

Chart 1: Past, Present and Future Capacity by 2010 (m3/d)

Awarded 21%

Decommissioned 7%

Planned 58%

Operational 14%

Table 4: Capacity by Process Type Decommissioned Operational Awarded Planned (2012) Total Net Total RO 6,354 270,383 441,600 256,300 974,637 968,283 ED 1,279 3,584 4,863 3,584 MED 7,754 75,821 120,000 700,000 903,575 895,821 MSF & Vapour Compression 182,028 16,060 198,088 16,060 Undecided Distillation 340,000 340,000 340,000 Undecided 280,000 280,000 280,000 Total 197,415 365,848 561,600 1,576,300 2,701,163 2,503,748

Table 5: Number of Projects by Porcess Type Decommissioned Operational Awarded Planned (2012) Total Net Total RO 6 64 10 12 92 86 ED 2 4 6 4 MED 2 6 1 7 16 14 MSF & Vapour Compression 2 3 5 3 Undecided Distillation 5 5 5 Undecided 444 Total 12 77 11 28 128 116

Chart 2: Capacity by Province at the 2010 Horizon

600,000

500,000

400,000

300,000

200,000

100,000

- Hebei Fujian Tianjin Beijing Henan Hainan Shanxi Jiangsu Shaanxi Liaoning Zhejiang Shanghai Unknown Shandong Decommissioned Guangdong Macau SAR

Inner Mongolia Awarded Hong Kong SAR Hong Kong Operational Planned

Table 6: Average Unit Size Per Process Decommissioned Operational Awarded Planned (2012) Total ED 384 473 443 MED 3,877 4,564 15,000 18,333 9,143 MSF 15,264 4,000 9,632 RO 962 2,060 3,433 10,000 2,611 Total 3,735 2,175 5,086 13,125 3,481

Chart 3: Capacity by Year of Commissioning 1995-2010

690,000

700,000

600,000 375,000 500,000 329,600 400,000

300,000

200,000

100,000 100,000 - 1993 1994 1995 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Aw arded Operational Planned

Chart 4: Planned Capacity by User Type Chart 6: Opertional Capacity by User Type (2012) (2006)

Industrial 82% Municipal Indus trial 19% 78%

Municipal Industrial & 18% Munic ipal 3%

Chart 5: Number of Projects Chart 7: Number of Operational Planned by User Type (2012) Projects by User Type (2006)

Industrial Municipal 75% 39%

Municipal Industrial 25% 60%

Industrial & Municipal 1%

Chart 8: Planned & Aw arded Capacity Chart 10: Operational Capacity by Process Type (2012) by Process Type (2006)

Undecided RO Undecided Distillation 74% 16% 13%

MSF & Vapour Compres s ion RO 4% MED 33% 38% MED ED 21% 1%

Chart 9: Number of Planned Chart 11: Number of Operational Projects & Aw arded Projects (2012) (2006) Undecided Distillation Undecided 13% 10% MSF & Vapour RO MED Compres s ion 83% 21% 4%

MED 8% ED 5% RO 56%

Chart 12: Average Unit Size by Process 1970-2010

30,000

25,000

20,000

15,000 m3/d

10,000

5,000

0 1970 1975 1980 1985 1990 1995 2000 2005 2010

ED MED MSF RO

Table 7: Capacity by Feed Type Decommissioned Operational Awarded Planned (2012) Total Net Total Brackish 15,387 161,392 100,000 276,779 261,392 Seawater 182,028 204,456 461,600 1,576,300 2,424,384 2,242,356 Total 197,415 365,848 461,600 1,676,300 2,701,163 2,503,748

Table 8: Capacity of Dual-Generation Projects and Stand Alone Projects Decommissioned Operational Awarded Planned (2012) Total Net Total Dual Generation 2,149 163,755 169,600 566,000 901,504 899,355 Stand Alone Desalination 195,266 202,093 392,000 1,010,300 1,799,659 1,604,393 Total 197,415 365,848 561,600 1,576,300 2,701,163 2,503,748

Table 9: Capacity on Islands and on the Mainland Decommissioned Operational Awarded Planned (2012) Total Net Total Island 29,224 135,300 164,524 164,524 Mainland 197,415 336,624 561,600 1,441,000 2,536,639 2,339,224 Total 197,415 365,848 561,600 1,576,300 2,701,163 2,503,748

by the State Development and Reform projects has been growing steadily. Table 6 Commission. See The Brief (Section 1: Plan- and Chart 12 show the increase in unit size ning for Desalination) for details. for each desalination process, from opera- Users tional to future projects, unit sizes will often double over the next decade. Tables 2-3 and Chart 4-7 show existing and future projects by type of end-user. Indus- Feed Water trial customers dominate the market both Table 7 shows the split between brackish for current capacity (2006) and future ca- and seawater treatment. Brackish water pacity (2012). The picture is similar in terms treatment in capacity terms is almost on a of number of projects: industrial users par with seawater in 2006 but should only represent the majority of of customers for represent one tenth of total installed capac- both operational and future projects. This is ity by 2012-15. Brackish water is a serious partly a refl ection of the new regulation of problem in certain provinces but project the power and chemical sectors and the re- scale is usually very small (below 5,000m3/ quirement that they become autonomous d). in terms of water supply. Specifi c Features Processes Tables 8-9 show projects developed along- Tables 4-5 and Charts 8-11 show the use side power plants and projects built on is- of the diff erent desalination processes. Re- lands. verse Osmosis and Multi-Eff ect Desalina- Current capacity for dual generation proj- tion are the most commonly used methods ects (water + power) is not quite on a par for desalinating water in China (95% of total with standalone desalination (3/4). In the current capacity). coming decade, stand alone capacity should RO currently dominates the Chinese mar- rise faster and dual generation capacity may ket, with 74% of all water processed in 2006 represent only half of standalone capacity and 21% for MED. The number of current by 2012. However, dual generation will con- RO projects in 2006 represents 83% of the tinue to grow with the development of the total, while MED projects represent 8% of Chinese nuclear programme for power gen- the total by number of porjects. eration, which will occur beyond 2015. This situation will change with the devel- Developing desalination on islands has opment of the large dual power and water been very successful in Zhejiang. In Shengsi projects planned during the next decade County, for example, 70% of municipal sup- (See The List). By 2012-15, MED should rep- ply is provided by desalinating sea water. resent at least 40% of capacity (probably The capital of the county alone has 5 RO 50%) and more than a quarter of the total projects. Island desalination should grow number of projects. fi ve-fold in capacity terms by 2012-15. Unit Sizes Planned developments on the mainland are such that island desalination will remain As the Chinese desalination market ma- a small portion of total installed capacity. tures, the typical size of units installed in

Chart 1: RO and Distillation Unit Costs (Capex/Capacity)

CNY 40,000

CNY 35,000 CNY 30,000 CNY 25,000 CNY 20,000

CNY 15,000 CNY 10,000 CNY 5,000 CNY 0 1 10 100 1,000 10,000 100,000 1,000,000

UC Rev ers e Os mos is UC Dis tillation

Chart 2: RO and Distillation Unit Costs (Capex/Capacity, 1980-2010)

CNY 40,000 CNY 35,000

CNY 30,000 CNY 25,000 CNY 20,000 CNY 15,000

CNY 10,000 CNY 5,000

CNY 0 1980 1985 1990 1995 2000 2005 2010

UC Rev ers e Os mos is UC Dis tillation

II. Unit Cost Analysis and Market Forecast cost of pre-treatment prohibitively high. Desalination is energy-intensive and also Contrary to global trends, raw material pric- requires specifi c inputs such as stainless es over the past couple of years have gener- steel products. Some experts forecast that ally been stable in China, with no change in by 2020, desalination capital costs will have structural steel costs and reductions in the risen by 30% because of the price of raw costs of both concrete and steel reinforcing materials and operating costs by 20% be- bar (rebar). cause of energy prices (Awerbuch 2006). Still, for those equipment makers that do If this prediction materialises and applies to not produce or source in China, the world China, it may leave Chinese desalination in a steel market is characterized by high de- diffi cult situation and delay the anticipated mand and rising prices. And so far, price convergence between municipal tap water lowering eff ects, such as China becoming prices and desalination costs. a net steel exporter in 2006, have not infl u- enced world steel prices. China has some peculiar characteristics compared to the global desalination mar- Desalination Economics ket: unit sizes are smaller than world aver- As a rule, the updfront investment required ages for the time being; the cost of energy for MED and MSF is higher than for RO but is variable because the level of subsidies in operating costs tend to be lower for distil- the power sector varies from one province lation processes. Moreover, MSF is now to another; and the quality and salinity of more expensive than MED (in terms of ca- feed water can be quite bad, making the pex, electricity, maintenance, etc) which

Chart 3: Chinese RO Operating Costs (Averages) Chart 4: Chinese MED Operating Costs Steam (Averages) Electricity consumption Depreciation 41% Wages 4% of fixed Maintenance 27% assets 5% 28% Management 1% Membr ane replacement Management 12% costs Chemic als 1% 7% Maintenance Winter 9% Heating Loan Interest Depreciation 8% Wages 12% and Cost of 4% Finance Electricity Chemicals 22% 11% 8%

prompts a number of players in the Chinese due to the reduction in manpower aff orded market to consider MSF as obsolete and by new technologies, lower capital costs without a concrete commercial future (Only thanks to shared infrastructure with exist- one company is trying to develop MSF proj- ing power plants, increased life span due ects in China: LHI, see The Player). to improved building materials as well as MED also off ers room for further innova- lower fi nancing cost (lower rates and lower tion: units have high generating capacity, risk ratings for project fi nance). no pre-treatment is required, it allows for Finally, desalination has benefi ted from im- greater increases in temperature (IDE had portant economies of scale as projects be- the best performing MED units from that yond 50,000m3/d began to be developed point of view), and higher temperature around the world. means higher yield and smaller foot print. As a result of competition between manu- The future of RO systems also depends facturers, the unit prices of SWRO mem- on R&D: to improve desalination either by branes are likely to keep decreasing over producing better membranes or design- the next four years. The most common size ing more sophisticated pumps and tubing. of spiral wound membrane is the 8” x 40” Failure to constantly upgrade may result in which has a surface area of 40 square feet. clients shifting to alternate technologies to This is the type of RO membrane that Chi- manage water resources. nese makers are starting to know how to Existing studies show the dramatic drop of make and it will help continue to defl ate both RO and MED/MSF unit costs globally prices. since the 1960s. They also show that histori- The increase in the price of raw materials cally, RO and MED are now within the same such as stainless steel structures means that output cost range (Zhou and Tol 2003). The the price of key structural parts of a plant reduction in the cost of RO desalination is such as the framework, piping, and tubing principally due to declining RO membrane is likely to increase worldwide. In these seg- costs (86% cost reduction from 1990 to ments, Chinese manufacturers are likely to 2002) and an increase in productivity of lower the overall price of a plant, not only membranes due to the increased surface at home but in the global desalination mar- area (94% productivity increase from 1990 ket. to 2002). The China Price New approaches to pre-treatment such as There are only a limited number of studies the use of nano-fi ltration and ultra-fi ltration of the economics of Chinese desalination. have also helped decrease costs. Desalina- Table 1 shows a comparison between capex tion plants have also benefi ted from lower and opex using MSF, MED or RO and based energy consumption and the development on a 90m3/d unit (Deng 2001; Zhang, Xie et of more effi cient pumps and energy recov- al. 2005). ery devices, lower operating costs, mainly Table 2, shows the result of another study

Table 1: Capex and Opex Costs for 90m3/d Chinese Desalination Capex (RMBm) Opex (RMB/m3) RO with UF 24 6.2 RO w/o UF 19 5 MED 38 3.5 MSF 49 4.8

Table 2: Capex and Output Costs for 6,000m3/d Chinese Desalination Capex (RMBm) All-in Cost (RMB/m3) MED 80 5.5 MSF 100 7 SWRO 49 5.8 VC 86 6.6

Table 3: Unit Cost for 200MW(t) Nuclear MED Table 4: Chinese Desalination Capex Unit Costs Capacity Output cost RMB/m RO Distillation 160,000m3/d VTE MED 6.4-7.36 Mean 8,926.28 8,301.18 126,000m3/d HTE MED 6.32-7.12 Median 6,000.00 8,583.33 Conf Int* ± 1,874.16 1,386.50 *confidence interval 10%

comparing capex and all-in-costs for a RO project in Qingdao (Huangdao) already 6,000m3/d unit using MED, MSF, RO or VC . costs RMB5,000/m3/d and that 35% of op- (Ruan, Xie et al. 2001) erating costs consist of electricity supply Finally, table 3 shows the estimated out- with a power consumption of 4kWh/m3. put unit costs of the future Chinese nuclear (Gao 2006) MED plants developed in Tsinghua Univer- In eff ect capex unit costs seem slightly sity (Wu and Zheng 2002). higher than suggested by Gao. Distillation Chinese desalination seems on the right processes tend to cost RMB8-12,000/m3/ track to achieve sustainable unit costs. Ac- day and RO RMB5-6,000/m3/day accord- cording to professor Ruan (See Who’s Who), ing to Tan Yongwen. Our research confi rms Chinese desalination equipment makers these orders of magnitude (table 4 and have a real cost advantage in thermal pro- charts 1 & 2). With an average energy cost cesses, and only to an extent in RO thanks of RMB0.6kWh, the average output cost is to cheap UF & MF membranes. It is also RMB6-7/m3 for distillation and RMB4-5/m3 much cheaper for Chinese companies to for RO. make gravity fi lters. This can be however, misguiding: energy Moreover, on the EPC front, Chinese devel- costs vary considerably between the north opers also benefi t from lower costs espe- (RMB0.3/kWh) and the south of China cially for project design and construction. (RMB0.86/kWh). According to Professor According to Ruan, Chinese-developed Tan, once this is factored in, along with desalination projects would cost 20% less the cost of pre-treatment, the output cost than foreign projects to build, 40% less to of MED and RO are roughly equal in China operate and 40-60% less to maintain. (Ruan (Tan 2006). Another estimate by Liu, gives 2006) RO capex at RMB5-6,000/m3/d with an output cost at RMB4-5/m3 and MED capex at Professor Gao concurs. According to him, RMB7-10,000/m3/d with an output cost at in fi ve years, Chinese made plants will have RMB 5-7/m3 (Liu and Pang 2005). reached the 80-100,000m3/d mark and the proportion of Chinese-made desalina- Table 4 shows the mean and median cation equipment in a given project will have pex unit costs in our sample of Chinese de- grown from 40% today to 70%. salination projects. The median values are more telling because the sample is heav- He also forecasts that project capex for RO ily skewed. The “professors-entrepreneurs” projects will be reduced from RMB4,500- (Ruan, Gao and Tan principally) each have 5,500m3/d to RMB4,000-5,000m3/d and an agenda (pro-RO in Hangzhou, pro-MED that energy consumption will drop from the in Tianjin) and their cost estimates are not current 3,8-5.5kWh/m3 to 3.5-3.8kWh/m3. neutral. However, our own research sug- He concludes that the cost of desalinated gests that, with a confi dence interval of water will have dropped from RMB4.5-5.5/ 10%, Tan’s estimates provide a good ap- m3 today to RMB4-5/m3 in 2010 (for RO). proximation. Gao explains that the Chinese-made pilot

Operating Costs Table 5: Average Values for Chinese RO Unit Costs US$/m3 Unsurprisingly, China is more or less in line Item Mean Median with world averages when it comes to oper- Chemicals $0.0372 $0.0338 ating costs. Table 5 and Chart 3 show the av- Electricity $0.2294 $0.2058 erage operating costs for RO plants in our Wages $0.0237 $0.0143 sample (in US$/m3) and Table 6-10 show Maintenance $0.0310 $0.0259 some individual cases (in RMB/m3). Management $0.0045 $0.0029 Table 11 and Chart 4 show average operat- Membrane replacement (3 years) $0.0700 $0.0681 ing costs for MED plants (in US$/m3) and ta- Winter Heating $0.0469 $0.0438 ble 12 summarises several individual cases Total Operating Costs $0.4427 $0.4445 (in RMB/m3). Depreciation* and Cost of Finance $0.1278 $0.1406 Market Size Cost of Water $0.5705 $0.5875 *5% overall rate of depreciation, residual 4% We estimate a project market size (desalination capex) of between US$55m Table 6: The Changhai RO Project and Retrofit Unit Costs (RMB/m3) and US$70m in 2006, reaching between Item Stage 1 Stage 2** US$600m and US$850m in 2010. Table 14 Chemicals 0.22 0.22 Electricity 3.64 2.8 shows the breakdown by year and by pro- Wages 0.105 0.105 cess and chart 5 the year-on-year change. Maintenance 0.267 0.267 Our estimate is calculated by multiplying Management 0.025 0.025 the high and low estimates of project ca- Membrane replacement (3 years) 0.679 0.679 pex unit costs (RMB/m3/d) by the projected Winter Heating 0.7 0.7 installed capacity in the expected year of Total Operating Costs 5.636 4.796 coming online. It is thus a refl ection of the Depreciation* and Cost of Finance 1.65 1.5 value of future order books for desalination Cost of Water 7.286 6.296 plants. Operating date 1998 2001 A diff erent estimate can be made based on Plant output im m3/d 2 x 500 3 x 500 a global assessment of needs and demand ** by Prominent and financed by Germany shortfalls based on fundamentals and *5% overall rate of depreciation, residual 4% global average unit costs. Table 15 presents Table 7: Proposed RO Project Unit Costs these results for the size of the desalination Item RMB/m3 market in China. Details of the methodol- Chemicals 0.2 ogy used can be found in Global Water in- Electricity 1.25 telligence’s “Desalination Markets 2” (DSM2) Wages 0.09 report on the global desalination market. Maintenance 0.12 The DSM2 forecast is higher than ours be- Management 0.01 cause it rests sticktly on projected demand Membrane replacement (3 years) 0.4 Winter Heating 0 (and global average costs). But not all de- Total Operating Costs 2.07 mand will be met in China, where water Depreciation* 0.34 shortages do not necessarily mean that Production costs 2.41 local government will deliver the supply *5% overall rate of depreciation, residual 4% to meet forecast demand. In the case of desalination, we have good reasons to believe Table 8: the Cangzhou RO Project Unit Costs Item RMB/m3 that by 2015 the development of new sup- Chemicals 0.32 ply sources will have been slower than the Electricity 1.292 pace of demand growth, mainly for institu- Wages 0.124 tional and political resaons (see The Brief). Maintenance 0.148 Management 0.022 Membrane replacement (3 years) 0.41 References Winter Heating 0 Awerbuch, L. (2006). Impact of High Energy Total Operating Costs 2.316 and Materials Cost on Desalination and Depreciation* and Cost of Finance 0.788 Power Technology. Desalination and Water Cost of Water 3.104 Reuse International Forum and Exhibition, Tianjin, IDA. Operating date 2001 Plant output im m3/d 4 × 4,500 Deng, L. Q. (2001). “Comperison of Econom- TDS raw water (mg) 15,000 ics and Technology for Sea Water Desalina- TDS output water in mg/l 300 tion.” Electric Power Technol. Guangxi 2: 53- *5% overall rate of depreciation, residual 4% 55 (in Chinese).

Table 9: the Tianjin Demo RO Project Unit Costs Table 10: Huangdao RO Project Unit Costs Item RMB/m3 Item RMB/m3 Chemicals 0.45 Chemicals 0.4 Electricity 2 Electricity 1.4 Wages 0.438 Wages 0.5 Maintenance 0.457 Maintenance 0.3 Management 0.088 Membrane replacement (3 years) 0.752 Management 0.1 Winter Heating 0.8 Membrane replacement (3 years) 0.6 Total Operating Costs 4.985 Winter Heating 0 Depreciation* and Cost of Finance 1.462 Total Operating Costs 3.3 Cost of Water 6.446 Depreciation* and Cost of Finance 1.2 Cost of Water 4.5 Operating date 2003 Plant output im m3/d 1 X 1,000 Operating date 2004 TDS raw water (mg) 36,500 Plant output im m3/d 3,000 TDS output water in mg/l 300 ~ 400 *5% overall rate of depreciation, residual 4% *5% overall rate of depreciation, residual 4%

Table 11: Average Unit Cost Values for Chinese MED US$/m Item Mean Median Chemicals $0.0483 $0.0450 Electricity $0.0679 $0.0763 Wages $0.0233 $0.0109 Maintenance $0.0567 $0.0513 Management costs $0.0059 $0.0021 Steam consumption $0.1725 $0.1925 Total operating costs $0.3745 $0.3573 Depreciation of fixed assets* $0.1752 $0.1549 Loan Interest $0.0756 $0.0756 Cost of desalinated water $0.6002 $0.5913 Plant size m3 71,000 10,000 * 5% overall rate of depreciation, residual 4%

Table 12: MED Bid Costs in RMB/m3 Item Huangdao A Soda Plant A Power Plant Chemicals 0.36 0.45 0.35 Electricity 0.61 0.64 0.379 Wages 0.45 0.087 0.021 Maintenance 0.41 0.387 0.564 Management costs 0.12 0.017 0.004 Steam consumption 1.6 1 1.54 Total operating costs 3.55 2.581 2.858 Depreciation of fixed assets* 1.18 1.239 1.786 Loan Interest n/a 0.352 0.858 Cost of desalinated water 4.73 4.172 5.502 Plant size m3 3,000 10,000 200,000 * 5% overall rate of depreciation, residual 4%

Table 13: Huangdao Power Plant Main Technical Parameters Rated fluxes (m3/h) 275 Total water demand (m3/h) 583 Feed water (L) 35500 Feed temperature (° C) Average 20 Heating steam temperature (° C) 152 Heating steam flow (t/ h) 12.5 Domestic water and brine discharge temperature (° C) 40 Brine emissions (m3/h) 137.5 The maximum operating temperature (° C) 71.5 Power supply Phase 3, 380V, 50Hz Salt brine (L) 71000 Effective weight (t) 26-32

Gao, C. (2006). Interview. Qingdao. Liu, J. S. and S. Pang (2005). “Outline of Seawter Desalination Project for Huaneng Yuhuan Power Plant.” Technology of Water Treatment 31(11): 73-75. Ruan, G. L. (2006). Interview. Tianjin. Ruan, G. L., L. Xie, et al. (2001). “Developing Sea Water Desalination and Relieving the Fresh Water Crisis.” Coastal Eng. 20: 39-47 (in Chinese). Tan, Y. (2006). Interview. Hangzhou. Wu, S. and W. Zheng (2002). “Coupling of Nuclear Heating Rector With Desalination Process.” Desalination 142: 187-193. Zhang, L., L. Xie, et al. (2005). “Progess and Prospects of Sea Water Desalination in China.” Desalination 182: 13-18 Zhou, Y. and R. Tol (2003). Implications of desalination to water resources in China - an economic perspective, Research Unit Sustainability and Global Change, Center for Marine and Climate Research, Hamburg University.

Table 14: China Desalination Yearly Market Size by Process in US$m Distillation RO Total low est. high est. low est. high est. low est. high est. 2001 $0 $0 $23,875,000 $28,650,000 $23,875,000 $28,650,000 2002 $0 $0 $1,984,375 $2,381,250 $1,984,375 $2,381,250 2003 $700,000 $1,050,000 $21,359,375 $25,631,250 $22,059,375 $26,681,250 2004 $3,000,000 $4,500,000 $20,156,250 $24,187,500 $23,156,250 $28,687,500 2005 $60,000,000 $90,000,000 $13,487,500 $16,185,000 $73,487,500 $106,185,000 2006 $10,000,000 $15,000,000 $45,190,000 $54,228,000 $55,190,000 $69,228,000 2007 $20,000,000 $30,000,000 $281,000,000 $337,200,000 $301,000,000 $367,200,000 2008 $10,000,000 $15,000,000 $7,062,500 $8,475,000 $17,062,500 $23,475,000 2009 $240,000,000 $360,000,000 $84,375,000 $101,250,000 $324,375,000 $461,250,000 2010 $460,000,000 $690,000,000 $143,750,000 $172,500,000 $603,750,000 $862,500,000

Chart 5: Forecast Market Size by Process

$1,000 $900 $800 $700 Millions $600 $500 $400 $300 $200 $100 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Distillation (low estimate) RO (low estimate) Distillation (high estimate) RO (high estimate)

Table 15: Market size based on forecast demand and shortfalls 2006–2010 2011–2015 Membrane 1,049,717 m3/d 2,753,883 m3/d MED 255,283 m3/d 596,117 m3/d MSF 45,000 m3/d 0 m3/d Seawater 752,814 m3/d 1,868,095 m3/d Brackish water 438,058 m3/d 1,087,034 m3/d Pure water 159,127 m3/d 394,871 m3/d Plants < 2,000 m3/d 0.60% 0.00% Plants 2,000–10,000 m3/d 23.30% 21.80% Plants > 10,000 m3/d 76.10% 79.10% Total 1,350,000 m3/d 3,350,000 m3/d

计划目标Planned Projects (by province)

Nan’ao Dao Planned Unknown Capacity Nan’ao (Guangdong)

Process: Feed: Seawater Client Type: Municipal Signature: 2007

Caofeidian RO Planned 50,000m3/d (incl. 2nd phase m3/d) Tangshan (Hebei)

Process: RO Feed: Seawater Client Type: Industrial (Beijing Shougang Jing- Signature: 2007 Operational: 2009 Tang Steel United Co.,LTD) CAPEX: CNY 259,200,000 m

Caofeidian RO+Termal Planned 200,000m3/d (incl. 2nd phase 148,000m3/d) Tangshan (Hebei)

Process: RO + Thermal Feed: Seawater Client Type: Industrial (Beijing Shougang Jing- Signature: 2008 Operational: 2010 Tang Steel United Co.,LTD) CAPEX: CNY 700,000,000 m

Huangyi Thermal Planned 10,000m3/d Huangyi (Hebei)

Process: MSF/MED Feed: Seawater Client Type: Industrial Signature: 2007 Operational: 2009

Changxing Dao Desal Planned 100,000m3/d Dalian (Liaoning)

Process: n/a Feed: Seawater Client Type: Industrial (Dalian Changxing Island Signature: 2008 Operational: 2010 Zone)

Dalian RO Planned 25,000m3/d Dalian (Liaoning)

Process: RO Feed: Seawater Client Type: Industrial Signature: 2007 Operational: 2009

Dalian Shibei RO Planned 30,000m3/d Dalian (Liaoning)

Process: RO Feed: Seawater Client Type: Industrial (Dalian Beiliang Co.,LTD) Signature: 2007 Operational: 2009

Hongyanhe Nuclear Power RO Planned 10,000m3/d Dalian (Liaoning)

Process: RO Feed: Seawater Client Type: Industrial (Liaoning Hongyanhe Signature: 2006 Operational: 2011 Nuclear Power Co.,LTD)

Shuangdao Bay Desal Planned 180,000m3/d Dalian (40km) (Liaoning)

Process: n/a Feed: Seawater Client Type: Industrial (Dalian Shuangdao Bay Signature: 2009 Operational: 2012 Petrochemical Complex)

Yingkou RO Planned 10,000m3/d Yingkou (Liaoning)

Process: RO Feed: Seawater Client Type: Industrial (Huaneng Yingkou Power Signature: 2005 Operational: 2007 Plant) Developer/EPC: Outokumpu HPP: KBR

Huangdao LT-MED Stage 2 Planned 10,000m3/d (incl. 2nd phase m3/d) Qingdao (Shandong)

Process: MED Feed: Seawater Client Type: Industrial (Huangdao Power Plant) Signature: 2006 Operational: 2007 Developer/EPC: Institute of Seawater Desalina- tion and Multipurpose Utilization

Huangdao LT-MED Stage 3 Planned 10,000m3/d Qingdao (Shandong)

Process: MED Feed: Seawater Client Type: Industrial (Huangdao Power Plant) Signature: 2007 Operational: 2008 Developer/EPC: Institute of Seawater Desalina- tion and Multipurpose Utilization

Huangdao LT-MED Stage 4 Planned 40,000m3/d Qingdao (Shandong) Process: MED Feed: Seawater Client Type: Industrial (Huangdao Power Plant) Signature: 2008 Operational: 2009 Developer/EPC: Institute of Seawater Desalina- tion and Multipurpose Utilization

Huangdao LT-MED Stage 5 Planned 50,000m3/d Qingdao (Shandong)

Process: MED Feed: Seawater Client Type: Industrial (Huangdao Power Plant) Signature: 2009 Operational: 2010 Developer/EPC: Institute of Seawater Desalina- tion and Multipurpose Utilization

Huangdao RO Stage 2 Planned 10,000m3/d Qingdao (Shandong)

Process: RO Feed: Seawater Client Type: Industrial (Huangdao Power Plant) 2 Unit x 5,000m3/d Developer/EPC: Institute of Seawater Desalina- Signature: 2006 Operational: 2007 tion and Multipurpose Utilization

Huangdao RO Stage 3 Planned 30,000m3/d Qingdao (Shandong)

Process: RO Feed: Seawater Client Type: Industrial (Huangdao Power Plant) 2 Unit x 15,000m3/d Developer/EPC: Institute of Seawater Desalina- Signature: 2008 Operational: 2009 tion and Multipurpose Utilization

Huangdao RO Stage 4 Planned 50,000m3/d Qingdao (Shandong)

Process: RO Feed: Seawater Client Type: Industrial (Huangdao Power Plant) 2 Unit x 25,000m3/d Developer/EPC: Institute of Seawater Desalina- Signature: 2009 Operational: 2010 tion and Multipurpose Utilization

Longkou Thermal Planned 100,000m3/d Longkou (Shandong)

Process: MSF/MED Feed: Seawater Client Type: Industrial (Longkou Mining Group Signature: 2007 Operational: 2009 Co., Ltd.) CAPEX: CNY 487,944,000 m

Pingdu Brackish Planned Unknwon Capacity Qingdao (Shandong)

Process: Feed: Brackish Client Type: Municipal Signature: 2007 Operational:

Weihai Thermal Planned 10,000m3/d Weihai (Shandong)

Process: MSF/MED Feed: Seawater Client Type: Municipal Signature: 2008 Operational: 2010

Yantai Nuclear MED Planned 240,000m3/d (incl. 2nd phase 120,000m3/d) Yantai (Shandong)

Process: MED Feed: Seawater Client Type: Municipal (Yantai Industrial Park) 24 Unit x 10,000m3/d CAPEX: CNY 2,200,000,000 m Signature: 2008 Operational: 2011 Developer/EPC: Beijing Haoxin Investing

Dagang Xinquan MED Planned 250,000m3/d Tianjin (Tianjin)

Process: MED Feed: Seawater Client Type: Industrial Signature: 2007 Operational: 2010

Hangu District MED Planned 100,000m3/d Tianjin (Tianjin)

Process: MED Feed: Seawater Client Type: Industrial (Beijiang Power Plant) 4 Unit x 25,000m3/d CAPEX: CNY 1,000,000,000 m Signature: 2007 Operational: 2009

Tianjin Thermal Planned 20,000m3/d Tianjin (Tianjin)

Process: MSF/MED Feed: Seawater Client Type: Industrial Signature: 2008 Operational: 2011

Daishan County RO 2 Planned 2,000m3/d Zhoushan (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal 1 Unit x 2,000m3/d Signature: 2007 Operational: 2008

Dayangshan Dao RO Planned 30,000m3/d (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal Signature: 2008 Operational: 2010

Dongtou Dao RO Planned 3,300m3/d (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal Signature: 2007 Operational: 2008

Wenling City LT-MED Awarded 120,000m3/d (incl. 2nd phase 60,000m3/d) Wenling (Zhejiang)

Process: MED Feed: Seawater Client Type: Municipal (Wenling City) 8 Unit x 15,000m3/d CAPEX: CNY 1,400,000,000 m Signature: 2007 Operational: 2011

Zhoushan RO Planned 6,000m3/d Zhoushan (Zhejiang)

Process: RO Feed: Seawater Client Type: Industrial (Zhoushan Power Plant) 2 Unit x 3,000m3/d Signature: 2007 Operational: 2008

新兴工程 Awarded Projects (by province)

Guangzhou Paper Mill 2 Awarded 100,000m3/d Dongguan (Guangdong)

Process: RO Feed: Brackish Client Type: Industrial (Paper Mill) Signature: 2005 Operational: 2007 Developer/EPC: Xidoumen Membranes: Tianwei

Huludao RO Awarded 50,000m3/d Huludao (Liaoning)

Process: RO Feed: Seawater Client Type: Industrial & Municipal (Undecided/ Signature: 2004 Operational: 2007 Liaoning Zhengye Group Real Estate Develop- Membranes: Hyﬂ ux (RO) Megavision (UF) ment Co Ltd.) CAPEX: CNY 452,000,000 m Developer/EPC: Hyﬂ ux

Zhuanghe Power Plant RO Awarded 28,000m3/d (Liaoning)

Process: RO Feed: Seawater Client Type: Industrial (Beijing Lucency Enviro- Signature: 2006 Operational: 2007 Tech Co., Ltd.,) Membranes: Koch

Lubei Chemical Group RO Awarded 20,000m3/d Mashanzi Town, Wuli County (Shandong)

Process: RO Feed: Seawater Client Type: Industrial (Shandong Lubei Chemi- 4 Unit x 5,000m3/d cal Group) Known equipement: Spiral Wound Membrane CAPEX: CNY 120,000,000 m Signature: 2006 Operational: 2007 Developer/EPC: Xidoumen Membranes: Beidouxing ERD: ERI HPP: Grundfos PV: ROPV

Dagang RO Awarded 150,000m3/d (incl. 2nd phase 50,000m3/d) Tianjin (Tianjin)

Process: RO Feed: Seawater Client Type: Industrial & Municipal (Dagang Signature: 2004 Operational: 2007 District) Membranes: Hyﬂ ux (RO) Megavision (UF) CAPEX: CNY 720,000,000 m Developer/EPC: Hyﬂ ux ERD: Calder

Liuheng RO Awarded 10,000m3/d Zhoushan (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal () 2 Unit x 5,000m3/d CAPEX: CNY 50,000,000 m Signature: 2005 Operational: 2006 Developer/EPC: Xidoumen PV: ROPV

Liuheng RO 2 Awarded 60,000m3/d (incl. 2nd phase 50,000m3/d) Zhoushan, Putuo District (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal (Liuheng Island) 12 Unit x 5,000m3/d CAPEX: CNY 300,000,000 m Known equipement: Spiral Wound Membrane Developer/EPC: Xidoumen Signature: 2005 Operational: 2007 PV: ROPV

Shengshan RO 2 Awarded 1,000m3/d Zhoushan, Shengsi County (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal (Shengshan Town) 1 Unit x 1,000m3/d CAPEX: CNY 5,500,000 m Known equipement: Spiral Wound Membrane Developer/EPC: Xidoumen Signature: 2006 Operational: 2006 ERD: ERI HPP: Grundfos PV: ROPV Membranes: Toray

Yangshan RO 2 Awarded 1,000m3/d Zhoushan, Shengsi County (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal (Yangshan Town) 1 Unit x 1,000m3/d CAPEX: CNY 5,500,000 m Known equipement: Spiral Wound Membrane Developer/EPC: Xidoumen Signature: 2006 Operational: 2006 ERD: ERI HPP: Pump Engineering Membranes: Toray PV: ROPV

Yueqing RO Awarded 21,600m3/d (Zhejiang)

Process: RO Feed: Seawater Client Type: Industrial (Zheneng Yueqing Power 6 Unit x 3,600m3/d Plant) Signature: 2006 Operational: 2007 CAPEX: CNY 120,000,000 m Membranes: Dow Filmtec Developer/EPC: CNC

运行状况Online Projects (by province)

Beijing Brackish ED Operational 1,000m3/d Beijing (Beijing)

Process: ED Feed: Brackish Client Type: Industrial 2 Unit x 500m3/d Developer/EPC: GE Signature: 1994 Operational: 1995

Beijing Chemical ED Operational 384m3/d Beijing (Beijing)

Process: ED Feed: Brackish Client Type: Industrial (Beijing Chemical) 2 Unit x 192m3/d Signature: 1996 Operational: 1997 Membranes: Dow Filmtec

Beijing Industrial RO Operational 100m3/d Beijing (Beijing)

Process: RO Feed: Brackish Client Type: Industrial (Private) 1 Unit x 100m3/d Developer/EPC: Hydropro, Inc. Known equipement: Spiral Wound Membrane Signature: 1997 Operational: 1997 Membranes: Koch Membrane Systems

Taishan Dao RO Operational 30m3/d Fuding (Fujian)

Process: RO Feed: Seawater Client Type: Municipal (Fujian Water Conser- 1 Unit x 30m3/d vancy Bureau) Signature: 2003 Operational: 2004 Developer/EPC: Xidoumen Membranes: Toray ERD: ERI HPP: Grundfos PV: ROPV

Guangzhou Paper Mill Operational 871m3/d Guangzhou (Guangdong)

Process: MED Feed: Brackish Client Type: Industrial (Paper Mill) 1 Unit x 871m3/d Developer/EPC: Aqua Chem Signature: 1989 Operational: 1991

Sanzhou Operational 1,250m3/d Sanzhou (Guangdong)

Process: MED Feed: Brackish Client Type: Industrial (Fibers) 1 Unit x 1250m3/d Developer/EPC: Aquatech International Corpo- Signature: 1989 Operational: 1991 ration

Shenzen Colour RO Operational 1,440m3/d Shenzhen (Guangdong)

Process: RO Feed: Brackish Client Type: Industrial (Shenzhen Colour) 1 Unit x 1440m3/d Known equipement: Spiral Wound Membrane Signature: 1996 Operational: 1997 Membranes: Dow Filmtec

Xisha Dao ED Operational 600m3/d (incl. 2nd phase 400m3/d) Xisha (Hainan)

Process: ED Feed: Seawater Client Type: Municipal (Yongxin Island) 1 Unit x 200m3/d CAPEX: CNY 2,000,000 m Signature: 1981 Operational: 1981 Developer/EPC: Xidoumen Membranes: Qianqiu

Cangzhou Brackish RO Operational 18,000m3/d Cangzhou (Hebei)

Process: RO Feed: Brackish Client Type: Industrial (Cangzhou Chemical 4 Unit x 4,500m3/d Industry Corporation) Signature: 2000 Operational: 2001 Membranes: Bei Fang, Vontron

Huanghua MED Operational 60,000m3/d (incl. 2nd phase 40,000m3/d) Huanghua (Hebei)

Process: MED Feed: Seawater Client Type: Industrial (Huanghua Power Plant) 6 Unit x 10,000m3/d CAPEX: CNY 313,600,000 m Signature: 2003 Operational: 2005 Developer/EPC: Sidem-Veolia (Metalworks SITindustries)

Lang Power Plant RO Operational 5,000m3/d (Hebei)

Process: RO Feed: Brackish Client Type: Industrial (Hebei Lang Power) 4 Unit x 1250m3/d Known equipement: Spiral Wound Membrane Signature: 1996 Operational: 1997 Membranes: Dow Filmtec

Wangtan RO Operational 10,800m3/d Wangtan (Hebei)

Process: RO Feed: Seawater Client Type: Industrial (Datang Wangtan Power 2 Unit x 5,400m3/d Plant) Known equipement: Spiral Wound Membrane CAPEX: CNY 80,000,000 m Signature: 2004 Operational: 2005 Developer/EPC: Omex Environmental Engineer- Membranes: Dow Filmtec ing Co.,Ltd

Henan Brackish RO Operational 5,760m3/d (Henan)

Process: RO Feed: Brackish Client Type: Municipal 4 Unit x 1440m3/d Known equipement: Spiral Wound Membrane Signature: 1996 Operational: 1997 Membranes: Dow Filmtec

Henan Power Brackish RO Operational 5,160m3/d (Henan)

Process: RO Feed: Brackish Client Type: Industrial (Henan Power) 4 Unit x 1290m3/d Known equipement: Spiral Wound Membrane Signature: 1996 Operational: 1998 Membranes: Dow Filmtec

Hong Kong RO Operational 112m3/d Hong Kong (Hong Kong SAR)

Process: RO Feed: Seawater Client Type: Industrial (Yeo Hiap Seng) 1 Unit x 112m3/d Developer/EPC: Alfa Laval Known equipement: Spiral Wound Membrane Signature: 1988 Operational: 1988

Inner Mongolia Brackish RO Operational 1,440m3/d (Inner Mongolia)

Process: RO Feed: Brackish Client Type: Industrial (Xilinghote Power) 2 Unit x 720m3/d Known equipement: Spiral Wound Membrane Signature: 1996 Operational: 1997 Membranes: Dow Filmtec

Jiangsu Power Brackish RO Operational 2,640m3/d (Jiangsu)

Process: RO Feed: Brackish Client Type: Industrial (Jiangsu Power) 2 Unit x 1320m3/d Known equipement: Spiral Wound Membrane Signature: 1996 Operational: 1997 Membranes: Dow Filmtec

Jiangyin Industrial Brackish RO Operational 360m3/d Jiangyin (Jiangsu)

Process: RO Feed: Brackish Client Type: Industrial (Alfa Laval) 1 Unit x 360m3/d Developer/EPC: MT Freshwater Marine Tech- Known equipement: Spiral Wound Membrane nology AB Signature: 1995 Operational: 1996 Membranes: Dow Filmtec

Taiyuan Fertiliser Brackish RO Operational 2,400m3/d Taiyuan (Jiangsu)

Process: RO Feed: Brackish Client Type: Industrial (Taiyuan Fertili) 2 Unit x 1200m3/d Known equipement: Spiral Wound Membrane Signature: 1996 Operational: 1998 Membranes: Dow Filmtec

Wuxi Industrial Brackish RO Operational 140m3/d Wuxi (jiangsu)

Process: RO Feed: Brackish Client Type: Industrial 1 Unit x 140m3/d Developer/EPC: Kobelco Eco Solutions Known equipement: Spiral Wound Membrane Signature: 1999 Operational: 1999

Changhai County RO Operational 1,500m3/d (incl. 2nd phase 500m3/d) Dalian (Liaoning)

Process: RO Feed: Seawater Client Type: Municipal (Changhai County) Known equipement: Spiral Wound Membrane CAPEX: CNY 8,000,000 m Signature: 1998 Operational: 2001 Developer/EPC: ProMinent / Yuchai Luyuan Environmental Engineering Co.,Ltd

Dachangshan Dao RO Operational 1,500m3/d (incl. 2nd phase 500m3/d) Dachangshan (Liaoning)

Process: RO Feed: Seawater Client Type: Municipal (Dachangshan Municipal- Signature: 2000 Operational: 2001 ity) Developer/EPC: ProMinent

Dachangshan Dao RO II Operational 2,000m3/d Dalian (Liaoning)

Process: RO Feed: Brackish Client Type: Municipal (Dachangshan Municipal- Signature: 1994 Operational: 2001 ity) Developer/EPC: Guanxi Yuchai Group

Dalian PDA RO Operational 2,000m3/d Dalian (Liaoning)

Process: RO Feed: Seawater Client Type: Industrial (PDA Corporation (Dalian 2 Unit x 1,000m3/d Port)) Known equipement: Spiral Wound Membrane CAPEX: CNY 8,000,000 m Signature: 2004 Operational: 2004 Developer/EPC: ProMinent

Dalian Petrochemical RO Operational 15,500m3/d (incl. 2nd phase 10,000m3/d) Dalian (Liaoning)

Process: RO Feed: Seawater Client Type: Industrial (Dalian Petrochemical 3 Unit x 1,833m3/d Company) Signature: 2002 Operational: 2003 CAPEX: CNY 55,000,000 m Membranes: Motimo Developer/EPC: CNC

Dalian Pilot MED Operational 500m3/d Dalian (Liaoning)

Process: MED Feed: Seawater Client Type: Industrial (Dalian Science & Tech 1 Unit x 500m3/d University) Signature: 2006 Operational: 2006

Dalian Reﬁ nery MSF Operational 10,000m3/d Dalian (Liaoning)

Process: MSF Feed: Seawater Client Type: Industrial (Dalian Reﬁ nery) 2 Unit x 5000m3/d Signature: 1996 Operational: 1998

Huaneng Power Plant RO Operational 2,000m3/d Dalian (Liaoning)

Process: RO Feed: Seawater Client Type: Industrial (Dalian Huaneng Power Known equipement: Spiral Wound Membrane Plant) Signature: 2001 Operational: 2002 CAPEX: CNY 18,000,000 m Membranes: Dow Filmtec Developer/EPC: Peninsula Water

Mianhua Dao RO Operational 100m3/d Dalian (Liaoning)

Process: RO Feed: Seawater Client Type: Industrial (China First Heavy Indus- 1 Unit x 100m3/d tries) Known equipement: Spiral Wound Membrane CAPEX: CNY 2,000,000 m Signature: 2002 Operational: 2003 Developer/EPC: Xidoumen Membranes: Dow Filmtec PV: ROPV

Sanshan Dao RO Operational 144m3/d Dalian (Liaoning)

Process: RO Feed: Seawater Client Type: Municipal (Leisure&Amusement 1 Unit x 144m3/d Co.,Ltd) Known equipement: Spiral Wound Membrane Developer/EPC: ProMinent Signature: 2005 Operational: 2006 HPP: Pump Engineering

Zhangzi Dao, Changhai County RO Operational 1,200m3/d Dalian (Liaoning)

Process: RO Feed: Seawater Client Type: Municipal (Zhangzi Island) 2 Unit x 600m3/d CAPEX: m Known equipement: Spiral Wound Membrane Developer/EPC: ProMinent Signature: 1999 Operational: 2001

Macao MED Operational 700m3/d Macao (Macau SAR)

Process: MED Feed: Seawater Client Type: Industrial (Cem Macao) 1 Unit x 700m3/d Developer/EPC: Alfa Laval Signature: 2002 Operational: 2003

Changqing Petroleum RO Operational 3,600m3/d Xian (Shaanxi)

Process: RO Feed: Brackish Client Type: Industrial (Changqing Petroleum) 3 Unit x 1200m3/d Known equipement: Spiral Wound Membrane Signature: 1997 Operational: 1998 Membranes: Dow Filmtec

Beihuangcheng Dao, RO Operational 75m3/d Yantai, Changdao County (Shandong)

Process: RO Feed: Seawater Client Type: Municipal (Beihuangcheng Island) 1 Unit x 75m3/d CAPEX: CNY 2,500,000 m Known equipement: Spiral Wound Membrane Developer/EPC: Xidoumen Signature: 2002 Operational: 2003 PV: ROPV Membranes: Dow Filmtec

Changdao County RO Operational 1,000m3/d Yantai, Changdao County (Shandong)

Process: RO Feed: Seawater Client Type: Municipal (Changdao Agriculture 2 Unit x 500m3/d and Water Conservancy Bureau) Known equipement: Spiral Wound Membrane CAPEX: CNY 8,000,000 m Signature: 2000 Operational: 2001 Developer/EPC: Xidoumen Membranes: Dow Filmtec PV: ROPV

Changdao County RO 2 Operational 300m3/d Yantai, Changdao County (Shandong)

Process: RO Feed: Seawater Client Type: Municipal (Industrial Garden, 1 Unit x 300m3/d Changdao County) Signature: 2005 Operational: 2006 Developer/EPC: H&W

Huangdao MED Pilot (Stage 1) Operational 3,000m3/d Qingdao (Shandong)

Process: MED Feed: Seawater Client Type: Industrial (Huangdao Power Plant) Signature: 2003 Operational: 2004 CAPEX: CNY 24,000,000 m Developer/EPC: Institute of Seawater Desalina- tion and Multipurpose Utilization

Huangdao RO Pilot (Stage 1) Operational 3,000m3/d Qingdao (Shandong)

Process: RO Feed: Seawater Client Type: Industrial (Huangdao Power Plant) 1 Unit x 3,000m3/d CAPEX: CNY 20,000,000 m Known equipement: Spiral Wound Membrane Developer/EPC: Institute of Seawater Desalina- Signature: 2005 Operational: 2006 tion and Multipurpose Utilization Membranes: Hydranautics PV: ROPV

Kongtongdao RO Operational 500m3/d Yantai (Shandong)

Process: RO Feed: Seawater Client Type: Municipal (Kongtong Island) 1 Unit x 500m3/d CAPEX: CNY 6,000,000 m Known equipement: Spiral Wound Membrane Developer/EPC: H&W / Nanjing H&C Mech. Co., Signature: 2001 Operational: 2005 Ltd. PV: ROPV

Liugongdao RO Operational 500m3/d Weihai (Shandong)

Process: RO Feed: Seawater Client Type: Municipal (Weihai Water Manage- 1 Unit x 500m3/d ment Group Company) Known equipement: Spiral Wound Membrane CAPEX: CNY 9,000,000 m Signature: 2001 Operational: 2002 Developer/EPC: ProMinent

Muping District RO Operational 420m3/d Yantai (Shandong)

Process: RO Feed: Seawater Client Type: Industrial (Shenhaiquan Mineral 2 Unit x 210m3/d Water Factory) Known equipement: Spiral Wound Membrane Developer/EPC: Ace Water Treatment Signature: 2003 Operational: 2004

Qingdao Alkaline RO Operational 20,000m3/d Qingdao (Shandong) Process: RO Feed: Seawater Client Type: Industrial (Qingdao Alkaline Indus- 2 Unit x 10,000m3/d try Co.,LTD) Signature: 2004 Operational: 2006 CAPEX: CNY 120,000,000 m

Qingdao MVC Operational 60m3/d (incl. 2nd phase m3/d) Qingdao (Shandong)

Process: MVC Feed: Seawater Client Type: Industrial (Huangdao Power Plant) 1 Unit x 60m3/d CAPEX: CNY 1,200,000 m Signature: 2002 Operational: 2003 Developer/EPC: Institute of Seawater Desalina- tion and Multipurpose Utilization

Shidao RO Operational 10,000m3/d (incl. 2nd phase 5,000m3/d) Rongcheng (Shandong)

Process: RO Feed: Seawater Client Type: Industrial & Municipal (Shandong 2 Unit x 5,000m3/d Shidao Aquatic Products Group Co.,Ltd) Known equipement: Spiral Wound Membrane CAPEX: CNY 19,690,000 m Signature: 2002 Operational: 2003 Developer/EPC: Xidoumen Membranes: Dow Filmtec PV: ROPV

Tianhengdao RO Operational 480m3/d Qingdao (Shandong)

Process: RO Feed: Seawater Client Type: Municipal (Tianheng City) 1 Unit x 480m3/d Developer/EPC: ProMinent Signature: 2004 Operational: 2005

Tuoji RO Operational 200m3/d Yantai, Changdao County (Shandong)

Process: RO Feed: Seawater Client Type: Municipal (Tuoji Island) 1 Unit x 200m3/d Developer/EPC: H&W Known equipement: Signature: 2004 Operational: 2005

Weihai Huaneng Power Plant RO Operational 2,000m3/d Qingdao (Shandong)

Process: RO Feed: Seawater Client Type: Industrial (Shandong Weihai Known equipement: Spiral Wound Membrane Huaneng Power Plant) Signature: 2000 Operational: 2001 CAPEX: CNY 20,000,000 m Membranes: Dow Filmtec Developer/EPC: Peninsula Water

Xiaoqingdao RO Operational 75m3/d Yantai, Changdao County (Shandong)

Process: RO Feed: Seawater Client Type: Municipal (Xiao Qing Island) 1 Unit x 75m3/d CAPEX: CNY 2,610,000 m Known equipement: Spiral Wound Membrane Developer/EPC: Xidoumen Signature: 2001 Operational: 2002 PV: ROPV Membranes: Dow Filmtec

Shanghai Reﬁ nery Brackish RO Operational 4,800m3/d Shanghai (Shanghai)

Process: RO Feed: Brackish Client Type: Industrial (Oil Reﬁ nery) 4 Unit x 1200m3/d Developer/EPC: Known equipement: Spiral Wound Membrane PV: ROPV Signature: 1996 Operational: 1998 Membranes: Dow Filmtec

Yangshupu Power RO Operational 8,640m3/d Shanghai (Shanghai)

Process: RO Feed: Brackish Client Type: Industrial (Yang Shu Power) 3 Unit x 2880m3/d Developer/EPC: Fangdar Environmental Engi- Known equipement: Spiral Wound Membrane neering Signature: 1996 Operational: 1997 HPP: ITT Membranes: Dow Filmtec

Taiyuan Steel RO Operational 7,500m3/d Taiyuan (Shanxi)

Process: RO Feed: Brackish Client Type: Industrial (Steel Works) 1 Unit x 7500m3/d HPP: Danfoss Known equipement: Spiral Wound Membrane Signature: 2003 Operational: 2003 Membranes: Hydranautics

Zhang Dian Power Brackish RO Operational 8,640m3/d Zhangdian (Shanxi)

Process: RO Feed: Brackish Client Type: Industrial (Zhang Dian Power) 4 Unit x 2160m3/d Known equipement: Spiral Wound Membrane Signature: 1996 Operational: 1998 Membranes: Dow Filmtec

Dagang Xinquan MSF Operational 6,000m3/d Tianjin (Tianjin)

Process: MSF Feed: Seawater Client Type: Industrial (The Dagang Xinquan 2 Unit x 3,000m3/d Seawater Desalination Co., Ltd) Signature: 1986 Operational: 1990 CAPEX: CNY 44,820,000 m Developer/EPC: Envirogenics

Tanggu RO Operational 1,000m3/d Tianjin (Tianjin)

Process: RO Feed: Seawater Client Type: Industrial 1 Unit x 1,000m3/d CAPEX: CNY 8,000,000 m Known equipement: Spiral Wound Membrane Developer/EPC: Institute of Seawater Desalina- Signature: 2002 Operational: 2003 tion and Multipurpose Utilization Membranes: Hydranautics ERD: ERI PV: ROPV

TEDA Industrial RO Operational 10,000m3/d Tianjin (Tianjin)

Process: RO Feed: Brackish Client Type: Municipal (NCP TEDA) 2 Unit x 5000m3/d Developer/EPC: Bekox - Veolia Known equipement: Spiral Wound Membrane Signature: 2001 Operational: 2001 Membranes: Dow Filmtec

TEDA LT-MED Operational 10,000m3/d (incl. 2nd phase m3/d) Tianjin (Tianjin)

Process: MED Feed: Brackish Client Type: Industrial (TEDA) 1 Unit x 10,000m3/d CAPEX: CNY 100,000,000 m Known equipement: Developer/EPC: Entropie-Veolia (Metalworks by Signature: 2004 Operational: 2006 Baocheng)

Tianjin Huaneng RO Operational 2,880m3/d Tianjin (Tianjin)

Process: RO Feed: Brackish Client Type: Industrial (Huaneng Power Plant) 3 Unit x 960m3/d Developer/EPC: Fangdar Environmental Engi- Known equipement: Spiral Wound Membrane neering Signature: 1995 Operational: 1996 Membranes: Dow Filmtec

China Operational 792m3/d Unknown (Unknown)

Process: RO Feed: Brackish Client Type: Industrial () 1 Unit x 792m3/d Developer/EPC: GE Known equipement: Spiral Wound Membrane Signature: 1998 Operational: 1999 Membranes: Dow Filmtec

China Operational 2,000m3/d Unknown (Unknown)

Process: ED Feed: Brackish Client Type: Municipal () 2 Unit x 1000m3/d Developer/EPC: GE Signature: 1985 Operational: 1986 Membranes: GE Ionics

China Operational 120m3/d Unknown (Unknown)

Process: RO Feed: Brackish Client Type: Industrial () 1 Unit x 120m3/d Developer/EPC: Siemens Water Technology Known equipement: Spiral Wound Membrane (USF) Signature: 1987 Operational: 1988

China Operational 1,920m3/d Unknown (Unknown)

Process: RO Feed: Brackish Client Type: Industrial (Zhong Yuan Ethy) 1 Unit x 1920m3/d Known equipement: Spiral Wound Membrane Signature: 1996 Operational: 1997 Membranes: Dow Filmtec

China Operational 6,000m3/d Unknown (Unknown)

Process: RO Feed: Brackish Client Type: Industrial (Iranyazd Zinc) 5 Unit x 1200m3/d Known equipement: Spiral Wound Membrane Signature: 1996 Operational: 1997 Membranes: Dow Filmtec

China Operational 11,520m3/d Unknown (Unknown)

Process: RO Feed: Brackish Client Type: Industrial (Daging Oil Reﬁ ) 4 Unit x 2880m3/d Known equipement: Spiral Wound Membrane Signature: 1996 Operational: 1997 Membranes: Dow Filmtec

Shi Dong Kuo Operational 6,235m3/d Unknown (Unknown)

Process: RO Feed: Brackish Client Type: Industrial (East China Power) 3 Unit x 2078m3/d Developer/EPC: Graver Water Systems Known equipement: Spiral Wound Membrane Signature: 1992 Operational: 1992 Membranes: Koch

Daishan Dao RO Operational 2,000m3/d Zhoushan (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal (Daishan Water Affairs 2 Unit x 1,000m3/d Bureau) Known equipement: Spiral Wound Membrane CAPEX: CNY 12,000,000 m Signature: 2004 Operational: 2005 Developer/EPC: Xidoumen Membranes: Toray ERD: ERI HPP: Grundfos PV: ROPV

Majishan Harbour RO Operational 500m3/d Zhoushan, Shengsi County (Zhejiang)

Process: RO Feed: Seawater Client Type: Industrial (Majishan Harbour) 1 Unit x 500m3/d CAPEX: CNY 5,000,000 m Known equipement: Spiral Wound Membrane Developer/EPC: Xidoumen Signature: 1997 Operational: 1999 Membranes: Dow Filmtec

Mayi Dao RO Operational 300m3/d Zhoushan, Putuo District (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal (Mayi Island) 1 Unit x 300m3/d CAPEX: CNY 3,980,000 m Known equipement: Spiral Wound Membrane Developer/EPC: Xidoumen Signature: 2005 Operational: 2006 ERD: ERI HPP: Grundfos PV: ROPV Membranes: Beidouxing

Shengshan RO Operational 500m3/d Zhoushan, Shengsi County (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal (Shengshan Island) 1 Unit x 500m3/d CAPEX: CNY 6,000,000 m Known equipement: Spiral Wound Membrane Developer/EPC: Xidoumen Signature: 1997 Operational: 1997 HPP: Grundfos PV: ROPV Membranes: Dow Filmtec

Shengsi County RO Operational 1,000m3/d Zhoushan (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal (Shengsi County) 1 Unit x 1,000m3/d CAPEX: CNY 8,500,000 m Known equipement: Spiral Wound Membrane Developer/EPC: Xidoumen Signature: 2000 Operational: 2001 PV: ROPV Membranes: Dow Filmtec

Shengsi County RO 2 Operational 600m3/d Zhoushan (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal (Shengsi County) 1 Unit x 600m3/d CAPEX: CNY 2,500,000 m Known equipement: Spiral Wound Membrane Developer/EPC: ProMinent Signature: 2001 Operational: 2002 Membranes: Hydranautics

Shengsi County RO 3 Operational 1,000m3/d Zhoushan (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal (Shengsi County) 1 Unit x 1,000m3/d CAPEX: CNY 5,500,000 m Known equipement: Spiral Wound Membrane Developer/EPC: Xidoumen Signature: 2003 Operational: 2004 ERD: ERI HPP: Grundfos PV: ROPV Membranes: Toray

Shengsi County RO 4 Operational 2,000m3/d Zhoushan (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal (Shengsi County) 1 Unit x 2,000m3/d CAPEX: CNY 10,000,000 m Known equipement: Spiral Wound Membrane Developer/EPC: Xidoumen Signature: 2004 Operational: 2005 ERD: ERI HPP: Grundfos PV: ROPV Membranes: Toray

Shengsi County RO 5 Operational 2,000m3/d Zhoushan (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal (Shengsi County) 1 Unit x 2,000m3/d CAPEX: CNY 9,620,000 m Known equipement: Spiral Wound Membrane Developer/EPC: Xidoumen Signature: 2005 Operational: 2006 ERD: ERI HPP: Grundfos PV: ROPV Membranes: Toray

Sijiao Dao RO Operational 4,000m3/d (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal Unit x m3/d Known equipement: Signature: 2004 Operational: 2005

Xiazhi Town RO Operational 600m3/d Zhoushan, Putuo District (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal (Xiazhi Island) 2 Unit x 300m3/d CAPEX: CNY 5,730,000 m Known equipement: Spiral Wound Membrane Developer/EPC: Xidoumen Signature: 2004 Operational: 2005 ERD: ERI HPP: Grundfos PV: ROPV Membranes: Toray

Yangshan RO Operational 1,000m3/d Zhoushan, Shengsi County (Zhejiang)

Process: RO Feed: Seawater Client Type: Municipal (Yangshan Town) 1 Unit x 1,000m3/d CAPEX: CNY 6,000,000 m Known equipement: Spiral Wound Membrane Developer/EPC: Xidoumen Signature: 2004 Operational: 2005 ERD: ERI HPP: Grundfos PV: ROPV Membranes: Toray

Yanshan Operational 28,800m3/d Yanshan (Zhejiang)

Process: RO Feed: Brackish Client Type: Municipal (Industrial) 1 Unit x 28800m3/d Developer/EPC: GE Signature: 2003 Operational: 2004 Membranes: Zenon

Yuhuan Huaneng Power Plant RO Operational 34,560m3/d (Zhejiang)

Process: RO Feed: Seawater Client Type: Industrial (Yuhuan Huaneng Power 6 Unit x 5,760m3/d Plant) Known equipement: Spiral Wound Membrane CAPEX: CNY 200,000,000 m Signature: 2005 Operational: 2006 Developer/EPC: CNC Membranes: Zenon/Dow (UF Pretreatment) And ERD: ERI HPP: ERI PV: BEL Com- Toray (RO) posite

Decommissioned越位 (by province)

Beijing CocaCola RO Decommissioned 378m3/d Beijing (Beijing)

Process: RO Feed: Brackish Client Type: Industrial (Coca Cola) 1 Unit x 378m3/d Developer/EPC: Aqua Chem Signature: 1979 Operational: 1980

DWS MSF Decommissioned 228m3/d Hong Kong (Hong Kong SAR)

Process: MSF Feed: Seawater Client Type: Municipal (Government) 1 Unit x 228m3/d Developer/EPC: Sasakura Engineering Com- Signature: 1970 Operational: 1971 pany

HK Electric ED Decommissioned 598m3/d Hong Kong (Hong Kong SAR)

Process: ED Feed: Brackish Client Type: Industrial (Electric) 1 Unit x 598m3/d Developer/EPC: US Filter Signature: 1971 Operational: 1972

Hong Kong Brackish RO Decommissioned 162m3/d Hong Kong (Hong Kong SAR)

Process: RO Feed: Brackish Client Type: Industrial 1 Unit x 162m3/d Developer/EPC: GE Known equipement: Spiral Wound Membrane Signature: 1979 Operational: 1980

Hong Kong Light & Power ED Decommissioned 681m3/d Hong Kong (Hong Kong SAR)

Process: ED Feed: Brackish Client Type: Industrial (Light & Power) 4 Unit x 170m3/d Developer/EPC: US Filter Signature: 1971 Operational: 1972

Hong Kong MSF Decommissioned 181,800m3/d Hong Kong (Hong Kong SAR)

Process: MSF Feed: Seawater Client Type: Municipal (Government) 6 Unit x 30300m3/d Developer/EPC: Sasakura Engineering Com- Signature: 1972 Operational: 1975 pany

Dallian Industrial Brackish RO Decommissioned 288m3/d Dalian (Liaoning)

Process: RO Feed: Brackish Client Type: Industrial 1 Unit x 288m3/d Developer/EPC: Organo Known equipement: Spiral Wound Membrane Signature: 1984 Operational: 1985

Wushi Brackish Industrial RO Decommissioned 3,456m3/d Wushi (Shaanxi)

Process: RO Feed: Brackish Client Type: Industrial 1 Unit x 3456m3/d Developer/EPC: Organo Known equipement: Spiral Wound Membrane Signature: 1982 Operational: 1983

Shanghai Industrial Brackish RO Decommissioned 1,200m3/d Shanghai (Shanghai)

Process: RO Feed: Brackish Client Type: Industrial (Nat. Instrument) 1 Unit x 1200m3/d Developer/EPC: Mitsubishi Signature: 1985 Operational: 1986

Shanghai Industrial MED Decommissioned 3,877m3/d Shanghai (Shanghai)

Process: MED Feed: Brackish Client Type: Industrial (SPC II) 1 Unit x 3877m3/d Developer/EPC: Aquatech International Corpo- Signature: 1991 Operational: 1993 ration

Shanghai Industrial MED II Decommissioned 3,877m3/d Shanghai (Shanghai)

Process: MED Feed: Brackish Client Type: Industrial (SPC III) 1 Unit x 3877m3/d Developer/EPC: Aqua Chem Signature: 1992 Operational: 1994

Dakang Decommissioned 870m3/d Dakang (Zhejiang)

Process: RO Feed: Brackish Client Type: Industrial (Ntic) 3 Unit x 290m3/d Developer/EPC: Ansaldo Signature: 1978 Operational: 1979

Case Study 1: The Chinese Flag Ship - Huang- ment Zone. Huangdao power plant is thus dao RO & MED Pilot Projects meant to become the “demonstration base” of China seawater desalination industrial- Huangdao is the fl agship of Chinese desali- ization. nation. It has been developed jointly by the Tianjin desalination research institute and is Feed Water meant to demonstrate the future viability of The quality of seawater around Huangdao Chinese-made desalination technology. power plant is high (See Table 2). Feed wa- Project Rationale ter for the desalination plant comes from the seawater cooling system of the power Qingdao is located on the coast of Huang- plant and the brine is discharged with the hai Sea and in the Jiaozhou Bay. Topological cooling seawater. conditions and the low rainfall induce serious water scarcity problems, with per capita The LT-MED System resources at 334m3, or 13% of the Chinese A 3,000m3/d LT-MED project was designed average. Total annual water demand in 2010 by Tianjin Institute of Seawater Desalination is forecast to be 1.305bn m3, or a shortfall of & Multipurpose Utilization, and manufac- about 0.242bn. tured by Qingdao Hua-ou Co. It was the fi rst The Huangdao power plant is located in the LT-MED plant built in China using Chinese Huangdao Island district of Qingdao, and proprietary technology. 99% of inputs were was set up in 1978. It was one of the fi rst produced in China. The Tianjin Institute Chinese power stations to use seawater as (Prof. Ruan) claims that the performance of cooling water. this unit is as good as imported MED but is 30% cheaper. Current generation capacity is 760MW, or half of electricity demand in Qingdao. In The utilization of cooling water meant that 1998, the Tianjin Institute of Seawater De- no seawater intake had to be built. Simple salination began to study the possibility pre-treatment consisting of screen fi lters of desalination at the plant. Subsequently, with 1 mm pores and an NaClO generator a 3,000m3/d LT-MED unit and a 3,000m3/d was installed due to the quality of the feed RO system were set up in June 2004 and and the nature of the MED process. March 2006 respectively. Feed water is divided into two fl ows: one is Two new 660MW coal-fi red units are under used as the cooling water for three-stage construction at Huangdao. The fi rst one was steam jet vacuum pump, and the other is commissioned in September 2006. An extra fed into the condenser of the desalination 100,000m3/d LT-MED and 100,000m3/d RO plant in which seawater is preheated and projects will be developed (See Table 1) and degassed. by 2009 Huangdao should be the fi rst Chi- The seawater goes through 6 to 9 eff ects nese power plant that only uses desalinated after antiscalant injection. Concentrated water. seawater is then fed into 3-5 eff ects and 1-2 After the commissioning of these plants, eff ects. they should provide 180,000m3/d of fresh- The fi nal brine joins the cooling water dis- water to Qingdao, and the remainder will charge system of the power plant. Steam

Case Studies be used by the power plant. This forecast is provided by the power plant. In order to supply should meet the water demand of increase the gained output ratio (GOR), part Qingdao Economic & Technical Develop- of the secondary steam in the 6th eff ect is taken out using a steam ejector. This satu- Contents rated steam is fed into the 1st eff ect. 1. Huangdao RO & MED Pilot Projects The distilled water in every eff ect is collect- 2. Huanghua MED ed by affi liated fl ash pots and fl owed to the 3. Tianjin TEDA MED 9th eff ect, then pumped into a tank. 4. Huaneng Yuhuan RO The plant is 67m long and 12m high. The diameter of evaporators is 4m. Its footprint is

64.6m×7m (maximum width is 9.5m) and is Table 1: Huangdao project development phases composed of the following parts: Units start year online - Evaporators and Condenser: 9 evapora- 1 3000 t/d LT-MED plant 2003 2004 tors and 1 condenser made of carbon steel; 2 3000 t/d RO plant 2005 2006 heat exchange tubes arranged in triangular 3 10000 t/d LT-MED plant 2006 2007 4 10000 t/d RO plant 2006 2007 form and connected to the tube plate by 5 10000 t/d LT-MED plant (second) 2007 2008 elastic grommet to prevent contact corro- 6 2×20000 t/d LT-MED plant 2008 2009 sion; demister with double louver; fl anges 7 2×15000 t/d RO plant 2008 2009 between evaporators sealed with a special 8 50000 t/d LT-MED plant 2009 2010 V type elastic gasket. 10 2×25000 t/d RO plant 2009 2010 - Flash Pot: 20 fl ash pots made of FRP Table 2: Feed Water at Huangdao Power Plant Item Result (mg/l) Item Result (mg/l) - Steam ejector: made of 316 litres stainless K+ 546 PO43- 0 steel, 12m long Na+ 8666.4 SiO2 1.6 - Steam ejecting vacuum pump: made of Ca2+ 732 pH 8.1 (a.u.) 316L stainless steel; maximum vacuum of Mg2+ 2308 TS 32711 94 kPa SO42- 2247.3 TDS 32632 Cl- 16560 alkalinity (HCO3-) 122 (a.u.) - Water Pumps: including raw seawater HCO3- 122 alkalinity (CO32-) 0 (a.u.) pump, inter-eff ect pump, product water CO2 0 alkalinity (OH-) 0 (a.u.) pump, brine pump, cooling water pump NO3- 0 CODMn 2.3 and metering pump. FeAlOx 8 conductivity 52730μs/cm (time: Sep. 20th 2005, temperature 21°C) - Pipeline: ERPP tubes, 304 SS tube and 316L SS tube Table 3: Operating costs 3,000m3/d Huangdao LT Item RMB/ m3 The 3,000m3/d RO System Chemicals 0.36 The RO part of the project was also built by Electricity (1.65kWh/m3) 0.61 the Tianjin Institute of Seawater Desalina- Labour 0.45 tion and Qingdao Hua-ou Company. It was Maintenance 0.41 Management expenses 0.12 commissioned in March 2006. Optimization Steam (GOR=10) 1.6 took time but the system now reaches and Depreciation* 1.18 even exceeds the design capacity. total cost 4.73 Pre-treatment is limited to Auto-Self Clean- ing Filter (ASCF) and Ultra-Filtration (UF). Table 4: Operating cost of 3,000m3/d Huangdao Such double-membrane technology makes Item RMB/m3 the system more compact, and decreases Chemicals 0.4 the area of pre-treatment. Large suspended Electricity (4.0kWh/m3) 1.48 Labour 0.45 particles are removed in ASCF, and colloid Maintenance 0.25 and other impurities are removed by the UF Management cost 0.12 elements. Membrane replacement 0.96 The RO device includes RO membranes, Depreciation* 0.79 high pressure pumps, booster pumps and total cost 4.45 energy recovery devices. The water pro- *depreciation rate 5%, remnant 4% duced is used as boiler feed water. The brine pumps are manufactured by the Shenyang is rejected to the sea with the power plant Pump Plant, with a fl ow volume of 130.5m3/ cooling water. h. The HP pump head is 600m. - RO: Hydranautics, SWC3+, 270 units This project is the only one in China to com- - Energy recovery: ERI, PX220, 4 units bine ASCF, UF and RO technologies, and it - High pressure vessel: ROPV, 45 units is the fi rst to use made-in-China high pres- - UF: Hydranautics, HYDRAcap60, 112 units sure pumps, booster pumps and high pres- - Automatic fi lter: Arkal Filtration Systems sure vessels. Membranes however remain - Chemicals: NaClO, FeCl3, NaHSO3, MDC220 foreign-made. (scale inhibitor) Main components include: Performance - Water pump: all pumps are manufactured The LT-MED System in China, including raw seawater pumps, freshwater pumps, inter pumps, brine The system began supplying water to the pumps, UF back washing pumps, washing power plant boiler in September 2004. Tap pumps, high pressure pumps and booster water supply was subsequently stopped pumps. High pressure pumps and booster and desalinated water solely used. The per-

formance of the LT-MED system in terms of Built in 1992, it is a provincial economic and distillate fl ow rate and Gained Output Ratio technological development zone of Hebei (GOR) is as expected with an average GOR province. in the 8-12 range, which corresponds with Ever since 1998, with the construction and the design value of 10 (125m3/h). development of some key national proj- Total investment was RMB24m (US$3m), ects like the Huanghua Port project, Shuo- with capex at RMB18m (US$2.2 million dol- Huang Railway and Huanghua Power Plant, lar). Table 3 shows the cost of operating the Huanghua Port Development Zone has the system: steam and depreciation are the been developing very fast. The Huanghua main component of the output cost. Final Port Project, which is under construction cost is RMB4.73/m3. within the Zone, is a key port for the trans- The RO System port of coal. This main pieces of equipment were pro- In September 2002, the Huanghua Power cured through international public bidding. Plant Project was give approval by the State The system was built in six months and Council. Its installed capacity is 4.8GW. It is ready to produce in March 2006. the largest thermal power plant of north China, the fi rst generating unit will be put Performance of the RO plant is also as ex- into production at the end of 2006 and the pected: the fl ow rate is about 125m3/h, con- second one in 2007. ductivity of the freshwater is lower than 350 μs/cm, salt rejection is higher than 99.3%, The second phase of construction includes and pH value of freshwater is ca. 6.5. Unsur- six 600,000kw super critical coal generating prisingly, all parameters are in accordance units and 60,000m3/day sea water desalina- with the design and guaranteed values, tion facilities. The plan is to have all six gen- and the freshwater can be fed to the power erating sets built and put into production plant boiler. before 2010. The total investment was RMB20m The Guohua Huanghua power plant is also (US$2.5m) with a capex of RMB16m (US$2m). the fi rst one built on reclaimed land. Major Table 4 shows the cost of producing water: technical challenges facing the project are electricity and membrane replacement are the very shallow coastline and high levels the main component of the output cost at of suspended solids and pollutants from in- RMB4.45/m3. dustry and the port in the feed water. These factors contributed to the choice of MED Case Study 2: A Hi-Spec Distillation Project technology. - Huanghua MED Feed Water Huanghua power plant is located at Huan- The power plant is installed close to the sea, ghua port, Cangzhou city, in Hebei. The but near a river estuary and intake is fairly fi rst phase of Huanghua Power Plant called shallow. This means seawater is regularly for two power generation units of 600MW polluted with suspended solids up to 300 each, and two MED desalination units of ppm. In bad weather condition, this value 10,000m3/d each. can rise up to 2000 ppm. As a consequence, The desalination plant was built by SIDEM pre-treatment is essential. (Veolia). Erection was fi nished in early The motive steam available for the desali- 2006 and commissioning was successfully nation comes from the midsection of the achieved in March. All expected perfor- steam turbine, which has a rated pressure of mance measures were achieved according 5.5 bara and a temperature of about 320 C. to SIDEM. The units have since been handed over to the client. The MED units are fi tted with proprietary spray nozzles that allow them to accept Rationale poor quality seawater with suspended sol- Huanghua power plant is administrated by ids up to 300 ppm. Hebei Guohua Cangdong Power Genera- SIDEM developed with OTV (Veolia) a pre- tion Co., Ltd., which is majority-owned by treatment system especially for the desali- Beijing Guohua Electric Power Corporation. nation units. With such fi ne suspended sol- Beijing Guohua is one of the largest groups ids (5 and 10 microns), settling basins do not for the construction and operation of large give good results and sand fi lters can clog coal-fi red power plants in China. very quickly. OTV designed a system based Huanghua Port Development Zone is situ- on it’s compact MULTIFLO® process that in- ated in the arch section of the Bohai Bay. cludes addition of chemicals, a coagulation,

68 (C)2007 * GWI MARKET ACCESS: DESALINATION IN CHINA HUANGHUA MED a fl occulation and then a lamellar settling. ies, steam fl ow will vary also. This will have Its principal characteristics are: immediate impact on water production. - MULTIFLO® 300 Due to the adjustable spindle inside the steam nozzle, steam fl ow can be adjusted - Capacity to treat 100,000m3/d or kept constant with varying pressures and - Footprint: 30 x 30 m is always used at the highest energy level possible, thus always giving the optimum - Guaranteed quality < 20 ppm when inlet effi ciency. is < 2,000 ppm Due to the high effi ciency contributed - < 300 ppm outlet when inlet is > 2,000ppm by the thermo-compressor, the gain out- (turbidity up to 4000 NTU) put ratio (GOR) of Huanghua units is up to - bypass if sea water is clear to limit chemi- 8.33. Power consumption is low because cal consumption of the simple process pumps. The power For high suspended solids content in sea consumption is about 1.25 kWh per ton water, this combination of a Multifl ow and production excluding the seawater intake an MED unit, makes it possible to operate at pump station. a lower anti-scale dosing rate than an MED This plant is required to operate between alone, for a reasonable extra space require- 50 % and 110 % of design capacity. The vari- ment. able area nozzle thermo-compressor has MED Process enabled the plant to meet this requirement without complicating operations. - 4 eff ect MED Procurement - With a thermocompressor on all 4 eff ects that brings vapour from the 4th cell to the The main parts of the MED unit, including 1st one evaporator and thermal compressor, were originally proposed to be manufactured in - 1 condenser supplied with sea water going China using raw materials (stainless steel into the unit and cooling fl ow discharged sheets, aluminium brass tubes) procured by back to the sea SIDEM in Europe. - 1 ejector based vacuum system preheat- While this was the Chinese preference, ing the sea water feed to the fi rst eff ect. Sungjin Geotec, a Korean company based in - A distillate / sea water plate heat exchang- Ulsan, was fi nally selected to build the evap- er used to cool the distillate below 35°C. orators for this desalination plant. Sungjin - A sea water / brine plate heat exchanger had previously manufactured other desali- used to warm the sea water in winter. nation units for SIDEM. The two companies had a good working relationship. The work- A thermo-compressor specially adapted to shop is well placed for sea transport not far varying pressures taken from an intermedi- from Huanghua. ate section of a turbine was installed. In a steam turbine, the steam pressure varies The plant is located in a high latitude area, with the load regulation. where outside temperature can be below freezing during the winter. Because the When coupled with thermal desalination, units were to be installed outdoors, SIDEM it has been industry’s standard practice to modofi ed the design so that all critical parts keep the midsection pressure constant and are located within a frost-proof shelter, to regulate, with a valve, the inlet pressure which was built and equipped by the plant at the fi rst stage of the turbine. operator. This represents a loss of effi ciency on the Case Study 3: From Waste to Pure Water - turbine when load fl uctuates. To avoid this loss and always use all the steam’s energy Tianjin TEDA 10,000m3/d MED for electrical production in the fi rst sections Rationale of the turbine, SIDEM designed a special The Tianjin TEDA 10,000m3/d MED project thermal compressor. was built by Entropie (Veolia) for its client This thermo-compressor has a variable area the Tianjin Economic Development Area nozzle obtained by a spindle in the area of (TEDA) and was commissioned in Novem- the nozzle section. Steam fl ow in a nozzle ber 2006. It will be handed over to the TEDA is proportional to the nozzle section and to Water Technologies company and begin the steam pressure. production in early 2007. In a fi xed nozzle ejector, when pressure var- TEDA Water Technologies Co is the water

branch of TEDA Utilities which provide all plants, especially in winter time when the the TEDA area with necessary utilities. TEDA water can be very cold. W.T. is in charge of collecting and treating Because of the high salt content of sea wa- all wastewater in the area. Wastewater is ter, it is usual to limit the quantity evapo- fi rst treated by bacteriological means and rated to about 30% of infl ow to limit the risk then by membrane technology. of scale deposit. This fi xes the minimum sea The installed capacity enables the treat water fl ow needed to meet design condi- ment of 100,000m3/d of brackish sewage, tions. of which 40,000m3/d then goes through an When operating at reduced output, less sea Ultra Filtration plant. water is needed, provided the evaporator Out of these 40,000m3/d, 10,000m3/d are tube bundles remain properly wetted to treated by an additional RO plant to obtain avoid any dry spots. The usual practice is to pure water. In view of the expansion of the keep sea water fl ow constant at a reduced industrial area and the increasing need for load to have a lower brine concentration. very pure water both for the power plant This does not optimise sea water pre-treat- boiler and industry processes, TEDA W.T. ment and pumping costs and thus increas- wanted to double their production capacity es the cost of producing water at reduced of pure water. Sea water desalination was loads. the preferred solution. Entropie adapted their sea water distribu- The coast line is fairly shallow for a long tion system on the tubes to enable a 30 % distance and water quality can be variable reduction of sea water inlet at 50 % load with suspended solids, pollutants caused without having to compensate with brine by the surrounding industries or the ships recirculation. Brine recirculation increases approaching the sea port. the risk of scaling, but is necessary for all The chosen technology needed to be able distribution systems that require a constant to cope with this problem. That is why ther- fl ow, such as spray nozzles. mal sea water desalination was considered. The Process This choice was made easier as the power - A 6 eff ect MED plant, producing steam, is less than 1km - A thermo-compressor on the fi rst 3 eff ects away. - 2 condensers: 1 supplied with the sea wa- Because the steam used for desalination ter going into the unit and 1 supplied with is not used or sold for other applications, wastewater used for cooling purposes be- a high effi ciency plant (GOR > 9) was re- fore being treated in the UF plant. quired. The site is inland, and sea water and - preheaters on eff ects 2 to 5. brine reject must be pumped at least 3 kilo- - 1 ejector-based vacuum system preheat- metres each way. A requirement to continu- ing the sea water feed to the fi rst eff ect. ously optimise sea water requirement was - A distillate / sea water plate heat exchang- thus stipulated. er used to cool the distillate below 40°C. Feed Water - A sea water / brine plate heat exchanger used to warm the sea water in winter. Sea water temperature can vary from –1 to +29°C: Plate heat exchangers have been The chosen unit was a MED-TVC unit. This provided on the brine and the distilled wa- unit utilises the MED technology associated ter lines to warm up the sea water in win- with a thermo-compressor for increased ef- ter. fi ciency. The MED technology is a horizon- tal, falling fi lm, Multi Eff ect Distiller. Because TEDA W.T. had 40 000 m3/day of available wastewater of suitable quality for Sea water is sprayed outside the tubes and feed to a UF plant, it off ered to use this wa- is partially evaporated by the vapour that ter for cooling purposes instead of excess is condensing inside the tubes. The vapour sea water. This synergy presented several produced outside the tubes of an eff ect is advantages: directed inside the tubes of the following eff ect where it condenses while evaporat- - The sea water pumped corresponded only ing part of the sea water sprayed on the to what was needed for the evaporation outside of the tubes. process. The thermo-compressor is a steam ejector - The wastewater would be heated up and that uses the LP steam (4,3 barg) coming be closer to the optimum operating tem- from the power plant to draw up the va- perature of the membranes. This is expect- pour in an intermediate eff ect and supply ed to improve the effi ciency of the UF & RO the mixture to the inside of the fi rst eff ect,

70 (C)2007 * GWI MARKET ACCESS: DESALINATION IN CHINA TIANJIN TEDA MED enabling more evaporation per eff ect than This provides a more compact layout where if the LP steam had been sent directly to the everything remains accessible for operation, fi rst eff ect. maintenance and future changes. In a few To optimise the heat fl ows through the ef- years, the power plant may be expanded. fects, the sea water is preheated before Current facilities may need to be modifi ed. each eff ect by a preheater. This is a tubular Effi ciency heat exchanger where a small part of the Once fi nal steam conditions were estab- vapour produced in the eff ect is condensed lished, taking into account the line losses to bring the sea water temperature up to from the power plant it was agreed that the eff ect temperature. the GOR (including the steam needed for In an MED plant, the vapour produced in the the vacuum system) would be 9,2 at de- last eff ect is condensed in a condenser. The sign conditions. The cascade, linear, layout condenser is usually supplied with sea wa- chosen with one brine and one distillate ter that heats up by condensing the vapour. pump enables an electrical consumption of .Depending on the sea water temperature 0,5kW/m3 at design conditions excluding the fl ow needed to cool the condenser can the seawater and the cooling water pumps. be much greater than that needed for evap- Procurement oration. In line with procuremet practice, TEDA W.T. The plant is required to operate between requested to chose the construction con- 40% and 110% of design capacity. The MED tractor and erection team. Entropie and technology, with much smaller volumes TEDA W.T. agreed on a vessel manufactur- of sea water in circulation than the other er in the Tianjin area capable of doing the thermal technology MSF, is the well-suited work: Tianjin Baoheng Machinery Group. All for this. Entropie/Sidem proprietary design piping, structural steel and erection were high effi ciency thermo-compressors also done by TEDA W.T. help achieve good turn down ratios. The unit was designed so that maximum Case Study 4: The Largest RO Project in Chi- sea water evaporation temperature at 110% na - Huaneng Yuhuan Power Plant would stay below 70°C. Yuhuan is the fi rst medium scale RO proj- Other design characteristics include ect developed in China. Huaneng Yuhuan Power Plant is located at Xiaqingtang, Dam- - Lower steam pressure aiyu Development Zone in Yuhuan County, - The possibility to replace the thermo- Taizhou, Zhejiang. The site is on the south- compressor designed at 4.3 barg by one east coast of Zhejiang province, east bank designed for a new lower operating pres- of Leqingwan, west of Yuhuan peninsular, sure. This new pressure would depend on 400km from Hangzhou city. the chosen turbines but could be as low as The project consists of a 36,000m3/day 1 barg. This would enable the plant to keep SWRO system made of six 6,000m3/d trains. the same capacity, but at a lower GOR, us- The plant was commissioned and handed ing cheaper or waste steam. over to the client, East China Electric Power - Hotter condensate return temperature Design Institute (ECEPDI), in 2006. The proj- - The possibility of pumping back to the ects was developed by Beijing CNC Technol- power plant condensate from cell 1 at 70°C ogy at a capital cost of RMB200m ($24.7m). rather than at 40° after the distillate cooler. Rationale - Hotter sea water feed The project processes water for the new - The possibility of using the sea water fi rst electric power station of 4GW. This plant will for power plant cooling and increasing the be the fi rst in China to generate 1,000MW waste water cooling fl ow to have the same per generator, and is also the country’s fi rst overall cooling effi ciency. ultra-super critical coal-fi red plant. All sea water pre-treatment was designed The plant site is surrounded by mountains locally. Sea water is fi ltered, sedimented in on three sides with the remaining side fac- a settling basin. Flocculant is added. It then ing the sea. The site is consisted of farm land goes through a second settling basin. and beach with total area of 110 hectares. As the climate can be very cold, thus int The project is developed, constructed by was installed indoors. To limit the size of the Huaneng Power International. The planned building, the unit was designed in 2 halves capacity of the power plant is 4x1,000MW side by side rather than a single long vessel. units. The fi rst phase consists of two units,

which are expected to commence opera- plant will consist of enhanced coagulation tion in 2007. The second phase will be built clarifi ers and membrane tanks. successively and is expected to be complet- Six trains of Zenon ZeeWeed 1000 hollow ed in 2008. Once completed, Yuhuan Power fi bre membranes will be used. Infl uent will Plant will be No.1 in China in terms of single fi rst be pumped into four clarifi ers where en- unit capacity within top ranks in Asia. hanced coagulation will help to remove set- Huaneng Yuhuan RO will draw seawater tleable organic matter and fl oatable solids. from the East China Sea. After desalination, The clarifi ed water will then fl ow by gravity the treated water will be separated into two through 0.5 mm punched-hole screens and streams for use at the plant: boiler feed wa- into the UF feed distribution channel. ter and potable water. Any surplus potable From the distribution channel, the clarifi ed water will be sold to the community. water will fl ow to six individual membrane The main steam pressure is 26.25Mpa, the trains, each providing an average day fl ow main steam and reheat steam temperature of 533 m3 per hour. is 600°C. The UF system piping is designed for a fu- Feed Water ture capacity of 640 m3 per hour per train, to There are high levels of impurity in the sea- allow for possible expansion. The UF mem- water leading to fouling of RO membranes, brane cassettes will be immersed directly in so eff ective pre-treatment is important. the process tanks. A low-pressure vacuum Varying turbidity poses a signifi cant chal- applied to the membranes will draw fi ltrate lenge to seawater desalination at the site. (permeate) through the pores and into the hollow fi bres. The seawater turbidity varies throughout the year, and can change by one or two or- Rejected particles remain in the process ders of magnitude within the hour. This vol- tank and are periodically removed by back atility in raw water characteristics can make washing. it very diffi cult to produce consistent, high By using immersed membrane technol- quality feed water for RO systems. ogy, the pre-treatment process at Yuhuan At a minimum, RO membranes require a is signifi cantly streamlined. As a result, op- feed water turbidity of less than 1.0 NTU, erational costs are minimized, fl oor space and a silt density index (SDI) of less than 4. If requirements are substantially reduced, the feed water quality does not meet these and future expandability is much easier to requirements, the RO membranes will foul accommodate. rapidly. UF membranes also off er high performance Fouled membranes suff er from reduced ef- in a smaller footprint than granular fi lter me- fi ciency, leading to higher operating costs, dia or pressurized micro-fi ltration systems. more frequent cleaning, and increased Energy Recovery membrane replacement costs. Feed water Energy recovery device used are the ERI (TDS): After pre-treatment 76,800 m3/day, PX Pressure Exchanger PX-220s. Compared SDI < 2.5, 90% of the time, turbidity < 0.1 to conventional technology, this cuts the NTU, and TSS (TSS) less than 0.5 mg/L. amount of energy required to desalinate Pre-Treatment seawater for power plants by up to 68%. Conventional pre-treatment methods typi- The use of PX technology at the Yuhuan de- cally incorporate a complex system of co- salination plant makes possible a reduction agulation, fl occulation, media fi ltration, and in desalination plant power demand of over cartridge fi ltration, combined with chemical 4.4 MW. addition. Such methods, however, must be continuously optimized to deal with fl uctuating infl uent characteristics. System upsets are common with such an approach, and can lead to increased power consumption, more frequent chemical cleaning, reduced RO membrane life, a va- riety of pressure problems, and reduced plant availability. The resulting costs of conventional pre-treatment can be prohibitive. The pre-treatment system at Yuhuan power

Projects: 要事 Key Active Players

legedly started but as of yet there has been no Hyfl ux development on site. 99 Juli Road Zhangjiang Hi-Tech Park In Huludao (Liaoning), the 50,000 m3/d, SWRO Pudong Area (+50,000 m3/d phase 2) is also on hold. Liaoning Shanghai 201203 Zhengye Enterprise is the client for this S$85m Shanghai DBFO. The plant was scheduled for comple- China tion in 2006 but has been delayed for reasons similar as in Tianjin. Allegedly the problem is Tel: +86 21 50805118 even worse: the municipality refuses to be the Fax: +86 21 50805128 “true” client and is trying to shift the off -take www.hyfl ux.com risk onto industrial users in Huludao. A site still has to be secured and land allotment is also to Leslie Chapple be fi nalised. VP, Processes Hyfl ux’ balance sheet is too thin to go ahead +65 6580 6850 without a proper project fi nance structure but, leslie_chapple@hyfl ux.com of course, banks will not fi nance projects that have no clear future revenue stream. Gireesh Bhat VP, Global projects Hyfl ux received the fi nancial support of the +65 6580 6851 IFC in 2006 and this may give some degree of gireeshbhat@hyfl ux.com comfort to lenders. The IFC will make a US$20 million investment in SinoSpring, in the form of Chinese desal market entry: 2003 a preferred convertible bond issue. SinoSpring Industrial clients: yes is Hyfl ux’s vehicle for China-based water treat- Municipal clients: yes ment projects and is currently executing eight contracts. IFC will also make a US$25 million As a developer, Hyfl ux has been ambitious and loan to Tianjin Dagang NewSpring Co, a wholly is the fi rst company to have fully embarked on owned subsidiary of SinoSpring. genuine limited recourse projects in the Chi- In November 2006, following IFC’s fi nancing, nese RO market, so far to little avail. Hyfl ux increased its stake in SinoSpring from None of its two projects have closed because of to 50% to 80% by way of US$25m equity injec- the unwillingness of municipalities to sign off - tion. take contracts (see The Brief, box: Desalination An example of a project outside water is the Project Finance, Mission Impossible?) 30,000 tonnes/year organic acid plant, which In Tianjin, the Dagang plant DBFO (100,000 was awarded in January 2005 by Ningxia Elec- m3/d SWRO +50,000 m3/d, phase 2) was signed tric Power Development & Investment Co. in in June 2004 with expected capex of S$155m. the Chinese city of Shizuishan. Hyfl ux has also The plant was scheduled for completion in committed signifi cant resources to its used oil 2006 but construction is still to commence due recovery business. to ongoing negotiations. Ground work has al-

Procurement Rules). Tan Yongwen (see Who’s Xidoumen Who) is the manager and one of the most active Development Center of Water Treat- professors-entrepreneurs. He says that, in most cases, Xidoumen won tenders with a higher ment Technology price than its competitors. 50 Wenyi West Street It is a fact that Xidoumen’s rate of success Hangzhou 310012 for winning RO projects is unparalleled. The Zhejiang company raises money through bank loans China for its operations. Xidoumen can secure loans from commercial banks with a tenor of 1 to 5 Tel: +86 571 88935331 years at an interest rate of 6%. It does not have Fax: +86 571 88935430 access to fi nance for investment-type projects www.chinawatertech.com (BOT/BOO). Neither can it tie in equity or make municipalities sign service agreements (see The Tan Yongwen, PhD Brief, box: Desalination Project Finance, mission Vice Director and Chief Engineer impossible?). Xidoumen is now considering +86 13805792661 partnering with a foreign company that wants [email protected] to invest while they would contribute their technical know-how. Fan Xiong, PhD Researcher They once were approached by Dow, but could +86 13957117160 not go ahead because of the institute’s status [email protected] as a public research institute (Xidoumen has been created since). Chinese desal market entry: 1981 The company has a “marketing” division which Industrial clients: yes actively seeks opportunities and they get ap- Municipal clients: yes proached by companies “all the time.” Tan says that size is not a constraint and that they can The Development Center of Water Treatment produce a train for 10,000m3 day, and could Technology of Hangzhou (which also includes make a project with as many trains as neces- the National Engineering Research Center for sary. Liquid Separation Membranes) is an indepen- Outside of their area of dominance however dent entity, but falls under the State Oceanic (Zhejiang and Shandong), Xidoumen can en- Administration. It receives most of its research counter difficulties. In Dalian, the company funding from the Commission of Science & started negotiations with Toray Membranes Technology. In the 1980s, the Hangzhou Centre (Japan) to make a JV and bid for RO projects but was almost moved to Tianjin. Instead, a new the Japanese proved “very diffi cult to negotiate centre was created there (see the profi le of the with” and eventually withdrew from the project Tianjin Institute of Seawater Desalination and after securing province-level funding failed. Multipurpose Utilization). Xidoumen also has clout in the Chinese RO sec- The DCWTT has five subsidiary companies: tor and is responsible for introducing brands 1) Xidoumen which is 65% owned by DCWTT such ERI and ROPV to the market. and 35% by HSBC, 2) Beidouxing membranes, 3) East Rainbow Environmental Protection, 4) Because of the number of projects that they Huaxin Water Purifying Co (fi lters), 5) Chinese develop, Xidoumen has a tendency to set the Ocean Technology Development Co. Xidou- standards. Three or four years later, ERI and men, which also has a 60% market share for ROPV have become the leading providers of purifi ed drinking water in China, is a developer ERD and pressure vessels, respectively, in the of RO projects. Chinese RO market. It is not a coincidence. Xidoumen also uses Grundfos HP pumps. Because most of these projects have been small, Xidoumen has, for all practical purposes, acted Xidoumen is gradually introducing the UF and as the EPC on more than 20 projects, mostly in RO membranes made by its sister company Shandong and Zhejiang (for larger projects, Beidouxing (see Beidouxing Profi le in Equip- turnkey contracts are usually not accepted ment: Membranes). by Chinese municipalities and talking of “EPC contract” makes little sense – See The Brief, box:

Veolia is active in the Chinese distillation market Veolia through its two subsidiaries SIDEM and ENTRO- Sidem and Entropie PIE. Sidem is a fully-owned subsidiary of Veolia Water Solutions & Technologies (VWS). Since its Cross Tower #1801-1805 2005 acquisition, Entropie, a former subsidiary 318 Fuzhou Road of the Weir group, has been a fully-owned sub- Shanghai 200001 sidiary of Sidem. Entropie focuses on the indus- Shanghai trial market, and Sidem the municipal market. China Through these two companies, Veolia secured two of the fi rst key MED deals in China: TEDA Tel: +86 21 63913288 xt19 and Huanghua (See Case Studies). The main Fax: +86 21 63913298 challenges faced in the area where it operates www.veoliawaterst.com are a shallow sea and high level of suspended solids in the feed water. Eric Liu Business Development Manager Veolia recognises that it faces serious competi- +86 13301772361 tion from the Tianjin Institute of professor Ruan [email protected] (see Who’s Who and below) which entirely developed the Huangdao MED pilot projects in Charles Desportes Qingdao. Sidem was also awarded the Yantai Entropie Technical Director nuclear power plant project in 2004 but the [email protected] project has now been temporary shelved. Veo- lia also expects future competition from Doosan Chinese desal market entry: 2004 (Korea), which will soon off er distillation + RO Industrial clients: yes solutions. (Doosan merged with the RO water Municipal clients: no treatment division of American Engineering Services through Doosan Hydro Technology Inc, Doosan’s subsidiary in the US.)

Tianjin Desalination Institute Institute of Seawater Desalination and Multipurpose Utilization 1 East Keyan Lu PO Box 52, Nankai District Tianjin 300192 The Tianjin desalination institute was created Tianjin after the decision to move the Hangzhou re- China search centre to Tianjin was abandonned, thus creating the north/south, MED/RO division in Tel: +86 22 87898199 Chinese desalination aff airs. Fax: +86 22 87892549 The institute is home to the very active Profes- www.sdmu.com.cn/ sor Ruan (See Who’s Who) who has been instrumental in the development of made-in-China Ruan Guo Ling, PhD desalination. Chief Engineer In line with its interest in MED, the institute also +86 13802092197 developed the fi rst Chinese-made seawater [email protected] cooling system for power plants (14,000m3/d in Shenzhen in 2004) Chinese desal market entry: 1984 Industrial clients: yes Professor Ruan has now embarked on the Municipal clients: yes expansion of the successful Qingdao pilot projects, which will see the fi rst large scale Chinese- made MED plant (100,000m3/d) by 2010. Professor Ruan is also involved in the tendering of public water projects in Tianjin (such as Entropie’s 10,000m3/d TEDA project)

Technology Limited., Hong Kong, of which CNC Siemens has acquired the majority with 70% Siemens ownership. An option has been agreed upon the parties granting Siemens the right to ac- 8/11F Buildong D Ye Qing Plaza quire the remaining 30 per cent of the shares N°9 Wangjing Beilu, Chaoyang district after three years. Beijing 100103 Beijing CNC has 120 employees, including 70 engi- China neers, the company is exclusively active in the water sector and primarily in industrial fi ltration Tel: +86 10 64766268 applications. Siemens says it will be transferring Fax: +86 10 64764715 technology to and from CNC. www.siemens.com.cn In the desalination sector it is mostly its contacts that are of interest to Siemens. Their main in- Mitch Summerfi eld terest is in projects with foreign-owned clients General Manager (Siemens) who can pay and care about a high quality +86 13910165818 output. When you work on Siemens’ scale, and mitch.summerfi [email protected] with Siemens’ overheads, there is no point in pursuing the small fry. Jie Zhang [email protected] Siemens is considering going into the BOT/BOO market through CNC, but this is a long term Chinese desal market entry: 2002 development. CNC benefi ts from a strong rela- Industrial clients: yes tionship with the State Developmet and Reform Municipal clients: yes Commission (SDRC), especially for power plant projects. CNC won the lead contract for the Yuhuan Beijing CNC Water Technology Inc. was cre- project in Zhejiang, the largest RO project to ated in 2002 and quickly developed as a an MF date in China (34,600m3/d). and RO membrane solution provider. CNC is a 100% owned company of the CNC (HK) Water

Projects: Other Active事体 Players

GE provided a number of RO and EDI systems GE/Ionics/Zenon in the 70s and 80s as Ionics. Most of which have GE Infrastructure Water & Process now been decomissioned. More recently, Ionics signed an 28,000m3/d RO project in Yanshan. Technologies Suite 4208, United Plaza Zenon was acquired in March 2006 by GE 1486 Nanjing Road(W) Water & Process Technologies. Zenon has won Shanghai 200040 the contract for one of the world’s largest UF Shanghai pretreatment systems for RO desalination at China the Yuhuan power plant in (75,700 m3/d of UF capacity). Tel: +86 21 32224747 xt331 GE has been less active than one would expect. Fax: +86 21 62476501 When asked who would lead the market in fi ve www.gewater.com years David Wu said: “Hyfl ux and the Chinese...” Clearly GE does not see its interest in desalina- David Wu tion project development in China quite yet. China Equipment Sales Manager +86 13381992239 [email protected]

Chinese desal market entry: 1979 Industrial clients: yes Municipal clients: no

Tel: +86 10 82809335 Fangdar Fax: +86 10 82809337 Fangdar Environmental Engineering www.fangdar.com Fangdar is an SOE, it provides RO and EDI Company 3/F Building 5, De Sheng Zhi Ye Block solutions for wastewater treatment. It devel- 26 yard. Huang Si street, Xi Cheng District oped a couple of seawater projects in the 90 Beijing,China.District for industrial clients. Beijing 100011 Beijing China

Chinese desal market entry: 1995 Industrial clients: yes Municipal clients: no

Tel: +86 10 82615888 Jade Bird Fax: +86 10 62768624 Weifang Beida Jade Bird Huaguang www.hg.com.cn Sci-Tech Co.,Ltd. Lin Chengge No.207 Chengfu Road Wang Yang Yuan Haidian District Beijing 100073 Beijing China

Chinese desal market entry: 2006 Industrial clients: yes Municipal clients: no

Jade Bird has a JV with IDE to build a manufacturing plant of desalination equipment. Besides copious amounts of local capital and connections, Beida Jade Bird brings expertise with low temperature, low pressure nuclear power plants, which may be well suited to powering IDE’s desalination plants.

Tel: +86 25 56212780 Nanjing H&C Fax: +86 25 86662524 Nanjing H&C Mechanical Manufac- www.njhuicheng.com.cn turer Co., Ltd. F.R. Shen No.3 Road, Lishui Economic Development Marketing Zone Nanjing 210029 Mr Wu Jiangsu CEO China

Chinese desal market entry: 1996 Industrial clients: yes Municipal clients: no

Subsidiary of US-based Z&W Technology Inc. off ering turnkey RO systems up to 20,000m3/d. Re- cently involved in a small RO project in Yantai.

Tel: + 86 411 87315738 Prominent Fax: +86 411 87315738 Shenhe District www.prominent.com.cn 262 New Avenue Shenyang 110013 Li Zhongming Liaoning Director Shenyang Offi ce China Shenyang-offi [email protected]

Chinese desal market entry: 1999 Industrial clients: no Municipal clients: yes

Prominent is a German EPC contractor with experience in the development of island based RO projects in Liaoning and Shandong (7 projects)

Tel: +86 572 2668888 Omex Fax: +86 572 2123399 Omex Environmental Engineering www.omex-oee.com.cn Co.,Ltd 688 Chuang Ye Avenue Huzhou 313000 Zhejiang China

Chinese desal market entry: 1995 Industrial clients: yes Municipal clients: no

OEE was bought by Dow in June 2006. OEE has been providing design engineering and installation for high-purity water facilities throughout China since 1995. With a new custom-built 20,000 square meter facility, OEE employs over 500 people, primarily in China, involved in manufacturing, design, engineering and fabrication. Thanks to its pre-treatment abilities and Filmtec’s RO products, Dow can now off er full SWRO solutions. Priori to being bought by Dow, OEE had secured a fi rst 10,800m3/d SWRO project in Hebei. OEE’s specialties include research and development, design, engineering, manufacturing, installation, and service of Integrated Membrane Technology (IMT) equipment used in the process of water treatment. IMT consists of three major membrane-based water treatment components sold under the OMEXELLTM brand. They are: UF, RO and EDI. OEE manufactures both UF and EDI components. OEE has patented spiral wound EDI and hollow fi ber UF technologies. OMEXELL component manufacturing is certifi ed as compliant with ISO 9001.

The Past Players A number of desalination companies that were active in China over the past 20 years have since withdrawn or stopped chasing new porjects. Aquatech: was involved in MSF projects in China in the 80s. Now mainly involved in water putifi cation projects for the oil & gas industry (CNOOC). Aquatech’s Chinese projects have now been decomissioned. Aqua Chem: Aquachem used to develop MED projects in China in the 80s. it was later acquired by Aquat- ech. Like Aquatech’s, the company’s projects are now decomissioned. Hydropro: Hydropro provided a small RO project in 1997. Kobelco Eco Solutions: Kobelco is a Japanese water solution provider, they developed a small RO Organo: Organo was active in the Chinese industrial RO business in the 1980s. Ansaldo: Ansaldo had a small RO porject in the late 70s which has since been decomissioned. Envirogenics: Envirogenics provided the fi rst medium size MSF solution in China in the late 80s. They are not active in the market anymore Graver Water Systems: Graver developed a power plant RO system in China in the 90s. The Absent Players Some of the world’s best known players are currently absent from the handful of active companies that have established a base in the Chinese market. Most of them are waiting in the wings: Acciona, Befessa, Fisia, Degrémont etc. all say that they are interested. Some are just toeing the waters, while others have been in China in another capacity for decades like Degrémont. Finally a few companies are about to crack their fi rst deal, or have made enough headway so far to be able to claim a ‘presence’ in the Chinese desalination market. They are presented in the next section.

後身Projects: New Entrants

privately owned foreign business with a capital LH International of US$200,000. LH International Co., Ltd. In 2002, it became local Chinese company and is B-402B Gold Eagle Building currently majority owned by General Manager 1518 Min Sheng Lu, Pudong Liu Jing and the original Japanese shareholder. Shanghai 200135 Liu Jing also has companies in Japan and Hong Shanghai Kong. China At the same time, LHI started representing one of the Italian desalination companies, with Tel: +86 21 61042498 xt114 which they have a technology transfer agree- Fax: +86 21 61042699 ment, which will kick in when LHI has estab- www.lh-zahori.com lished a base in the thermal market in China.

Spike Shao While their Italian partner can provide MED as Project Manager well as MSF, LHI has been pushing MSF solu- +86 13817831523 tions in the Chinese market, for which it has an [email protected] exclusivity agreement with its Italian partner. The company says it can develop 50,000m3/d Liu Jing units and projects of up to 300,000m3/d (They General Manager promise fresh water at RMB5-7/m3. Most of the +86 13601877788 parts would then be made in China except for [email protected] certain key elements such as large vales and control equipment. Chinese desal market entry: 2004 LHI has not signed any deal yet but is looking Industrial clients: no into 15 projects including two of the future Municipal clients: no nuclear power plants that are being built (in Shandong and Dalian). Its target markets for thermal plants are steel LHI is a Chinese company with global sales of and power, even though they would consider US$30m. It off ers EPC solutions to clients for municipal projects. LHI aims to have signed two thermal desalination, especially MSF, since deals by 2010. 2002. LHI originally is a power plant equipment maker, including heat exchangers and pressure It acknowledges that political connections will vessels, but also tubes and plates. Its main cli- be pivotal to achieve this target. The company ents are state-owned electricity generators. says it has no interest in BOT for now because they would not be profi table, nor is it interested LHI was originally the Chinese Rep offi ce of in the RO market where competition is too a Japanese company specialised in power intense and margins too low. plant equipment, and was first created in 1989. In 1999, it was incorporated as a 100%

Brack is currently working on an unsolicited Brack proposal for a 200,000 m3/d RO-based BOT Brack Capital Infrastructure Develop- project in Tianjin (municipal). ment After 2.5 years of negotiation it is hoping to Room 508, Building 8, Beijing Julong Garden close the US$200m desalination deal before 68 Xinzhing Jie, Dong Cheng District mid-2007. Beijing 100027 Their proposed price to the municipality is Beijing RMB5.9/m3 (assuming usc6/kWh). They pro- China pose to use RO technology from Israel. The company is also interested in real estate Tel: +86 10 6552138 and oil & gas projects in Inner Mongolia. Fax: +86 10 65521128 www.brack-capital.com

Jackie Cao China Rep [email protected]

Chinese desal market entry: not yet Industrial clients: no Municipal clients: no

hotels or industrial area RO. IDE But IDE is really focusing on the thermal mar- IDE Technologies ket in China as competition in the RO sector is Room 535, Building A, Heqiao Mansion already very strong, especially from local com- 8 Guanghua Lu, Chaoyang District panies. IDE is also the leading world producer Beijing 100026 of MED plants outd Beijing Even with the added value of IDE’s technolo- China gies, they say they cannot beat the competition from local companies. So IDE is betting on the Tel: +972 98929794 large projects that are still to come, especially Fax: +972 98929845 nuclear MED. www.ide-tech.com In April 2005, Beida Jade Bird New Energy Elisha Arad Company announced a JV agreement with IDE Marketing Engineer technologies to develop and manufacture sea- +972 528460801 water desalination equipment. The cooperation [email protected] is now in full swing. IDE will target fresh water production for the Chinese desal market entry: not yet chemical industry, large industrial boilers and Industrial clients: no bio-pharmaceutical industry’s demand for high Municipal clients: no quality fresh water. in a bid to win future MED projects, the Beida IDE has been present in the Chinese market for Jade Bird, along with China Nuclear Industry 7-8 years but there ‘has been no harvest.’ They Corp have developed a “low-temperature, have been producing in China for export to common pressure nuclear reactor”, which has India but not for the Chinese market. passed inspection by the State Nuclear Safety The large projects that IDE was waiting for did Administration and could be installed alongside not materialise. IDE sees three strategic avenues an MED plant. for the Chinese market: a) Thermal, b) modular RO for small-medium municipal plants and c)

Membranes Produced: Asahi Kasei MF: yes UF: yes Room 606, Center Plaza, No.381 Huaihai Zhonglu NF: no RO: no Shanghai 200020 Shanghai Sizes: China 4”: no 8”: no 16”: no Other products: no Tel: +86 21 53513528 Fax: +86 21 63916607 Solutions/EPC: no www.asahi-kasei.co.jp/membrane Produces in China: no Market Entry: 1975 Liu Mo Certifi cations: ISO-14000,ISO-9001 Marketing Manager +86 13816108449 Desalination Clients [email protected] Industrial: yes Municipal: yes [email protected] References: Ownership: Private Foreign

The Beijing subsidiary of Asahi Kasei sells microza UF/MF systems, used for pre-treatment ahead of RO and NF membrane systems. The membranes are manufactured in Japan. Membranes size is mostly 6 inches.

Membranes Produced: Bei Fang MF: yes UF: yes Huludao Beifang Membrane Technology NF: yes RO: yes Industry Co., Ltd Sizes: No.16 Tiebei Road 4”: yes 8”: yes 16”: no Xingcheng 125100 Liaoning Other products: no China Solutions/EPC: no Tel: +86 429 2405485 Produces in China: yes Fax: +86 429 2405448 Market Entry: 1984 www.bfmjs.cn Certifi cations:

Yang Yousheng Desalination Clients Marketing Manager Industrial: yes +86 13304294324 Municipal: yes [email protected] References: Cangzhou Chemical Plant, Huang- Wang Jiuru hua Seawater Desalination Project General Manager Ownership: Public +86 429 2405447 The company is state-owned and uses US technology to produce cellulose acetate membrane, for UF and RO applications. The production capacity is one 1Mm2. Bei Fang is one of the 4 Chinese membrane manufacturer that makes RO membranes.

Membranes Produced: Beidouxing MF: no UF: yes Hangzhou Beidouxing Membrane Co., Ltd. NF: yes RO: yes 50 Wenhua Road Sizes: Hangzhou 310012 Zhejiang 4”: no 8”: no 16”: no China Other products: no

Tel: +86 571 88935341 Solutions/EPC: yes Fax: +86 571 88935341 Produces in China: yes www.bdxm.com Market Entry: 2005 Certifi cations: ISO-9001 Zhaohui wang Customer Service Desalination Clients +86 13867146898 Industrial: yes [email protected] Municipal: yes Guoliang Yuan References: Jian Taroko Weaving & Dyeing Ind Sales Manager Co., Ltd, Panasonic (Hangzhou) Home Applianc- +86 13336120215 es, Suzhou Huayang electronics Co.,Ltd Ownership: Public [email protected]

Hangzhou Beidouxing Membrane Co was invested and established by the Development Center of Water Treatment, SOA, Hangzhou. It is one of the few Chinese enterprises that researches, develops and produces membrane elements itself. Beidouxing has product lines in RO, NF, UF membranes. Their products are used for boiler-feed, food and beverage producers etc. but are gradually introduced in SWRO projects by their sister company Xidoumen. Beidouxing will supply the RO membranes for 100,000m3/d brackish RO project in Guangdong.

Membranes Produced: CSM MF: no UF: no Saehan NF: yes RO: yes Rm.1D State Gate Mansion, No. 1 Sizes: ZuojiaZhuang?Chaoyang district 4”: yes 8”: yes 16”: yes Beijing 100028 Beijing Other products: no China Solutions/EPC: no Tel: +86 10 64678387 Produces in China: no Fax: +86 10 64635657 Market Entry: 2000 www.saehan.com.cn Certifi cations: ISO-14001

Wei Liang Desalination Clients Industry Separation Membrane Dept. Region- Industrial: yes al Manager Municipal: no +86 13701071149 References: Shandong Luli Steel Co.,LTD., Hebei [email protected] Cangjing Chemical Industry Co.,Ltd., Ownership: Private Foreign

The company’s reverse osmosis membrane desalination business was established in 1995. The Growth of its RO business is 200% per year since 2003. Allegedly one of the highest among all its competitors in China. Saehan has a joint venture in Tianjin, and local sales agents in Beijing and Shanghai.

Membranes Produced: Dow MF: no UF: no Dow Chemical (China) Investment Co., Ltd. NF: yes RO: yes 23F One Corporate Avenue Sizes: 222 Hu Bin Road 4”: no 8”: yes 16”: no Shanghai 200021 Shanghai Other products: ion exchange resin China Solutions/EPC: no Tel: +86 21 23019483 Produces in China: no Fax: +86 21053835510 Market Entry: 1998 www.dow.com Certifi cations: ISO-9001:2000, ISO14001:2004, ISO18000 Helen Shi Business Communication Manager (AP) Desalination Clients [email protected] Industrial: yes Wang Daxin Municipal: yes Development Engineer Water Solutions References: More than 30 projects in China +86 13501837050 Ownership: Private Foreign [email protected]

Dow purchased their membrane company, FilmTec Corporation, in 1985. Dow is the leading SWRO provider in China with a 50% market share in 2006. After purchasing OEE (see page 79), Dow is now putting more eff orts into UF, EDI and MBR research, markets which are deemed to growth even faster then SWRO.

Membranes Produced: Hydranautics MF: no UF: yes Nitto Denko - Hydranautics NF: yes RO: yes Room 1609, Full Tower, 9 Dong San Huan Zhong Sizes: Road, Chaoyang District 4”: yes 8”: yes 16”: yes Beijing 100020 Beijing Other products: no China Solutions/EPC: no Tel: +86 10 85910958 Produces in China: yes Fax: +86 10 85910959 Market Entry: 1996 www.membranes.com Certifi cations: ISO-9001:2000, ISO14001:2004, ISO18000 Jason Zhao Chief Representative (Beijing Offi ce) Desalination Clients +86 13501182304 Industrial: yes [email protected] Municipal: yes Hiroshi Iwahori References: Huangdao RO pilot; Tanggu RO, Manager Membrane Division Tianjin TEDA; Shengsi Dao (Zhejiang) Ownership: Private Foreign [email protected]

Hydranautics produces RO and NF elements as well as UF membranes. China is one of its main markets. RO & NF are the most important products. In China, they have a 40% share of the RO/NF market, second only to Dow (Globally, they are also 2nd after Dow). Membranes are produced in 4 factories in California, Japan, Italy and Shanghai. 40% of the products sold in China are manufactured in China. Annual sales in China are US$400m which constitutes 15-20% of global sales. Hydra sells mostly to OEM and to some end-users. Like other large foreign makers Hydranautics’ only hope of staying ahead of Chinese competition is to invest massively in R&D. They may also expand the Shanghai production facility in the future. Growth rates in UF segment are such that they now plan putting more eff orts into UF products. Hydranautics has three sales agents in Beijing, Shanghai and Shandong and two contact offi ces in Guangdong and Henan. Hydranautics was set up in Oceanside (US) in 1963, started to research, develop and produce RO membranes in 1970, and was purchased by Nitto Denko (Japan) in 1987. Nitto Denko started to research and develop RO NF and UF in 1960s.

Membranes Produced: Hyfl ux (Membranes) MF: yes UF: yes Hydrochem Engineering (Shanghai) Co., Ltd. NF: yes RO: yes No.99 Juli Road, Zhangjiang High-Tech Park Sizes: Pudong 4”: yes 8”: yes 16”: yes Shanghai 201203 Shanghai Other products: submerged China membrane,stainless steel membrane

Tel: +86 21 50805118 Solutions/EPC: yes Fax: +86 21 50805128 Produces in China: no www.hyfl ux.com Market Entry: 1994 Certifi cations: ISO-9001 Deng Mei mei.deng@hyfl ux.com.cn Desalination Clients Li Junjie Industrial: yes Marketing Municipal: yes +86 21 50805118 References: Tianjin TEDA, Dalian Huludao Ownership: Private Foreign junjie_li@hyfl ux.com.cn

While Hyfl ux sells mainly in China, it continues to produce mainly in Singapore. They manufacture 12 types of membranes and boasts Asia’s largest membrane research and development facility outside Japan. However, it has an organic acid plant in Huludao (Dalian) and makes polypropylene membranes in Hangzhou (Hangzhou Zheda Hualu Membrane JV, 55%). The ceramic and crystalline membranes are produced in Singapore. For UF pre-treatment and other UF applications, Hyfl ux has been sourcing from Shanghai natives Megavision.

Membranes Produced: Koch MF: yes UF: yes Koch Membrane Systems NF: yes RO: yes 580 Nanjing Road(W) Sizes: #42-08/10 4”: yes 8”: yes 16”: no Shanghai 200041 Shanghai Other products: antiscalent and cleaning China chemicals

Tel: +86 21 62674846 Solutions/EPC: no Fax: +86 21 62674743 Produces in China: no www.kochmembrane.com Market Entry: 2002 Certifi cations: ISO-9001 Pang Ruming Regional Sales Manager China Desalination Clients +86 13701866194 Industrial: yes [email protected] Municipal: yes Zhang Feng References: Shanghai Baosteel Ltd, Shougang Sales Manager (Beijing Offi ce) Group +86 13501112580 Ownership: Private Foreign [email protected]

Koch’s membrane products include all types of membranes. It has a strong presence in niche markets, e.g. fi lters for juice manufacture (90% market share). Koch’s market share is smaller in SWRO, behind Dow’s and Hydranautics’. The UF market is growing the fastest and Koch has seized opportunities in the power, steel and petrochemical sectors in China. Annual sales in China are US$10m. All products are made in USA. Koch does not produce in China and has no plans to move production to China. While UF products are currently priced very low Koch deliberately price their products signifi cantly higher than the competition. Koch sells spiral elements from 2.5” to 8”, and hollow fi ber or tubular membranes in other sizes.

Membranes Produced: MegaVision MF: no UF: yes Shanghai MegaVision Membrane Engineering NF: no RO: no & Technology Co. Ltd. Sizes: B/18C Citic Pent-Ox Metropolis 4”: yes 8”: yes 16”: no 1089 Pudong Avenue Other products: no Shanghai 200135 Shanghai China Solutions/EPC: no Produces in China: yes Tel: +86 21 51303096 Market Entry: 2001 Fax: +86 21 51303091 Certifi cations: www.china-membrane.com www.ufmembrane. com Desalination Clients Industrial: yes Diana Dou Municipal: yes Sales References: Hyfl ux RO (UF Pre-Treatment) +86 13391056618 Ownership: private local [email protected] Nancy Tao Director +86 13916218991 [email protected] MegaVision is a Shanghaiese hollow fi bre membrane maker with application in the MBR sector for sewerage treatment. Also produces pervaporation membranes (PV) for ethanol processing. The company has a research partnership for the development of membrane technology with Tsinghua University in Beijing and Sichuan University. They export to Latin America, Singapore, Indonesia. Their production facility has a capacity of 1Mm2. Revenues for UF sales are RMB10m. Nadir once tried to buy them out but the owner refused to loose management control. Instead they plan to make JV with the German company. Megavision expects 200% annual growth in sales. They supply Hyfl ux with UF membranes for their desalination projects but do not want to get involved in RO which they fi nd too diffi cult. Like everyone else, they import membrane raw materials from the US, Japan and Germany.

Membranes Produced: Pall MF: yes UF: yes Pall Filter (Beijing) Co.,Ltd. NF: no RO: yes No.12 Hongda South Road, BDA Sizes: Beijing 100176 Beijing 4”: no 8”: yes 16”: no China Other products: fi lters

Tel: +86 10 67802266 Solutions/EPC: no Fax: +86 10 67802329 Produces in China: yes www.pall.com Market Entry: 1993 Certifi cations: ISO-9001 Lu Hong Sales Desalination Clients +86 10 67802379 Industrial: yes Gao Dalin Municipal: yes water treatment dept. manager Ownership: Private Foreign [email protected]

Pall has ofﬁ ces in Shanghai, Guangzhou, Changchun, Chengdu and a manufacture plant in Bei- jing which is the main source of Pall’s world output.

Membranes Produced: Motimo MF: yes UF: yes Tianjin Motian Membrane Engineering & NF: no RO: no Technical Co. Ltd Sizes: 60, 11th Street TEDA 4”: yes 8”: yes 16”: no Tianjin 300457 Tianjin Other products: no China Solutions/EPC: yes Tel: +86 22 66230233 xt 217 Produces in China: yes Fax: +86 22 66230131 Market Entry: 1974 www.motimo.com Certifi cations: ISO-9001, ISO-14001

Nancy Zheng Desalination Clients Factory Manager Industrial: yes +86 13821117790 Municipal: yes References: McDonald (in China), China Petro- [email protected] chemical Corporation. Ownership: Public Another typical Chinese champion: the research institute was set up in 1974 under the Tianjin Polytechnic university; the fi rst company was set up in 2000. Motimo is one of the favoured champions in the context of the development of the Tinajin “engineering centre” for desalination technology in Northern China. Expect plenty of government visitors and cheap loans. Motimo was established in 2003 and is a joint venture between the Tianjian Motian company and the LAM Group. Motimo’s 3Mm2 hollow fi ber production facility is the largest in China and located in the Tianjin development zone (TEDA). Motimo’s CMF technology has been used in the TEDA RO systems (pre-treatment, 27,000 m3/d), Sinopec industrial wastewater recylcing (Guangzhou, 12,000 m3/d), the Yangquan 3rd power plant (5,000 m3/d) and Hebei Shuanghuan Power plant (10,000 m3/d), a Motorola semi-con- ductor farctory (5,000 m3/d) and a monosodium glutamate wastewater recycling project (5,000 m3/d), pre-treatement for an SWRO project (Salcon, 6,000 m3/d). Its TWF products are used in the pharmaceutical sector and the food sector. Motimo also provides tap water prurifi cation systems to 600 McDonald’s in China. Motimo has developed proprietary technology for CMF (continuous membrane fi ltration), MBR and TWF. They say their annual sales are US$10m equivalent.

Membranes Produced: Omexell MF: yes UF: yes Omexell Membrane Technology Ltd. NF: no RO: no Room 705, Floor 7, Beijing Ideal International Sizes: Building, No.58, Beisihuan Xilu, Haidian District 4”: no 8”: yes 16”: no Beijing 100080 Beijing Other products: no China Solutions/EPC: no Tel: +86 10 82607929 Produces in China: yes Fax: +86 10 82607939 Market Entry: 2000 www.omexell.com.cn Certifi cations: ISO-9001

Helen Yu Desalination Clients Sales Industrial: yes [email protected] Municipal: yes Shanghai Offi ce References: Changyi Liutong Thermoelectricity +86 21 68419109 Plant Ownership: Private Foreign [email protected]

The company is the Chinese off spring of Texas-based Omexell. In China, it has been involved in the power sector. China is now a manufacturing center providing most of the products for its world market. In was acquired by Dow in 2006.

Membranes Produced: Qianqiu MF: no UF: no Zhejiang Qianqiu EnvironmentalWater Treat- NF: no RO: no ment Co., Ltd. Sizes: 188 West Huancheng Lu, Youqian Town 4”: no 8”: no 16”: no Linan 311311 Zhejiang Other products: Electrodialysis for wastewater China treatment, Electrodeionization (EDI) and Ion-Ex- change Membranes, Exchange Resins Tel: +86 571 63889338 Fax: +86 571 63887820 Solutions/EPC: no www.china-qianqiu.com Produces in China: yes Market Entry: 1992 Wang Sherry Certifi cations: ISO-9001 Deputy General Manager +86 13456981666 Desalination Clients [email protected] Industrial: yes Yaowu Zhang Municipal: yes Engineering Dept Manager +86 13735551388 References: Xisha Desalination Project Ownership: Private Local [email protected]

Qianqiu is the Chinese EDI leader. Qianqiu employs 500 people and has a registered capital of RMB100m. It Specialises in industrial applications and pure water production.It accounts for more than 80% of Chinese Ion-Exchange membranes so it has few competitors. The company is not looking for a JV partner but only foreign partners who will sell their products over- seas.

Membranes Produced: Shijie MF: yes UF: yes Hefei Shijie Membrane Engineering Co., Ltd. NF: yes RO: no 69 Science Road, National Hi-Tech Development Sizes: Zone 4”: no 8”: yes 16”: no Hefei 230088 Anhui Other products: no China Solutions/EPC: yes Tel: +86 551 5845199 Produces in China: yes Fax: +86 551 5845299 Market Entry: 2001 www.sjm-fi lter.com.cn Certifi cations: ISO-9001

Shi Yan Desalination Clients General Manager Industrial: yes +86 13955108390 Municipal: yes sjm@sjm-fi lter.com.cn Ownership: Private Local Shi Hongbin Manager [email protected]

Also makes ceramic membranes. Its products are used in 96% of tea processing industry and 75% of biological zymosis industry of China. Shijie also provides (UF) membranes for SWRO pre-treatment.

Membranes Produced: Siemens/Memcor MF: yes UF: yes Siemens Memcor NF: no RO: no 9th Floor, D Building, Yeqing Mansion Sizes: No. 9 Wangjing Beilu, Chaoyang District 4”: no 8”: no 16”: no Beijing 100102 Beijing Other products: hollow fi bre China Solutions/EPC: no Tel: +86 21 38892561 Produces in China: no Fax: +86 21 38893294 Market Entry: 1980 www.siemens.com/water Certifi cations: ISO 9001

Jhonny Zheng Desalination Clients Technical Sales Manager China (Memcor) Industrial: yes +86 13003192922 Municipal: yes [email protected] Ownership: Private Foreign

Memcor provides hollow fi bre membranes for SWRO pre-treatment. Memcor will benefi t from Siemens acquisition of desalination and wastewater developer Beijing CNC. They also have a broad range of wastewater treatment products, including membrane bioreactors (MBR). The company is very active in the wastewater market. It securred the contract to equip Beijing’s olympic village sewerage system (Bei Xiaohe Wastewater Treatment Plant) with MBR is july 1996.

Membranes Produced: Tianwei MF: yes UF: yes Tianwei Membrane Co.,Ltd. NF: yes RO: no No.171, Yuqing Street, Hi-tech Zone Sizes: Weifang 261061 Shandong 4”: no 8”: no 16”: no China Other products: homogeneous membrane

Tel: +86 536 8867639 Solutions/EPC: no Fax: +86 536 887639 Produces in China: yes www.tw-membrane.com Market Entry: 1996 Certifi cations: ISO-9000 Mr. Wang +86 13963631139 Desalination Clients [email protected] Industrial: yes Sun Dayan Municipal: yes Deputy General Manager References: Guangdong Brackish RO Ownership: Private Local

The company has the intellectual property rights for its homogeneous membrane which is its core product. Tianwei has foreign partners in Malaysia and India which distribute their products. Tianwei was chosen to provide the UF membranes for the 100,000m3/d Brackish RO porject developed by Xidoumen in Guangdong. The company also export s to Taiwan, India and Malaysia.

Membranes Produced: Toray MF: yes UF: yes Toray Industries China Co. Ltd NF: yes RO: yes 10th Floor, HSBC Tower Sizes: 1000 Lujiazui Huanlu, Pudong New Area 4”: no 8”: yes 16”: no Shanghai 200120 Shanghai Other products: no China Solutions/EPC: no Tel: +86 21 68411470-305 Produces in China: no Fax: +86 21 6841 2454 Market Entry: 2003 www.toray-membrane.com.cn Certifi cations: ISO-9001, ISO-14001

Dr. Zhu Lie Ping Desalination Clients: Reverse Osmosis Dpt Industrial: yes +86 13816697499 Municipal: yes [email protected] References: Huaneng Yuhuan Power Plant, Wang Hongchen Shengsi Water Supply Company Regional Sales Manager Ownership: Private Foreign +86 13817387235 [email protected]

Toray is competing against Hydranautics and Dow in China’s SWRO membrane market. It became Xidou- men’s favourite after the Chinese developer moved away from Hydranautics (and when it is not trying to use its own SWRO membranes). Toray has a local sales agent in Beijing. Shanghai is its headquarter in China.

Membranes Produced: Vontron MF: no UF: no Vontron Enviro-Tech Co., Ltd NF: no RO: yes South Huiton Hi-Tech Industrial Zone, Xintian Sizes: Zhai 4”: yes 8”: yes 16”: no Guiyang 550018 Guizhou Other products: no China Solutions/EPC: yes Tel: +86 851 6270368 Produces in China: yes Fax: +86 851 6270137 Market Entry: 2003 www.vontron.com Certifi cations: ISO-9001;2000

Lily Cai Desalination Clients: Export Manager Industrial: yes +86 13511949580 Municipal: no [email protected] References: Shanxi Aluminum Plant, Hebei Cang- Fang Yong zhou Chemical Industry Co Marketing Manager Ownership: Private Local [email protected] Vontron has been in the membrane market for 4 years which is more than most Chinese makers. It uses US technology to manufacture membranes in China. Its main market is the wastewater sector. They claim to have a 5% market share for membranes in China. Vontron’s production base is in Guiyang. Unlike most Chinese membrane manufacturers they also produce RO membranes. 50% of production is exported and 50% distributed in China. Export markets are India and Italy and main clients are engineering companies. Global sales are RMB40m, with 100% year-on-year growth. There are currently no plans to expand the product range or to enter into a JV. Vontron says they aim to raise product quality up to the international standard. They charge US$130 for a 4’ membrane and US$400 for an 8” membrane, which is on par with Korean makers and 30% cheaper than US makers Annual output of 3.3Mm2 of RO membrane.

Membranes Produced: Zhaojin Motian MF: yes UF: yes Shandong Zhaojin Membrane Motian Co., Ltd. NF: yes RO: yes No.132 Wenquan Lu Sizes: Zhaoyuan 265400 Shandong 4”: yes 8”: yes 16”: no China Other products: ABS pipes, steel structures

Tel: +86 535 8118512 Solutions/EPC: yes Fax: +86 535 8112404 Produces in China: yes www.chinamotian.com Market Entry: 1998 Certifi cations: ISO-9001, ISO-14000 Mr. Wen Product Manager Desalination Clients +86 535 8118505 Industrial: yes Zhu Chengmin Municipal: yes Sales Manager Ownership: Public +86 535 8118533 Zhaojin Motian is an SOE. The membrane arm of the group was established as a limited company with a capital of CNY40m in June 2006. The company provides treatment solution for the power sector, electronics, pharmaceuticals and food industries, municipal water and wastewater supply. The company exports to Russia, Singapore, Thailand and Korea. They are one of the 4 Chinese membrane makers which produce RO membranes.

Membrane Companies Active in China but not in Desalination Name MF UF NF RO Made in China Mkt entry Tri-High (Beijing Tri-High Membrane Technology Co., Ltd.) noyesnonoyes 2005 TriHigh imports filtration equipement made in Spain. 100% of sales in industrial applications. Also works with Berghof to manufacture tubular membranes. Litree (Litree Company) yes yes no no yes 1992 Litree is considered by some to be the best local UF membane maker in China. It was established in 1992 to research develop and manufacture UF membranes. Their lastest product is a PVC hollow fiber membrane.They supply water purification systems for both domestic and industrial applications. In 2003, Litree opened a production facility of 1.6 Mm2 per per year. Kubota no no no no no 2002 While Kubota is present in all segments of the market worldwide, its Chinese operations are comparatively limited, with a few apartments blocks equipped with their submerged membranes units for water purification. They operate in China via local partner ESC (www.esc.com.cn), or Dongfang Hailian Science & Technology Development Co.,Ltd. Hongquan (Hangzhou Hongquan Membrane Technology Co., Ltd.) noyesnonoyes 1990 Manufacures polypropylene hollow fibre menbranes. They develop their own projects or sell to OEM. Inge noyesnonono 2002 Inge is a German manufacturer of purification solutions used in RO pre-treatment. It has an office in Beijing dealing with China and the Asia- Pacific area. All products are manufactured in Germany. Norit X-Flow yes yes no no no 2002 Norit makes a significant share of profits in China and is one of the bigest UF membranes importers. Its Chinese sales have double every year for the past three years. All products made in the Netherlands, no plan to move production to China. Havcoda (Star Vision Technology Development Co., Ltd.) yesyesyesyesyes 2005 The company is an accredited distributor of GE filtration and RO products in China, it also makes presure vessels for RO systems. Jiusi (Nanjing Jiusi Hi-Tech Co., Ltd.) yesyesyesnoyes 2002 Ceramic membranes maker. Supported by the Nanjing University of Technology. Applications in industries and wasterwater recycling. Jiuwu (Jiangsu Jiuwu Hitech Co., Ltd) yesyesyesyesyes 1997 Jiuwu is also a ceramic membranes maker supported by the Nanjing University of Technology. It exports worldwide. ENTE (Beijing Ente Membrane Industry Co., Ltd) yes yes no no yes 2001 ENTE is actively seeking international cooperation. Developing new membrane products (NF/RO) and UF/PVDF. Amiad (Taixing Environtec Co., Ltd.) no no no no no 1992 Set up by Amiad in 1992. It sells Amiad's filters and is Nederman, Abanaki and IK's Chinese local partner. Tianjin Spring (Tianjin Spring Environmental Technology & Engineering no no no no yes 2002 The company holds proprietary technologies for MBR and anaerobic biological solutions.It takes part in BOT projects. Dalian Eurofilm (Dalian OKM ultrafiltration industrial Ltd) yesyesyesyesyes 2000 Sole partner of Membrana (Germany) since 2003. Dalian OKM ultrafiltration was founded as Eurofilm’s Chinese company. Microdyn-Nadir (Microdyn-Nadir (Xiamen) Co., Ltd.) yesyesyesyesyes 2003 Offspring of the German membrane maker. They once offered to buy Megavision Membranes (see profile)

Products: HP Pumps Danfoss Produces in China: No Danfoss A/S Market Entry: 2005 Nordborg 6430 Denmark Desalination Clients Industrial: yes Tel: +45 74882222 Municipal: no Fax: +45 74453831 www.danfoss.com Danfoss started selling HP pumps in China in 2005 and made have made US$150,000 of sales that André Hansen year. All Danfoss HP pumps are made in Denmark. Consultant The company is looking for a Chinese partner. Its +45 23727993 Chinese clients are small RO plants. [email protected]

Products: HP Pumps Grundfos Produces in China: yes Grundfos pumps (Shanghai) Co., Ltd. Market Entry: 1995 51 Tibet House Plaza Shanghai 200001 Shanghai Desalination Clients China Industrial: yes Municipal: yes Tel: +86 21 61225222 Fax: +86 21 61225333 Like ERI, Grunfoss has managed to become a www.grundfospumps.co.uk/web/HomeCN.ns Xidoumen input of choice, a key step towards establishing a brand name in Chinese desalination procurement (as long as their products are not copied too well).

Products: HP Pumps/ ERD Calder Produces in China: no Calder AG Market Entry: 2005 Industrie Nord Egliswil 5704 Desalination Clients Switzerland Industrial: yes Municipal: no Tel: +41 62 7696071 Fax: +41 62 7696070 Calder is meant to be providing the ERD equip- www.calder.ch ment for Hyfl ux’ Dagang project, if it ever gets built. Otherwise they have lost all other current Beat Patrick Schneider opportunities (large projects) to ERI. Managing Director [email protected]

Flowserve The company has a plant an Suzhou geared towards the domestic and expot market. It has not broken into the Chinese desalination yet. Like other key makers, Flowserve is way too buzy catering for the exploding power sector to even have time to look at desalination projects in China.

Products: HP Pumps SPC Produces in China: yes MHI Shenyang Pump Engineering Co., Ltd., Market Entry: 2005 13 Zhong Bei San Lu Shenyang 110000 Liaoning Desalination Clients China Industrial: yes Municipal: no Tel: +86 24 25838069 Fax: +86 24 25640878 the sale and engineering of pumps for thermal Shenyang is the only Chinese maker of High power plants. Pressure Pumps that are currently used in an RO MHI Shenyang Pump Engineering Co Ltd will be project: the Huangdao RO pilot developped by 60% owned by MHI and 40% by SPC. The JV will the Tianjin Institute of Desalination (See Case started operating at the end of April 2006, handling Studies) Mitsubishi Heavy Industries Ltd (MHI) boiler feed water supply pumps for conventional and Shenyang Pump Co Ltd (SPC) established a thermal power plants as well as pumps for other joint venture company in Shenyang, China for applications.

Products: ERD ERI Produces in China: no Energy Recovery Inc Market Entry: 2001 1908 Doolittle Drive San Leandro CA 94577 California Desalination Clients US Industrial: yes Municipal: yes Tel: +1 510 483 7370 preneurs (See The Brief) and got her PX accepted Fax: +1 510483 7371 as a staple product in Xidoumen’s systems. Xidou- www.energyrecovery.com men’s clout in the sector was enough to start the ball rolling. Hattie Wang Vice President, OEM Group Since ERI was selected for the Yuhuan RO project, +86 13750835025 their reputation in China has been developing [email protected] rapidly. The company will open a China Rep offi ce in early 2007. China is ERI’s fi rst client for its PX technology. ERI It will eventually manufacture some of its produts says that over 80% of seawater desalination plant in China (pumps) but not the higher added-value capacity in the country use the ERI PX solution. products (heat-exchanger). ERI’s PX technology is This might be a slight exageration but it’s true gradually becoming a standard in China, so much that ERI signed contracts for most important RO that it is also being seriously copied. porjects in China, while global competitor Calder Hattie says there remain 3 to 5 years to make got none. money in China and then R&D will determine ERI’s China representative, Hattie Wang, fi rst went whether or not you can stay ahead of Chinese to Tan Yongwen, one of the key professros entre- competition.

Products: Pumps Sulzer Produces in China: yes Sulzer Pumps Asia Pacifi c Pte Ltd Market Entry: 2001 Room 2102 , 2 Grand Gateway No.3 Hongqiao Road Desalination Clients Shanghai 200030 Industrial: yes China Municipal: no

Tel: +86 21 64485060 Sulzer has a factory in Dalian. It won the con- Fax: +86 21 64485061 tract to supply the high-pressure pumps for the Kim Jackson ([email protected]) Yuhuan RO project, China’s largest to date.

Products: HP Pumps/ ERD KSB Produces in China: yes KSB Shanghai Pump Co. Ltd. Market Entry: 2005 E1 26/F,Zaofong Uni. Build. 1800 West Zhongshan R. Desalination Clients Shanghai Shanghai Industrial: yes China Municipal: no

Tel: +86 21 64401668 KSB is a German pump maker and is very active Fax: +86 21 64400228 in the Chinese power sector and by extension in www.ksb.com major desalination projects (such as Yuhuan) for which KSB is building the largest cooling pumps Jufeng Gan in the world. They are described as real competi- [email protected] tion by the ERD market leader in China: ERI. In November 2006, KSB won a contract to supply 43 pumps for the desalination part of the Huaneng Yingkou Power Station expansion project located at the Gulf of Liaodong (Liaoning). The Huaneng Yingkou power plant is part of a special economic development zone, and is the fi rst so-called “supercritical” power station in China, providing a generation capacity of 600MW.

Equipment: PressureVessels压力容器

Products: Pressure Vessels MemShell Produces in China: yes Dalian Yuxing Water Treatment Equipments Market Entry: 1998 Co. Ltd 8 Chuangye Lu, Behai Town Desalination Clients Lushunkou District Industrial: yes Dalian 116048 Liaoning Municipal: yes China MemShell manufactures glass fiber reinforced Tel: +86 411 86250036 pressure vessels for RO systems. Their main compe- Fax: +86 411 86250078 tition comes from another Dalian vessel producer www.memshell.com.cn and ROPV in Harbin. The company has been operating since 1998. Jacky wu Again, their customers are the engineering com- Sales Engineer panies. Sell in China and Europe. +86 13910130944 [email protected]

Amie Yang Sales Representative +86 13810111459 [email protected]

Products: Pressure Vessels PYRO Produces in China: yes Changzhou Pengyu GFRP Pressure Container Market Entry: n/a Co., Ltd. Pangjia Industrial Zone Desalination Clients Qianhuang town Industrial: yes Changzhou 213173 Jiangsu Municipal: yes China The company produces the “Penguy” brand. It Tel: +86 519 6251993 exports pressure vessels in the Middle East and Fax: +86 519 6251993 throughout Asia. www.yongcheng-china.com

Tang Li Yin +86 13016867839 [email protected]

Products: Pressure Vessels ROPV Produces in China: yes Harbin ROPV Industry Development Center Market Entry: 1984 100 Hongqi Lu Xiangfang District Desalination Clients Harbin 150036 Heilongjiang Industrial: yes China Municipal: yes

Tel: +86 451 55155142 ROPV is a makes pressure vessels. It provided the Fax: +86 451 55155124 vessels for the pre-treatment facilities of Thames’ www.ropv.com.cn desalination project in Australia (2004).

Seiya Che It China it is the market leader. Thanks to its connec- Marketing Dept tion with one of the key professor-entrepreneurs, +86 13817826452 Tan Yangen, and the Hangzhou Desalination [email protected] Research Centre, ROPV products are used in most SWRO projects in China. Huang Guofeng 86 13804505180 [email protected]

Products: Pressure vessels BEL Produces in China: no BEL Composite Industries Ltd. Market Entry: 2004 Room 1603, No.798 Zhao Jia Bang Rd. Desalination Clients Shanghai 200030 Industrial: yes China Municipal: no

Tel: +86 21 64738926 BEL won the contract for the pressure vessels of the Fax: +86 21 64453191 Yuhuan RO plant, the largest RO plant in China. www.belcomposite.com [email protected]

Bekaert: a plant in Suzhou for steel cord products, but no market share in composites (PV).

Products: Steel Baocheng Produces in China: yes Baocheng Group Market Entry: 2004 Shuangqiaohe Town Tianjin 300352 Tianjin Desalination Clients China Industrial: yes Municipal: no Tel: +86 22 88698021 Fax: +86 22 88698009 Baocheng is an industrial boiler maker and was www.baocheng-group.com selected by Entropie (Veolia) to make the fi rst LT- MED plant in TEDA, Tianjin. In september 2006, an [email protected] agreement to develop a desalination equipment plant was signed between Fisia Italimpianti and Tianjin Baocheng Group.

Products: Steel Hu’aou Produces in China: yes Qingdao Huaou Co., Ltd Market Entry: 2005 5 Taixi Lu Qingdao Shandong Desalination Clients China Industrial: yes Municipal: no Tel: +86 532 83820650 Fax: +86 532 83820650 Hu’aou Company was appointed by the Tianjin Institute of Desalination to develop the Huangdao Edward Zhao MED pilot project (See Case Studies) a landmark, Manager chinese-made distillation plant. +86 13012503818

Products: Steel Outokumpu Produces in China: no Outokumpu Asia Pacifi c Ltd (Beijing) Market Entry: 1410 Tower 2, Landmark Offi ce 8 North Dongsanhuan Road, Chao Yang District Desalination Clients Beijing 100004 Beijing Industrial: yes China Municipal: no

Tel: +86 10 6590 1998 The company operates in 40 countries and employs Fax: +86 10 6590 1996 13,000 people with annual sales of over €6 billion, www.outokumpu.com 90% of which is generated outside Finland. Outokumpu was involved in the metalworks of the Sun Chang-ching Yuhuan plant, the largest RO plant in China. It is Chief Representative also building the 10,000m3/d Yingkou RO project, [email protected] which is meant to come online in 2007.

Allegeny Ludlum has a plant in Shanghai but hs not been involved in deslination projects.

B F boiler A vessel in which water is continually fl ash distillation See “multi-stage fl ash vaporised into steam by the application of evaporation”. heat. fl ashing The process of vaporizing a fl uid by boiler feedwater Water which, in the best pressure reduction rather than temperature practice, is softened and/or demineralized elevation. and heated nearly to boiler temperature fl ux (1) Flow rate per unit area. (2) Heat and deaerated before being pumped into a transfer rate per unit area. steam boiler. freeze distillation Production of distillate by brackish water Water containing a low con- freezing a saline solution and washing salts centration of soluble salts, usually between from the pure water crystals prior to melt- 1,000 and 10,000 mg/L. ing. brine heater The heat input section of a fresh water Water that usually contains less multi-stage fl ash evaporator where feed- than 1,000 mg/L of dissolved solids. water is heated to the process’ top temperature. G BWRO Brackish water reverse osmosis. groundwater Subsurface water found in porous rock strata and soil. C H condensate Water obtained by evaporation and subsequent condensation. hollow fi bre membrane Type of reverse osmosis and ultrafi ltration membrane formed cubic metre (m3) A volume measurement into small diameter tubes. equal to 1,000 litres or 264. 2 US gallons. One cubic metre of water weighs one tonne. hybrid A system incorporating multiple processes or technologies; for example, D a desalination facility incorporating both DBOT Design-Build -Operate-Transfer thermal and membrane processes. desalination The process of removing dis- I solved salts from water. IDA International Desalination Association. desalinization See “desalination”. IPP Independent power producer. drinking water Water safe for human con- IWP Independent water producer. sumption or which may be used in the preparation of food or beverages, or for IWPP Independent water and power proj- cleaning articles used in the preparation of ect. Glossary food or beverages. M E membrane A thin barrier that permits the electrodialysis (ED) The separation of a passage of particles of a certain size or of solution’s ionic components through the particular physical or chemical properties. use of semipermeable, ion-selective mem- membrane processes Processes including branes operating in a DC electric fi eld. reverse osmosis, electrodialysis, and ultrafi l- electrodeionization (EDI) A water treatment tration that use membranes to remove dis- process combining an electrodialysis mem- solved material or fi ne solids. brane process with an ion exchange resin MoC Ministry of Construction process to produce high purity, demineral- MoF Ministry of Finance ized water. multiple eff ect distillation (MED) A thin EPC Engineering Procurement and fi lm evaporation process where the vapour Construction. Also short for EPC contract or formed in a chamber, or eff ect, condenses contractor. in the next, providing a heat source for fur- ERD Energy recovery device. ther evaporation.

multi-stage fl ash evaporation (MSF) A de- salts in water. (2) The total dissolved solids salination process where a stream of brine in water after all carbonates and organic fl ows through the bottom of chambers, matter have been oxidized. or stages, each operating at a successively SDRC State Development and Reform lower pressure, and a proportion of it fl ash- Commission es into steam and is then condensed. seawater General term for sea or ocean wa- MVC Mechanical vapour compression. See ter, with a typical total dissolved solids con- “vapour compression evaporation”. centration of 35,000 mg/L. MVR Mechanical vapour recompression. SOA State Oceanic Administration See “vapour compression evaporation”. SPV Special purpose vehicle. N stage One of several units of a fl ash evapo- nanofi ltration (NF) A specialty membrane rator, each of which operates at a succes- fi ltration process which rejects solutes larg- sively lower pressure. er than approximately one nanometer (10 angstroms) in size SWRO Seawater reverse osmosis. NTU Nephelometric Turbidity Unit. T O TEDA Tianjing Economic Development Zone Off taker The organization which purchases water or power produced under a long- thermocompressor A device used to in- term WPA, PPA or PWPA. crease the pressure of a gas or vapour generally driven by a high pressure source of P the vapour to be compressed. PA membrane A polyamide membrane. TVC Thermal vapour compression. See “va- parts per million (ppm) A common unit pour compression evaporation”. of measure used to express the number of TVR Thermal vapour recompression. See parts of a substance contained within a mil- “vapour compression evaporation”. lion parts of a liquid, solid, or gas. U performance ratio A unit of measurement used to characterize evaporator perfor- ultrafi ltration (UF) A low pressure (200-700 mance, expressed as the mass of distillate kPa, 20-100 psi) membrane fi ltration process produced per unit of energy consumed. which separates solutes in the 20 to 1,000 angstrom (up to 0.1 micron) size range. power-to-water ratio 1) A parameter comparing electric power production to de- V salinated water production. 2) A parameter vapour compression evaporation (VC/VCE) comparing electric power demand to de- Evaporative system where vapour boiled salinated water demand. off in the evaporator is mechanically com- PPA Power purchase agreement. pressed and reused as the heating medium. pressure vessel 1) A tank or chamber designed to contain a fl uid at a diff erent pres- vapour pressure The pressure at which sure from its surroundings. 2) The cylin- equilibrium is established between the liq- drical vessel which contains one or more uid and gas phases of a substance. membrane elements. VTE Vertical tube evaporator. R VVC Vacuum vapour compression. raw water Untreated surface or groundwa- W ter. Water Purchase Agreement (WPA) A DBOOT reuse Using a product or component in its contract is often referred to as the WPA. A original form more than once. WPA is a long-term water supply agreement reverse osmosis (RO) A method of separat- between a contractor and off taker which ing water from dissolved salts by passing may be part of an IWP or IWPP. feedwater through a semipermeable mem- water reuse The benefi cial use of reclaimed brane at a pressure greater than the osmotic water, such as for irrigation, cooling or pressure caused by the dissolved salts. washing. S salinity (1) The concentration of dissolved