Sumitomo escalates global water expansion

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The industrial heavyweight has concluded a deal with Beijing Capital to enter the Chinese water sector. It is the strongest signal yet that the group’s new water infrastructure unit is serious about international expansion.

Japanese industrial giant Sumitomo has signalled its intention to become a major player in the global water infrastructure market, with the announcement of a major joint venture in China and a commitment to spend ¥50 billion ($616 million) on building its presence globally over the next three years.

The joint venture, with China’s largest water infrastructure provider, Beijing Capital (BC), will see Sumitomo take a 40% stake in a new controlling company to run three wastewater treatment plants in the Chinese provinces of Shangdong and Zhejiang. The projects in question are currently owned by BC group companies, and have a total treatment capacity of 290,000m3/d, although Sumitomo told GWI that this is just the first step. Other projects involving BC’s existing water treatment portfolio across China are in the pipeline.

Hideki Yamano, the general manager of Sumitomo’s Wind Power & Water Infrastructure business, said he could offer no specific details or timetable for growing the collaboration, but noted: “We would like the joint venture to become a vehicle for pursuing further opportunities. Obviously we are discussing potential projects with BC. The Chinese market is growing very rapidly, and we are looking to deepen our relationship quickly by looking at BC’s other ongoing projects with the view to making them also children of our collaboration.”

Shanghai-listed BC invests in, and operates, water and wastewater treatment projects in 33 cities in China, providing water services to more than 20 million people. Its turnover in fiscal 2009 was RMB2.64 billion ($396.6 million).

Yamano said Sumitomo would bring to the JV its experience and expertise in overseas infrastructure businesses and project coordination, and would introduce new water treatment technologies from Japan. Sumitomo’s involvement could also open the door to Japanese government funding. “We are in discussions to establish facilities for raising funding from the relevant Japanese bodies such as JBIC and JICA,” Yamano confirmed to GWI.

BC’s contribution will be “its accumulated know-how in investment, construction, operation and maintenance in water infrastructure related businesses in China. Our joint aim will be to expand the scale of the JV through investment, development, and the operation and maintenance of water infrastructure-related businesses in China”, said Yamano.

“Whether we will consider expanding our collaboration to countries other than China, is certainly under discussion”, he added, “but that will be for the future.”

Sumitomo’s net profit in 2009 was $2 billion, though the contribution from its water assets was marginal. “My department was set up in April this year to change that,” said Yamano. “Investment in water infrastructure is now one of the key areas for business expansion for Sumitomo. Initially, our target regions will be where we already have a presence – Mexico, North Africa and the Middle East and Asia – but we will be pursuing opportunities wherever we find them.”

Sumitomo’s international footprint

1989 – Sumitomo begins negotiations to take an equity stake in the $900 million water treatment BOT in Izmit, Turkey. The plant finally comes online in 1999.

2004 – Sumitomo enters the Mexican water market, taking stakes in wastewater BOTs in San Luis Potosi and Culiacan.

2006 – Sumitomo secures its first win in the Middle Eastern water market, winning the 405,000m3/d and 1000MW Hidd independent water and power project (IWPP) in Bahrain.

2008 – Sumitomo acquires a 20% stake in the 454,600m3/d and 1500MW Shuweihat 1 IWPP in the UAE.

2009 – Sumitomo wins a $60 million BOT contract for an expansion of wastewater treatment facilities in Juarez, Mexico, in co-operation with Degrémont.

2010 – Sumitomo enters into an alliance with Beijing Capital, thus entering the Chinese water market.