Christopher Gasson reflects on a busy month of water events.
I have been out and about a fair amount since the last issue was published. The first stop was a seminar for Chinese companies investing outside China, which we put on in Beijing in partnership with Shanghai-based Jumbo Consulting. Next I was off to Aquatech Amsterdam, where I gave a presentation on industrial water outsourcing in a session organised by Evides; this was followed by our American Water Summit in Atlanta. I am currently on the way back from the Carbon Disclosure Project’s Water Disclosure event in London. I thought it might be interesting to try to summarise each event in three bullet points.
1. Chinese investment overseas
* Chinese private companies prefer overseas markets to overseas investment at this stage. They don’t like the idea that the renminbi will be revalued upwards in future, reducing the asset value of their investments.
* Chinese state-owned enterprises are less concerned about devaluation, since from their point of view the acquisition of assets is part of the government’s strategy to diversify its foreign exchange holdings out of bonds.
* In terms of investing in infrastructure projects (as opposed to buying businesses), there is plenty of interest, but a lack of expertise regarding the contracts. The preference seems to be to bid low and hope for the best, rather than to come to grips with international legal documentation. Alternatively, as one delegate put it, “when China is first nation, maybe we will not have to use foreign countries’ law any more.”
2. Aquatech/International Water Week
* Despite the problems in the Eurozone, we are a long way from the kind of gloom that overshadowed the last Aquatech Amsterdam I attended in September 2008. Most companies are talking in terms of expansionary strategies, rather than cutting costs.
* Right now, the industrial water outsourcing market is an attractive market to be in, but the opportunities come only to the lucky few. GE Water – which claims to have more than 200 build-own-operate projects, leads the way.
* Siemens has replaced GE as the kicking boy of the industry. The decision to integrate Siemens Water Technologies into the industrial automation division, staff departures, and a leaked job advertisement stating that the company’s “financial performance has degraded”, have created the impression that the company is losing its way in water. I suspect the real problem is that it has not done enough to communicate the strategy. After all, GE looked lost until about three years ago. Now it is fine (see story p22).
3. American Water Summit
* America’s public sector is facing falling revenues and costs which are difficult to manage downwards. The solution for some may be asset sales – including water asset sales – although we shouldn’t expect anything to happen too quickly in unionised states, or the “golden triangle” in the centre of the country, which seems to have avoided the worst of the financial crisis.
* There was plenty of talk about creative solutions. But it is wrong to get over-excited about creativity. Eric Rothstein of the Galardi Rothstein Group reminded delegates that municipal leaders would always be more focused on the downside risk than the upside opportunity, and that they tended not to believe private sector people wearing expensive suits when they promised that a partnership would leave the municipality better off.
* There is momentum building behind the idea that the water industry in the US should speak with one voice: public and private, water and wastewater, utilities and suppliers. American Water CEO Jeff Sterba is the driving force behind the idea.
4. Corporate Water Disclosure
* The sector which has proved to be least interested in disclosing its water risks is the energy sector, which coincidentally is also the largest industrial user of water.
* Corporate water disclosure is being sold as something that can boost profit: 63% of large companies report that they can increase revenues or cut costs through better water stewardship.
* With 354 investors representing $43 trillion of assets backing the water disclosure project, it is not going to go away.