CHINESE MANOEUVRES

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The mooted integration of the Beijing Water Works Group, Beijing Municipal Drainage Company and the Beijing Capital Group into a single powerful water company is looking increasingly likely.

Beijing Water Works Group has now come under the supervision of the state-owned Assets Supervision and Administration Commission (ASAC) of Beijing, a step that indicates the company’s commercial standing and is seen as a signal of the impending restructuring.
Initially, Beijing Water Works Group and Beijing Municipal Drainage Company are expected to be merged to form the Beijing Water Affairs Group, later coming under the wing of the massive Beijing Capital Group. However, confusion remains over the division of responsibilities between ASAC and other government bodies in the administration of the new water company.

The Beijing Capital/Beijing Water merger will be a disappointment for major private operators in China such as Veolia Water, who had hoped that Beijing Water Works would be split up and privatised. Veolia chairman Henri Proglio is supposed to be “permanent economic advisor to the Mayor of Beijing”. Perhaps he can still swing things Veolia’s way. Suez’s boss Gérard Mestrallet has his eyes on another prize. He has been appointed economic consultant to the Chongqing municipal government. Suez already has a strong connection with China’s fourth largest city where their JV, Sino-French, supplies water in the city’s thriving business district. From his new position, Mestrallet will be well placed to shape the city’s new wastewater strategy and to develop future business in the Three Gorges area.

This month also saw the creation of the Lanzhou Water Supply Group Company in Gansu province, formed from the integration of six subsidiary companies of the former water supply company. The new group has total assets worth RMB514 million (US$62 million). Lanzhou is the second provincial capital after Nanning (Guangxi province) to integrate its water enterprises into a single corporation, while in other regions, integration has already taken place at the provincial level.

Wuhan Water Group, one of China’s largest water companies, is set to shrink its asset portfolio to raise fresh capital. It plans to sell off eight projects, including three water supply projects, two wastewater treatment projects and three subsidiary companies, hoping to raise RMB1 billion (US$120 million) to cover its capital shortage. So far, several big players including Veolia, Beijing Capital, Shenzhen Water Group and Hong Kong and China Gas (HCGC) have signaled their interest in the assets.

Business opportunities will be opening up in Liuzhou, in the southern Chinese region of Guangxi, where the World Bank has agreed a US$100 million loan to finance the development of a comprehensive wastewater collection and treatment system in the city. In line with the policy of the central government, the city will use the funds to raise its wastewater treatment level from the current 15% to 70% by 2010.

China’s water crisis is pushing its way up the political agenda after thousands of peasant farmers rioted in Zhejiang province in April against water pollution. Earlier this month cabinet minister Qiu Baoxing was reported in People’s Daily as warning that rising industrial pollution could leave some cities without water. “Limited water resources are threatened by pollution, and water safety in cities is facing severe challenges,\'” the deputy minister of construction said. The Zhejiang riot was sparked by police moving in to break up a protest against 13 chemical factories that had reportedly been poisoning nearby land.