2008-07-09 15:03:05 - Local authorities in China are granting franchises to professional business partners in the areas of both drinking water supplies and sewage treatment. Long-term operator models are an opportunity for international companies to enter into business in the Peoples' Republic. There will be an opportunity to explore this further at the environmental trade fair IFAT CHINA, which takes place from 23 to 25 September 2008 at the Shanghai New International Expo Centre.

In the eleventh Five-Year Program of the Peoples' Republic of China investment needs in the water sector between 2006 and 2010 are put at the equivalent of around 95 billion euros. This is divided equally between improving the quality of water resources, water supply and sewage treatment. The Chinese government plans to finance a maximum of half this amount itself,

the rest is to come from private investors.

Given this background, the concept of public private partnerships (PPPs) has grown in significance in recent years. A PPP is a long-term contractual relationship between public authorities and private industry, and it can take many forms. In China's water and sewage sector, operator models are in demand. In most cases these are either BOT (build, operate, transfer) or TOT (transfer, operate, transfer) projects.

In the case of BOT projects, the private sector does the development work, provides the finance, and sets up and runs the installations, while ownership remains in the hands of the Chinese state. The initial investment is recouped and profits generated through levying charges.

In a TOT project the investor pays the authority responsible for the operation of an existing plant a certain sum of money, in order to be able to operate the plant for a contractually stipulated period of time. As with BOT, the (water and sewage) charges levied pay for the project.

The market leaders, the French water groups Veolia Water and Suez, are engaged at present in China, and Berlinwasser also has three operator projects in the country. The German company, for example, has built a sewage plant in Nanchang, capital of the province Jiangxi in the southeast of China, as part of a BOT contract. The plant, which went into service in 2004, treats sewage from around one million people. The investment volume was 30 million euros, and the contract term is 20 years.

In the same year the Berlin-based company bought and improved a sewage-treatment plant in Hefei, capital of the eastern Chinese province Anhui, via a project company on the TOT model. The contract gives the German company and its partners the right to operate the plant for 23 years.

The equity return on BOT and TOT projects in China is, according to Berlinwasser, between 13 and 17 percent, which is average for the market. "Key requirements for successful operator projects are the relationship built up with the Chinese side, how well known the brand is, and of course the result of the tender," explains Berlinwasser spokesman André Beck. "BOT and TOT projects in China are generally offered for tender. What counts are price, quality, a long-term involvement in the project, and the fulfillment of extensive further requirements, among them the readiness to provide training and know-how."

In addition to the operators, BOT projects also offer international technology and component suppliers a chance of entering into business. Berlinwasser International, for example, supplied German technology for the sewage plant in Nanchang, in the form of the most important components.

According to the Bundesagentur für Außenwirtschaft (German Office for Foreign Trade, Cologne) it is not only the major water companies that have been setting their sights on the sewage sector in China, Chinese and international funds have also turned their attention in this direction. And for their BOT projects, they are bringing technology suppliers and operators on board. This structure could generate new openings for smaller suppliers of technology, companies that so far have not managed to get into similar projects, because of a lack of financial muscle.

China expert Volker Karl from the KfW Entwicklungsbank (Frankfurt am Main) does not share this view: "So far in my activities in the Peoples' Republic of China I have come across no truly serious funds, so I doubt that the water and sewage business in China will bring the yields the funds demand." In his opinion international engineering firms, on the other hand, do have good opportunities on the market in China, even outside the large, long-term PPP projects. Above all, when they are prepared, for example, not only to build sewage plants, but also to run them for a few months. "The Chinese cannot at the moment come up with the trained personnel fast enough to keep up with the speed these plants are being completed. Companies that offer support in this way in the initial phases of operation will have a clear advantage in the bidding," explained Volker Karl.

Taking place in parallel with IFAT CHINA 2008 in Halls E4 and E5 at the Shanghai New International Expo Centre is the fourth analytica China, International Trade Fair for Analysis, Biotechnology, Diagnostics, Laboratory Technology and Services.
For further information on this, go to: www.analyticachina.com/

About IFAT CHINA
IFAT CHINA is a comprehensive trade fair for practical solutions in the areas of water supply, sewage treatment, waste disposal, recycling, air pollution control, environmental technology and more environmentally compatible energy sources in Asia. The trade fair is international in character and is accompanied by a supporting program for the trade. IFAT CHINA 2006 had 284 exhibitors from 25 countries and approx. 10,000 visitors from 66 countries. The 3rd International Trade Fair for Water, Sewage, Refuse, Recycling and Natural Energy Sources is taking place at the Shanghai New International Expo Centre (SNIEC) in China from 23 - 25 September 2008.

About Messe München International (MMI)
Messe München International (MMI) is one of the world's leading trade-fair organizations with approximately 40 trade fairs for investment goods, consumer goods and new technologies. More than 30,000 exhibitors from more than 100 countries, and over two million visitors from more than 200 countries take part each year in the trade fairs in Munich. In addition, MMI organizes trade fairs in Asia, Russia, the Middle East and South America. With five foreign affiliated companies in Europe and Asia as well as 66 foreign representatives covering 89 countries, MMI has a global network.

Additional information is available at www.ifat-china.com