In a move that appears to signal the increasingly open attitude of local government in China towards private sector participation in the municipal water and wastewater industry, the contract for the operation of the Shanghai Zhuyuan No 1 Sewage Treatment Factory was signed on 5th June.
A local company (Shanghai-based Youlian Enterprise Development Company), together with two other private companies, will invest 870 million yuan ($105 million). The project will also aim to raise Zhuyuan's daily treatment capacity to 1.7 million tonnes within the 20-year contractual period.
To date, the Chinese water industry has traditionally been monopolised by Chinese state-owned companies, with few opportunities for private companies and/or foreign enterprises beyond the supply of technologies and infrastructure. However, such a large contract as this may suggest the liberalisation of attitudes towards the private sector.
The award comes at a time that heavy investment is needed in the Chinese wastewater treatment system and several of the relevant public sector bodies are facing financial difficulties. The key driver behind the privatisation therefore appears to be the attraction of private sector capital.
Furthermore, local sources claim that the winning tender was considerably lower than the local market cost for urban sewage treatment. This clearly demonstrates the private investors' confidence in the log term profitability of the venture, as well as perhaps hinting at further private sector opportunities. (Source: frost.com / 12 June, 2002)
John Raspin (Research Manager, Environment Group, Europe)
