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Management guru Peter Drucker said in the early 1990s: "In 10-15 years, organizations may be outsourcing all work that is 'supportive' rather than revenue-producing."

The current trend of industrial wastewater treatment in China would bear him out.

A rising number of large-scale enterprises in China are outsourcing wastewater treatment to professional contractors to concentrate on their core businesses, and most importantly, to meet stringent government requirements on curbing industrial water pollution.

"That is exactly what we are looking for. It means huge business opportunities for professional wastewater treatment companies like us," says Huang Xiaojun, vice-president of Veolia Water China.

The French water service company recently signed a partnership contract with a subsidiary of China Petroleum & Chemical Corp (Sinopec), China's largest oil refiner. Under the 25-year agreement, Veolia Water and Sinopec Beijing Yanshan Petrochemical Corp will set up a 50-50 joint venture to operate facilities to collect, treat and recycle industrial wastewater at Sinopec Yanshan, which is located 50 kilometres southwest of Beijing.

"The partnership represents a significant step in strengthening Veolia Water's business portfolio, in parallel with the municipal business that has grown strongly over the past three years," says Antoine Frerot, the company's chief executive officer.

Sinopec Yanshan is Veolia Water's second corporate customer since it entered China in 1997 it signed a 15-year outsourcing contract in 2003 to manage the entire water system at Michelin's tyre manufacturing plant in Shanghai. It currently has 16 municipal water deals.

"Over the years, we have been concentrating on municipal projects in China. Developing more corporate customers in the country will be the next business focus," Huang says.

Growing trend

There are others who have the same focus.

Siemens Industrial Solutions and Services Group, which set up a wastewater treatment division in China last year, is reportedly in talks with Wuhan Iron & Steel Group and Shanghai Baosteel Group Corp two leading steel companies to manage wastewater treatment.

Large refining, micro-electronics, auto and even food producers are potential industrial customers.

Yili Group, one of China's largest dairy producers, plans to outsource even though it has the most advanced wastewater treatment facilities in the country's food industry.

"We plan to outsource this job to a professional wastewater treatment service provider and will soon hold bidding for the project," says Zhang Jianqiu, assistant to the president of Yili Group.

"Our core business is making dairy products. There should be somebody who is much more professional than us to handle wastewater treatment."

His company produces 2,000 tons of wastewater every day but its facilities at Yili, worth nearly 20 million yuan (US$2.5 million), can treat 10,000 tons of wastewater daily.

Analysts say the outsourcing trend for wastewater treatment represents "progress" in the nation's decades-old struggle to curb water pollution.

"It is the right direction," says Fu Tao, director of the Water Policy Research Centre at Tsinghua University.

"The government used to be the only supervisor for industrial wastewater treatment, which often led to low efficiency. But now, the companies themselves can become supervisors when they entrust the job to a contractor."

Industrial enterprises in China used to build and operate their own wastewater treatment facilities "but now companies can turn over the entire process designing, building and operation to an independent, specialist firm. The benefits are lower costs and higher efficiency," Fu says.

Water shortages and pollution are two pressing problems China faces as its economy developers.

"The next 15 years would be a critical period for urbanization and industrialization," Fu says. "China could face serious environmental pollution if no effective measures are taken."

Curbing water pollution is one of the major projects in the 11th Five-Year (2006-10) Guidelines for National Economic and Social Development. By 2010, 70 per cent of China's urban wastewater should be treated, up from the current 45 per cent, the plan says.

The State Council, China's cabinet, issued a document in December 2005 to enhance the nation's environmental protection efforts, which reflects the government's resolve to establish a market mechanism in the wastewater treatment sector.

A highlight of the document is encouragement for industrial enterprises to outsource their wastewater treatment to professional contractors through bidding and tighter supervision.

The document also says that the price of wastewater processing should be raised to ensure water service providers can "break even and make a small profit."

Financial allocations by local governments should be available in areas where wastewater treatment charges are too low.

"Environmental protection should not be just a government campaign," says Jin Yongxiang, general manager of Dayue Consulting, which specializes in the public sector.

"The entry of more private investment could bring vigour and efficiency," Jin says.

New template

The treatment facilities at Yanshan consist of four wastewater treatment plants with a total daily capacity of 129,000 cubic metres and two recycling units that will re-inject water into the manufacturing cycle with a total daily capacity of 40,000 cubic metres. They will treat water from the refinery and the six petrochemical units that make up the Yanshan industrial complex, as well as the domestic wastewater from the site.

According to the agreement, Sinopec Yanshan provides the land and the facilities while Veolia Water invests money equivalent to the value of the land and the facilities, for further technology upgrades and operation.

"A common problem with most State-owned enterprises is that we are big, but not strong, because we cover too many businesses. In order to become a strong competitor in the international market, we must concentrate on the core business," says Xu Chuanhai, director of Sinopec Yanshan's environmental protection department.

Sinopec Yanshan's wastewater treatment facilities used to be operated by a department within the company. The department, where more than 400 people worked, collected fees for wastewater treatment from each different petrochemical unit within the company.

"To the general manager of Sinopec Yanshan, it was like taking money out of his left pocket and putting in the right," Xu says.

The new joint venture with Veolia Water is an independent company, however. This means that petrochemical units will be forced to reduce their wastewater discharge if they want to pay the joint venture less money for wastewater treatment, Xu says.

And the joint venture, in order to increase its income, will try to improve its efficiency by using modern technology and management.

The joint venture could also earn more money by using the extra capacity of wastewater treatment facilities at the Yanshan industrial complex, Xu says.

"It could serve small clients around that area by using that extra capacity. In this way, idle equipment won't be wasted," Xu says.

Veolia Water estimates that the joint venture will be able to generate annual revenues of 580 million euros (US$691 million).

(China Daily 03/20/2006 page1)