Given the critical importance of water to China, the government has made Clean Water a major priority, including investing in wastewater treatment, improving water efficiency, and ensuring adequate water supply.
Water pollution and scarcity due to weak enforcement, drought and over-use are some of the biggest problems facing China today. In 2009, 270 million people in rural China had no access to safe drinking water and more than 4.5 million people were short of water in northern China due to the severe drought. The government is responding to these problems with new policies and major investment projects: China has tripled the number of municipal wastewater plants, initiated the controversial South-to-North diversion project, and planned desalination projects near urban areas. Between 2010 and 2020, RMB 4 trillion (US$ 615 billion) will be invested in water infrastructure improvements. Better enforcement of existing water laws and new regulations to increase efficiency are also government priorities, but the scale of the problem is so large that even these laudable policies will not suffice.
The China Greentech Initiative developed three in-depth Opportunity Assessments for the Clean Water sector in 2010:
- Private Sector Opportunities in the Municipal Wastewater Treatment Market
As China shifts investment in wastewater treatment to lower-tier cities in the South and Southwest, opportunities exist for private participation in build-operate-transfer (BOT) and operation and maintenance (O&M) models, though low cost solutions and inefficient operation remain the norm.
China has rapidly boosted municipal wastewater treatment rates since 2007. The urban wastewater treatment ratio steadily grew from 34% in 2000 to 70% in 2010. Pricing is still set locally, with no obvious national trends. Private participation can bring needed expertise to the sector, which is plagued by inefficient public operation, but most regions still focus on low-cost solutions. BOT and O&M models are the most promising areas for private sector involvement.
- Private Sector Participation in Water Utilities
Despite market reforms and willingness of private domestic and foreign companies to participate in China’s water sector, implementation proves to be a challenge. The private sector has only contributed 10-20% of recent water infrastructure financing.
Though many private companies have formed partnerships with local water utilities, just 10% of sector investment in 2008 came from the private sector. Only a few regions support such investment, while others strongly oppose private involvement. Wastewater treatment is the main area of participation, as opposed to water supply. Public-private partnerships (PPPs) have had mixed results, with private investors facing multiple problems including limited market knowledge, scarce financing, intense competition and demanding municipal customers.
- Wastewater Treatment Plant Lifecycle Cost and Profit Analysis
Municipal wastewater treatment plants have grown rapidly in China, but often at the expense of operational efficiency. Build-operate-transfer (BOT) contracts lead to higher operating efficiency and better long-term performance.
BOT municipal wastewater treatment plants appear to have lower operating costs and higher net profits than alternative investment models. Investors have generally only agreed to BOT contracts where they were able to negotiate favorable revenue terms and ensure profitable long-term operational performance versus public-operated plants. Electricity is the largest area with operations improvement potential: BOT plants use up to 50% less electricity than other types of plants. Other revenue and cost improvement opportunities can also be pursued to improve plant performance.