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In this issue:

China
India
Malaysia
Philippines
Vietnam

China

• As China opens its doors with more favorable governmental policies to encourage investment, the world's largest and most capable water firms are flooding into China's US$120 billion market for water and sewage treatment services projects.

  The sector has drawn interest from Veolia Environnement, the world's top water firm, and Suez of France as well as Singapore's SembCorp Industries. Also joining the fray are companies such as Hong Kong-listed NWS Holdings and China Everbright International, as well as Shanghai Industrial Holdings and Tianjin Capital Environmental Protection.

  Supplying drinking water and treating sewage before it is discharged into rivers or the sea is not only a big business but also requires urgent investment as pollution spreads rapidly with the growing population. China has set an ambitious target of treating 45 percent of urban waste water and recycling 60 percent of industrial waste water by 2005. To achieve this goal, industry insiders estimate that China would need 10,000 new sewage treatment plants.

  As part of efforts to lure foreign technology, management expertise and capital, the central government earlier this year opened the utilities sector further, allowing overseas investors into water, gas and heat supply as well as public transport and sewage and refuse treatment. To speed up investment, the State Council has empowered local governments to grant franchises. This has led to a large number of awards for waste water treatment contracts and water concession contracts, which involve the supply of drinking water, billing and construction of pipelines.

• Shenzhen Water Group has signed an agreement with France-based Veolia Water, a world leader in water and wastewater services, to transfers its 45 percent of the French company to Veolia in exchange Veolia Water will inject US $390 million in capital into the group.

  With net assets of some 6 billion yuan (US $722.89 million), Shenzhen Water Group has five water plants and four wastewater treatment plants, and a daily water supply capacity of 1.67 million tons and a wastewater disposal capacity of 1.08 million tons. The deal is the largest property right purchase involving foreign investment in China this year as well as the largest water project purchase ever in China.

  The partnership will last 30 years. Veolia Water will be involved not only in water supply but also in a wastewater treatment system covering the whole city, the first system of this scale in China. The city aims to be treating 80 percent of its wastewater by 2005 and 90 percent by 2009; it aims at providing directly drinkable tap water by 2010.

  So far, Veolia Water has successfully won bids for eight water projects in China with a total investment of 600 million euros (US $744 million).

• NWS Holdings, the infrastructure flagship unit of New World Development, is in talks to invest in ten mainland water-treatment projects as part of its efforts to capitalize on the fast-growing mainland China water sector. The projects include building water treatment plants and pipelines, and supplying drinking water in the Yangtze River delta area and Fujian and Liaoning provinces. Each project involves a separate investment of about 150 million yuan.

  To expand further, the company recently invested 1.2 billion yuan in two chemical waste-treatment projects in Shanghai's Pudong district.

• InterChina Holdings Co Ltd intends to invest 200.00 million yuan (US $24.16 million) in a water treatment plant in Xianyang city, Shaanxi Province.

  It plans to set up a wholly-owned company specifically for the project with registered capital of 60.00 million yuan (US $7.25 million). The plant should be completed within two years and is expected to have a maximum capacity of 300,000 tons of water a day. Xianyang city government has committed to taking 60-80 percent of the plant's projected water capacity for the first three years immediately after operations commence.

• Brite-Tech Bhd signed a memorandum of understanding with the government of Xin Yi city in China's southern province of Guangdong to consider investment in utility firm Guangdong Xin Yi Kai Yuen Co Ltd and study the feasibility of a proposed sewerage treatment plant.

  Guangdong Xin has a water treatment plant with a capacity of 60,000 cubic meters and is supplying about 30,000 cubic meters of treated water to Xin Yi city daily. Guangdong Xin also has a 4,000-kilowatt hydroelectric power plant.

  The proposed sewerage treatment project involves building, operating and maintaining a plant in Xin Yi city with a daily treatment capacity of 30,000 tons.

  If the projects are viable, Brite-Tech is considering to invest directly in Guangdong Xin or through a joint venture.

India

• Bharat Heavy Electricals Limited ("Bhel") has been awarded a Rs. 36 crore (US$7.9 million) contract for a water management project in Chennai, India from the Chennai Metropolitan Water Supply and Sewerage Board ("Chennai"). The project includes designing, engineering, supplying, installing and commissioning of mechanical and electrical equipment, as well as the automating and completing the civil works of a sewage treatment plant with a capacity of 40 million liters per day at Nalsapakkam in Chennai.

  Slated for commissioning in 18 months, the project will help Chennai comply with pollution control norms set by the National River Conservation Directorate, before releasing treated water into the river.

  Bhel will also look after the operation and maintenance of the plant for ten years, post-commissioning. The sewage treatment plant will be self-sufficient and not depend on any electricity from the grid; it will be powered on its own and by biogas generated within the plant, resulting in cost-effective operations.

  In addition to its core business areas, Bhel has been exploring new areas to fuel future growth. The company has equipped itself for providing total solutions for water management systems including clear water pumping stations, lift irrigation schemes, desalination plants, water treatment plants, sewage treatment plants, and effluent treatment plants.

• The Asian Development Bank ("ADB") has approved a 25-year term loan of $200 million for the Urban Water Supply and Environmental Improvement project to improve and expand infrastructure and services for water supply, sanitation and sewerage in six of the largest cities in Madhya Pradesh, India.

  Coming from ADB's ordinary capital resources, the ADB loan will cover two-thirds of the project's US$ 303 million cost and include a five year grace period. The interest rate for this LIBOR-based loan facility will carry a floating lending rate that consists of a six-month LIBOR and a spread fixed over the life of the loan.

  The remaining project costs will be covered by UN-HABITAT, which will provide and administer parallel grant co-financing of US$0.5 million, the Government of Madhya Pradesh, which will contribute US$50.6 million, and the project cities, which will be responsible for the remaining US$52.4 million.

Malaysia

• Work on a RM313 million water treatment plant at Telibong in Sabah's Tamparuli District near the existing reservoir at Kampong Tambalugu, Tuaran, Malaysia began in November and is scheduled to be completed in May 2006. The Telibong plant will include the construction of three balancing/service reservoirs with a total capacity of 40 million liters; 45km of mild steel pipelines ranging in dimension from 450mm to 1500mm; a treatment plant with a capacity of 80 million liters of treated water daily; and an intake and raw water pumping station with a capacity of 135 million liters per day.
• Puncak Niaga Holdings Bhd was awarded a contract estimated worth RM1 billion to operate the water supply system for Selangor and the Federal Territory in the first privatization project of its kind in Malaysia.

  The project, which will include the supply and replacement of water pipes, will be undertaken by Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), which is controlled by Puncak Niaga executive chairman Tan Sri Rozali Ismail and his brother Mat Hairi through their respective companies, Central Plus (M) Sdn Bhd and Corporate Line (M) Sdn Bhd. Central Plus owns 69.9 percent and Corporate Line 30 percent of Syabas.

  For the purpose of the water supply privatization scheme, Syabas will be injected into Puncak Niaga. This will be effected through the acquisition by Puncak Niaga of 700,000 shares of RM1 each in Syabas from Central Plus for RM38 million.

  The shares represent 70 percent of the equity interest in Syabas. The balance 30 percent will be purchased by the Selangor government, while the federal government will hold one "Golden share" in Sysbase.

  As part of the privatization scheme, the federal government will also provide financial assistance of RM2.9 billion to Syabas. The money will go towards meeting Syabas' working capital requirements, repayment of trade receivables owed by the Selangor government to three water treatment companies, and financing capital works.

• Zecon Engineering Bhd has signed a water supply contract agreement with NS Water Consortium Sdn Bhd for the exclusive right to design, construct, engineer, supply and commission the infrastructure related to the water distribution system in southern Negeri Sembilan state worth over US$1 billion.

  NS Water is negotiating and finalizing a concession agreement with Negeri Sembilan to privatize the state's water authority to manage and supply treated water to consumers in Negeri Sembilan. The contract was awarded to Zecon subject to the final approval from the State Government.

• Road Builder (M) Bhd Holdings Bhd, a leading local construction company together with Japanese partners Shimizu Corporation and Hitachi Plant Engineering & Construction Co Ltd, have been awarded a RM978 million ($257 million) contract to upgrade Klang Valley's sewerage system.

  The contract from the Housing and Local Government Ministry calls for the construction and completion of five sewage treatment plants, central sludge treatment facilities and sewerage networks. The project is believed to be funded through the Miyazawa Initiative, which provides Japanese funding through the Japan Bank for International Cooperation (JBIC) for strategic infrastructure projects in Malaysia.

Philippines

• The Metro Iloilo Water District ("MIWD") plans to implement a P200 million (US$3.6 million) expansion project that will cover five municipalities in the province of Iloilo and funded by the Asian Development Bank through the Local Waterworks and Utilities Administration ("LWUA"). The LWUA officials will forego requiring local government units to provide any collateral for the project; however, the project management team is welcoming donations of any existing water works system to connect to the main pipes.

  The water source will be the Maasin River which will pass through the filtration station in Sta. Barbara, Iloilo. It is expected that after the water expansion project, safe and potable water from MIWD will cost consumers 32 centavos per water container.

  Metro Manila residents of Mandaluyong City, Pasig City, Pateros, San Juan, Taguig City, and portions of Makati, Manila, Marikina, Quezon City and Rizal connected with the Manila Water Company Inc. ("MWCI") started paying an additional P5.23 (US$ 0.09478) per month for water in October 2003.

  The rate adjustment was due to the weakening of the peso against the dollar during the third quarter. Water concessionaires in Manila are allowed to adjust their rates quarterly, using the foreign currency differential adjustment mechanism, based on the strength or weakness of the peso against the dollar. Using the foreign currency differential adjustment mechanism, Manila Water is trying to recover losses it incurred with the upsurge of the exchange rate on the US$90 million dollar-denominated debt it inherited from the former Metropolitan Waterworks and Sewerage System

  During the third quarter, the dollar shot up to P54.99 and overshot the company's projection of P51.86 per dollar. Based on the MWCI pricing structure, 70 percent of Manila Water customers who consume an average of 30 cubic meters per month will pay an additional 18 centavos (US$0.003262) per day. This will bring their monthly bill from roughly P231 to P226.

• A P101 million (US $2 million) water treatment plant with five purifying stages is being constructed in Abuyog, Philippines to improve the quality of water and make it suitable for drinking.

  The Japan International Cooperation Agency ("JICA") is financing the project which will address the long-standing problem of dirty water and allow the local water district to expand its customer base and supply potable water from the current 718 to 2,500 - 3,000 households.

  The project will be completed early next year. The JICA financial assistance was made possible through coordination with the Local Water Utilities Administration.

Vietnam

• The Ho Chi Mihn city government ("HCMC") has agreed to appoint a consultant for the idle Thu Duc Water Treatment Plant project to help the city find the most capable developer for the US $145-million water plant project, which would have supplied 300,000 cubic meters a day but was abandoned by Lyonnaise Vietnam Water Co. ("LVWC") in February 2003.

  The consultant will have to prepare the documents and procedures for a tender scheduled to select a developer to complete the water plant project and will be granted 30 days to prepare bidding procedures and documents and propose the investor's water price and the roadmap for the city to cover the pricing difference.

  The city government is looking for a prestigious and capable consulting company and will be choosing from among the Vietnam Construction Consultants, Vietnam Consultant on Water Supply, Sanitation and Environment, and Mai Hanh Construction Consulting Co.

  Since the withdrawal of LVWC, HCMC has insisted on choosing a domestic developer for the project. LVWC was licensed in December in 1997 to carry out the water plant project under the build-operate-transfer form; however, the firm had to pull out of the project due to financial difficulties facing its parent company Suez Lyonnaise des Eaux in France.

  The city government anticipates that it will take five months to complete the bidding documents, selection and obtain Government approval for a new developer to replace LVWC. Therefore, work on the project, previously scheduled for completion in late 2003, will not be finalized until 2005.

• Authorities in Vietnam's Ho Chi Mihn City have agreed to allow the Kenh Dong Shareholding Water Supply Company to carry out the construction of the Kenh Dong water plant that will supply outlying area of the city after 2007. The project aims to serve as a backup supply source to increase the clean water supply to 900,000 cubic meters per day when the Thu Duc water plant and the Saigon River water supply project are up and running

  Kenh Dong Canal water, traditionally, has been being used to irrigate 15,000 hectares of agricultural land in Cu Chi, but farming land there is dwindling as 4,000 hectares of agricultural land has now become industrial land.

  Kenh Dong Canal can supply 1.6 million cubic meters a day. This is 500,000 cubic meters more than is required for the irrigation of the surrounding agricultural land, and the government officials believe it could be fully utilized by the city by sending an additional 300,000 to 350,000 cubic meters during the dry season.

  Kenh Dong will have to submit the pre-feasibility study to the Government for approval as this project has not been included in the central government's list of water projects to 2010.

• The Japan Bank for International Cooperation ("JPIC") has expressed interest in financing a project to treat wastewater in the southern province of Dong Nai, Vietnam.

  JPIC is keen on sewage treatment in Bien Hoa, but according to Japan's Water Research Company, the province has not submitted the project to the Ministry of Planning and Investment so it is difficult for JPIC to pledge financial assistance.

  The project, which will have a daily sewage treatment capacity of 140,000 cubic meters, will get off the ground in 2005 or 2006 if it is added to the central government's list of priority projects.

• To protect the environment and its natural resources, Da Nang city is looking for US$10 million to treat industrial waste in the Hoa Khanh Industrial Zone, a total land area of 423.5 ha. which is 10 km from Da Nang international airport, 20 km from Tien Sa seaport, 13 km from Song Han riverport, and 5 km from Lien Chieu seaport.

  The city will arrange for other incentives to cover low corporate income tax and low-interest government loans. Additionally, the city will arrange for a 30 percent contribution and has pledged to issue proper regulations on waste management and fee collection as well as share risks with investors of these projects.

  The pre-feasibility studies envisage that the projects will have the internal rate of return of 15 percent for their licensed period and will require eight years to break-even.

  The projects are part of a major national project funded by Programme on Building Partnerships in Environmental Management for the Seas of East Asia and the Global Environment Facility through the United Nations Development Programme, and the International Maritime Organization. The objective of the project is to demonstrate coastal management on wastewater treatment, rainwater drainage and industrial and harmful waste matters.