Going naturally with the flow

On July 1 new standards for drinking water came into force in China, with the number of quality indicators rising to 106 from 35, almost on par with EU standards.

In response, Veolia invested about 20 million yuan in the renovation of its laboratories in Lanzhou to meet the new test standards, including those for sources, pipes and tap water.

"It is expected to be the best lab of Veolia in the world," Dourdin says.

Two years ago the company proposed adding a third pipe across the Yellow River, to supply water to the northern part of the city. The pipe went into operation in August, after floods had collapsed the river bank and destroyed an original pipe.

"A 100-meter-long pipe fell into the river, but the trial pipe has been opened and the company was able to recover the water service quickly," says Yao Xin, chairman of Lanzhou Water Supply Company, Veolia's partner.

"In some cities there are several companies. But there is only one that provides water for the whole of Lanzhou city."

Veolia has been active in China over the past few years. In March 2007 after the Lanzhou partnership deal, the company bought a 50 percent stake in Haikou Water Group for 950 million yuan and set up Haikou Veolia Water. In September that year it signed another full-service concession contract in Tianjin, with investment of 2.18 billion yuan.

Today Veolia has more than 30 contracts in 20 cities in China employing 13,000 people.

The major involvement of foreign companies in China's water supply market, however, has raised concerns about monopolization.

Fu Tao, director of Water Policy Research Center with Tsinghua University, says that foreign water companies are only responsible for about 10 percent of the total water supply capacity in China, and that their rapid expansion in the sector merely shows their confidence in it.

"They are optimistic about rising water prices, the strategic position of the cities they operate in and the talent pool," he says.

"They have not formed any monopoly in China's water supply market. What these companies value is not the return in the short term, but a steady cash flow generated in the long term through service."

Fu suggests that when choosing partners, local governments select companies that are ready for long-term cooperation, rather than those aiming at short-term financial returns.

However, concerns remain about rising water prices in Lanzhou.

Dourdin says that the price of water is a sensitive issue anywhere.

"The price of water will probably keep going up for the next decade because of increasing concerns over preservation of resources, not only in Lanzhou, but also in other areas of China. And better services, including improved water quality and water supply security, will be associated with rising prices."

He says the focus of the water industry should be on minimizing the need for price increases, with companies making sure every penny is well spent.

"What is important to see is the result. The key focus should be on delivering a good water service to citizens."

linjingcd@chinadaily.com.cn