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Vivendi, Suez tap Asia's demand for clean water

"By the sheer size of the market, Asia will be much more important, and there it's mainly China."

Hans Peter Portner, a manager at Pictet & Cie

Li Wenzhang and Chen Mei, who have lived in their two-room Shanghai apartment for half a century, still share two toilets and a primitive kitchen with three other families. The next generation won't do that.

"People are starting to take modern amenities for granted," said Li, a retired government official and one of more than 1.5 billion Asians the Asian Development Bank says lack adequate sanitation and drinking water. "My children both bought nice apartments with modern Western-style kitchens and toilets."

Companies such as Vivendi Environnement SA, Suez SA and ABB Ltd say surging demand for clean water from the region's growing middle classes offers a chance to gain. At Vivendi, the world's largest water company, Asian sales doubled last year to 600 million euros (US$647 million) and that growth is set to continue, Chief Executive Officer Henri Proglio said in Tokyo last week.

"You've got the money and motivation to pay for it," said Peter Read, a director at Fusion Consulting in Singapore, which advises companies on strategy and business development in Asia. "That can only mean opportunities for water companies."

More than 5 million people die each year from water-related diseases, including 3 million children under five, the UN says. Diarrhea alone costs more than US$6 billion a year in lost wages and production value, according to Caroline Sullivan of the UK's Center for Ecology & Hydrology.

That cost is helping drive water up the political agenda. At the World Water Forum in Kyoto, Japan, this week, governments, non-governmental organizations and some of the world's biggest water companies will discuss such issues.

Among those taking part are Vivendi's Proglio, Gerard Payen, senior executive vice president for Suez, the world's second-largest water company, and Bill Alexander, chief executive officer at their next biggest rival, Thames Water Plc.

China, with its 1.3 billion people, rapidly growing cities and burgeoning middle class, is the biggest draw for water companies, along with India and the developed economies of Hong Kong, Taiwan, South Korea and Singapore. The Philippines, Indonesia and other less-developed countries are hampered by volatile currencies and unpredictable governments, analysts say.

"By the sheer size of the market, Asia will be much more important, and there it's mainly China,'' said Hans Peter Portner, who manages about 230 million euros of stock in water utilities for Pictet & Cie.

"It's an emerging business for Suez or Vivendi."

Suez, which supplies more than 125 million people, estimates developing nations need to spend US$180 billion annually to halve the number of those without safe water. While Asian sales accounted for just 5 percent of 42.3 billion euros in revenue in 2001, they rose almost a third from the previous year.

Last year, Suez signed three contracts in China with a value of more than a billion euros. In May it won a 25-year contract to supply drinking water to 2.3 million residents of eastern Qingdao as well as a contract to rebuild two Shanghai treatment plants. In March it signed a 600 million euro contract with Shanghai Chemical Industrial Park, the biggest industrial water contract in China.

"China invests US$25 billion annually in developing urban infrastructure, but domestic financing cannot provide enough capital to construct and develop urban wastewater systems," said Luan Greenwood, a Paris-based spokeswoman for Suez.

Vivendi paid US$246 million for a half stake in a treatment plant last year in Pudong, Shanghai's financial center, with a 50-year contract to supply the city with water. The plant supplies 1.9 million consumers and the company expects this number to rise to 5 million by 2010, spokeswoman Samantha Bowles said.

Vivendi expects the urban population of China alone to increase by 150 million over the next 10 years.

It's Asia's wealthier urban population that is driving demand for clean water and sewerage systems in their push for better living standards, says Fusion's Read. Disposable income in Shanghai, China's biggest city, rose more than sixfold in the past 12 years to 13,250 yuan (US$1,600), government figures show.
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