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Cablegate: Sw China's Dirty Water: Western Water Group Briefs Cg

VZCZCXRO9455
RR RUEHAST RUEHDH RUEHGH RUEHHM RUEHLN RUEHMA RUEHPB RUEHPOD RUEHSL
RUEHTM RUEHTRO RUEHVC
DE RUEHCN #0162/01 2360912
ZNR UUUUU ZZH
R 240912Z AUG 09
FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC 3355
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUEHFR/AMEMBASSY PARIS 0011
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF INTERIOR WASHINGTON DC
RUEAEPA/EPA WASHINGTON DC
RUEHCN/AMCONSUL CHENGDU 4031

UNCLAS SECTION 01 OF 02 CHENGDU 000162

SENSITIVE
SIPDIS

DEPARTMENT FOR EAP/CM, OES

E.O. 12958: N/A
TAGS: EINV ETRD SENV TBIO PREL CH
SUBJECT: SW CHINA'S DIRTY WATER: WESTERN WATER GROUP BRIEFS CG

REF: 07 BEIJING 002454

CHENGDU 00000162 001.2 OF 002


1. (U) This cable contains business confidential information,
not for distribution on the Internet.

2. (SBU) Summary: U.S.-based Western Water Group (WWG) confirmed
to CG that China lags behind its own goals for wastewater
treatment. While WWG has been quite successful in winning
contracts to build new plants, many local governments fail to
build the necessary water pipe systems to which the plants can
connect, resulting in plants running at low capacity or being
fully stopped. Competition from other firms is intense,
particularly from the French, but pressure for bribes has been
nonexistent in WWG's experience. End Summary.

3. (SBU) Representatives of U.S.-based Western Water Group (WWG)
and parent company Han's Technologies briefed CG and PolEconOff
August 12 in Kunming (Yunnan Province) on WWG's experience
building wastewater treatment and water treatment plants in
Southwest China. Established in 2002 in Guizhou Province as a
wholly-owned subsidiary of Oakland CA-based Han's Technologies,
WWG invests in and operates municipal wastewater treatment
plants and water treatment plants using both
build-operate-transfer (BOT) and transfer-operate-transfer (TOT)
business models. In Southwest China, WWG currently has 10 BOT
contracts signed in Guizhou and Yunnan Provinces, as well as
eight additional projects in Sichuan and Yunnan currently under
negotiation. (Note: WWG also currently has six signed contracts
in Zhejiang, Jiangsu, and Fujian Provinces. TOT is where an
investor buys property and operational rights of a facility,
receives returns through normal business operations within a
concession period, and then transfers the facility back to its
original owner for no cost at the end of the concession period.
End Note.)

China Short of Wastewater Treatment Goals

-----------------------------------------

4. (SBU) According to WWG, a longer-term goal of the central
government is to have 50-60 percent coverage for wastewater
treatment facilities throughout China, with 100 percent coverage
in cities and 40 percent in rural areas. The Ministry of
Construction, as part of China's 11th Five-Year Plan, required
that by 2010 the municipal wastewater treatment rate should not
be lower than 70 percent, and all cities and counties should
establish or plan to establish centralized wastewater treatment
facilities. Reftel notes that, according to "official
statistics," only 55 percent of wastewater was being treated as
of 2007. Yunnan Province's 2008-2012 plan for expanding and
building wastewater treatment plants foresees spending 21.3
billion RMB on 248 projects, according to a May 2009 Kunming
news report.

Have Treatment Plants, Need Water Pipes

---------------------------------------

5. (SBU) While WWG has been successful in winning bids to build
wastewater treatment plants, the projects face a critical
difficulty in that many Chinese cities are slow to build piping
systems. With no water system to connect to, many of WWG's
plants are operating at only 30-40 percent capacity, and some
are not operational at all. Local governments often want
companies building wastewater treatment plants to build the
city's pipe systems as well, but "no investor will touch pipes,"
WWG said. While WWG encourages local governments to fulfill
their contractual commitments, some local governments have been
compelled to buy back the WWG plants earlier than anticipated in
the original contracts, e.g. because they failed to build the
needed piping systems and thus have no billing revenues. WWG
attempts to be lenient, sometimes agreeing to alter contracts
when local governments cannot hold up their end in the near

CHENGDU 00000162 002.2 OF 002


term. "WWG has to make money, but doesn't have to make money
now," reps said.

Heated Competition, Particularly French

---------------------------------------

6. (SBU) WWG reported that they face 10-15 competitors in each
plant negotiation, including both local and international
companies. They made special mention of French competition,
particularly Veolia, with French competitors receiving
substantial support from the French Government. According to
WWG, Veolia tends to overpay on the price of contracts in order
to secure them, and then later raises water tariffs to cover the
loss - often significantly more than originally "anticipated."
As local officials tend not to be in power more than four years,
WWG said, they are not concerned whether water tariffs will be
raised later.

No Pressure for Bribery

-----------------------

7. (SBU) WWG claimed that they have never been asked by local
officials for bribes, or to engage in corrupt practices. Some
WWG projects have involved local officials who then were
detained for corruption in later deals, WWG reps said, but
subsequent investigations into these officials' previous
dealings have always exonerated WWG. In order to insulate
itself from claims of being involved with corrupt officials in
the future, WWG is lobbying in Guiyang (Guizhou Province) for
more oversight by the Communist Party's anti-bribery committees.
(Note: these disciplinary committees investigate high-level
officials and, as Party bodies, do not go through the normal
system of prosecutors under the Ministry of Justice. End Note.)
BROWN

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