On May 7, France-based Suez Environment S.A. (Suez Environment) once again reached cooperation with Chongqing Water Holding (Group) Co., Ltd (Chongqing Water). The two companies will found a new joint venture specialized in supplying water conditioning services for the Changshou Chemical Park in Chongqing.

This is the second large project of Suez Environment specialized in industrial water conditioning. It is said that Germany-based BASF Group, a regular customer of Suez Environment, also plans to locate its MDI project in this Chemical Park.

Charles Chaumin, CEO of Suez Environment Asia, said in the signing ceremony that the project in Changshou Chemical Park is the second joint venture with Chonqging Water after their first cooperation in 2002.

The Cooperation

As introduced by the insider from Suez Environment, its subsidiary company – Sino French Water – will play the main role in founding the new company with Chongqing Water. The contract term is 30 years and the term will be extended by another 20 years if the cooperation sees positive results.

“Sino French Water and Chongqing Water will respectively hold 45% of the shares of the new company, with another 10% shares held by the Changshou Chemical Park. Suez Environment has invested 250 million yuan (USD 36.6 million) in this project,” said Chaumin.

The Changshou Chemical Park in Chongqing is one of major bases for chemical industry and new energy in West China. By now, the Park has developed into a comprehensive industrial park with gas processing, petroleum refinery, biological engineering and new materials. The new joint venture between Sino French Water and Chongqing Water will provide the services of industrial water production, transmission and waste water collection and conditioning.

The cooperation between Suez Environment and Chongqing Water can date back to 2002, in which the reform to China’s water supply market just began. The first project of the two companies’ cooperation is Chongqing Sino French Water Supply Co., Ltd, of which 60% shares belong to Suez Environment and 40% to Chongqing Water.

Five years later, the two companies established a subsidiary company – Chongqing Sino French Tangjiatuo Waste Water Disposal Co., Ltd, whose shares are halved by the cooperators. In 2008, Suez Environment and a Hong Kong-based investment company contributed 1.6 billion yuan (USD 234.3 million) to acquire 15% shares of Chongqing Water.

Chaumin said that the project in Changshou Chemical Park is partially due to the potential of West China as well as BASF Group’s MDI project in this Park.

“The new joint venture is a prequel for BASF Group’s project in Chongqiang,” said Cui Jian, director of Chongqing State-owned Assets Supervision and Administration Committee.

BASF Group has been a loyal customer to Suez Environment for a long time. Previously, its MDI project in Chongqing failed to get the approval due to the environmental issues.

The Long-term Strategy

“Our investments in Chongqing and the whole China are all based on long and careful consideration,” said Chaumin. During his talk about the new joint venture, Chaumin always stressed the word “long-term”.

After signing the contract on the new joint venture, the think tanks of Suez Environment held several meetings both in Chongqing and France. The think tank, which is called “Foresight Consultancy Committee”, consists of 25 independent specialists in the world. Their main task is to discuss and evaluate the issues of Suez Environment’s strategy, research and innovation.

Now this think tank is entrusted with the task of reviewing the investment in Chongqing and studying the company’s coordinated development in China.

The appeal of China’s market for Suez Environment tallies with the huge profit space it features. In 2006, some experts forecasted the total investment of China in water administration will reach 150 billion US dollars in the next ten years. Presently the concept of “low-carbon economy” prevails and each local government in China attaches more and more importance to the environment protection. Therefore, the international water giants began to war for satisfactory market share in China. Their business ranges are expanded from simple water supply and discharge to industrial water conditioning.

Presently, Suez Environment’s projects can be seen everywhere in China. From northernmost Changtu, Liaoning to southernmost Sanya, Hainan, from easternmost Shanghai to westernmost Chongqing, the company has established 25 projects in 19 Chinese cities. More than 14 million Chinese people can enjoy the service from this well-established French water company. Its main rival Veolia Environment, another water giant from France, also has 21 projects established in 19 Chinese cities including Tianjin, Shanghai, Beijing, Chengdu and so on. Its service targets at 30 million people.

According to the data from the National Bureau of Statistics, the most profitable industry for foreign investors in China is the water supply whose return on investment is 24.8%.

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Suez Environment belongs to Suez Environment & Energy Group, which is one of the first foreign public utility corporation getting into China’ s water market. Its business covers water and waste material disposal. Its main subsidiary companies in China include Sino French Holdings, Sino French Water and so on. The company saw the operating income of 866 million euros in China in 2009.

Published for China Business Focus on July 27, 2010.