Suez Sees Water Fuelling Investment Boom
Date: 20-Mar-08
Country: PARIS
Author: Marie Maitre and Benjamin Mallet
"We are at the onset of a revolution," Suez Environnement Chief Executive Jean-Louis Chaussade told Reuters on the eve of Mar. 20 United Nations' World Water Day.
"All the issues linked to global warming, water resources, the increase in population, mean that businesses linked to water will continue to develop in a favourable way for us as our businesses are at the core of these global upheavals."
About a fifth of humanity lacks access to safe drinking water, according to United Nations data, while 44 percent of the world's population live in areas affected by high water stress, and this figure is expected to increase to 47 percent by 2030.
This means growing needs for facilities to supply water and treat waste, so as not to pollute existing water reserves, Chaussade said, noting these needs exist in both emerging countries and more developed water markets such as Europe.
"Europe will continue to provide growth opportunities," Chaussade said, citing rising water quality standards or the need to improve distribution networks to reduce water loss.
Suez Environnement, the environment arm of French utility group Suez, makes about 80 percent of its revenues in Europe.
The unit, the world's second biggest water player after French arch-rival Veolia, generated global sales of 12 billion euros ($18.9 billion) in 2007.
Suez Environment will be spun off through a market listing later this year, as part of a planned merger of Suez and Gaz de France. Chaussade declined to make any comment on the issue.
WATER SCARCITY
China, the Middle East, and the United States are other growth areas in which Suez Environnement is seeking to increase its presence, through contract wins or acquisitions.
"Suez Environnement's strategy is one of organic growth stimulated by acquisitions of generally small sizes," he said, reiterating plans to invest 4.5 billion euros between 2008-10.
"We will continue to develop in all these countries as they face issues of growing population and increased water scarcity."
Chaussade said Suez Environnement will invest 100 million euros annually in sewage treatment and water projects in China -- a country home to a fifth of the world's population but just 7 percent of global water resources -- over the next five years.
"This is a country with limited water resources to start with. On top of this, industrialisation comes with a transfer of population towards the Eastern part of the country... which will lead to considerable water needs and environmental issues."
Beijing has now understood that water issues can hinder economic growth and are setting up laws and investment plans that will speed up the market's development, Chaussade said.
But regulatory risks remain for investors such as Suez Environnement -- present in Chinese water through 20 joint ventures, mainly in Hong Kong, Shanghai, Beijing and Chongqing.
"Today, the rules of the game are still not entirely known... This is why we make sure not to overpay for assets, and we find partners who have a knowledge of the local environment."
Chaussade said Suez Environnement's margins in China were "reasonable and modest" but declined to give further details.
The Middle East is another area where Suez intends to be present as petrodollars finance the emergence of new cities.
"These new cities will need water... Producing water through desalination will be necessary. We'll also need to treat waste water to use it for the irrigation of parks and golf courses."
In December, Suez Environnement won an $800 million contract for a waste water treatment and reuse plant in Dubai.
"The average size of contracts for a company like (Suez Environnement water treatment plant unit) Degremont has been constantly on the rise over the past five years, which is a sign that projects are getting bigger and bigger."