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Saturday, November 07, 2009

Investing in water and wastewater treatment companies in China

One of the reason as to why I invested in EPure International Ltd is because I know China is investing in water and wastewater projects.

On 6 Nov, Epure won a landmark contract to run 8 wastewater treatment plants in Hainan. According to a press release by EPure,
  • Deal is first of its kind in China to offer “bundled” operating contracts for multiple municipal plants to private bidders
  • Provides strong affirmation of Group’s operating capabilities and technical expertise
  • China’s growing wastewater treatment needs and government plans to raise capacity continue to fuel growth

China’s leading water solutions provider, Epure International Ltd. (Epure, the Group or 伊普国际), has clinched a high-profile deal to manage and operate eight municipal wastewater treatment plants in Hainan province.

In accordance with China’s 11th Five-Year Plan, state-owned Hainan Provincial Water Conservancy & Power Group Co., Ltd. has built 16 new water treatment plants to revamp the province’s wastewater disposal system. The provincial government has “packaged” them under two large operating contracts for bidding by private companies, with each contract covering eight plants. This model is the first of its kind in China, and other provincial governments are expected to follow suit.

Epure’s Chief Executive Officer, Mr Li Li (李力), said: “We are proud to announce that we have won a landmark contract to operate and manage eight municipal wastewater treatment plants in Hainan. This contract, highly anticipated within China’s wastewater treatment industry, has been keenly sought after by more than 20 reputable players. Winning this contract demonstrates that Epure’s technical expertise and operating capabilities are recognised across the sector, and affirms the Group’s leading position in this industry.”

“This contract will further reinforce our strategy to grow our recurrent earnings stream, with the key advantage being that no capital expenditure is required. It will also enable us to quickly scale up our operations to create a more robust earnings model. We will seek out more of such opportunities as we continue to build up our portfolio of build, operate and transfer (BOT) projects.”

Under the five-year contract, Epure will manage and operate eight wastewater treatment plants with a total maximum treatment capacity of up to 142,000 tonnes a day. The contract is worth approximately RMB124 million, based on tonnage of wastewater treated, and is expected to contribute to the Group’s earnings from 2010.

According to China’s National Bureau of Statistics, the country still has more than 200 cities without sewage treatment capabilities at present. With China’s wastewater emissions increasing, the Chinese government has set aside a budget of RMB330 billion in its 11th Five-Year Plan to increase its wastewater treatment capacity, of which 35% will be invested in building wastewater treatment plants.

Discussing the prospects opened up by this investment, Mr Li commented: “With this strong support from the Chinese government to grow the wastewater treatment industry, we see immense opportunities for Epure to secure more engineering, procurement and construction (EPC) and BOT projects, as well as contracts to manage wastewater treatment plants. In this regard, our outstanding track record and expertise as a full-fledged water solutions provider will place us well ahead of the competition.”

Just last month, Epure added two more BOT projects in Anyang city and Jiangyan city, bringing the overall number of such projects under its belt to nine.

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