MOHURD Rural Sewage Treatment Limited to Only 3 State-Owned Enterprises: A 40.8 Billion Yuan Rural Water Market
After finally getting a feast laid out, they found that they had no share of it. On November 11, the Department of Village and Town Construction of the Ministry of Housing and Urban-Rural Development issued the "Letter on Doing a Good Job in Matching Projects for Rural Domestic Sewage Treatment Demonstration Counties" [Jian Cun Shui Han (2015) No. 106], which stated
After finally getting a feast laid out, they found that they had no share of it.
On November 11, the Department of Village and Town Construction of the Ministry of Housing and Urban-Rural Development issued the "Letter on Doing a Good Job in Matching Projects for Rural Domestic Sewage Treatment Demonstration Counties" [Jian Cun Shui Han (2015) No. 106], which stated that nationwide rural domestic sewage treatment demonstrations would be carried out in 100 counties (cities, districts) across the country, but only 3 state-owned enterprises were allowed to participate.
A vice president of a private environmental protection company told a reporter from China Times that this move violated the principle of market fairness and did not conform to the spirit of the state encouraging social capital to participate in the construction of rural human settlements, and was an obvious administrative-style "arranged marriage."
Xue Tao, executive director of the E20 Environmental Industry Research Institute, told reporters that in the past there were shortcomings in the rural water market, and with the publication of documents such as the "Water Ten Plan," the market space in this area was released, with some estimating its scale to reach over 100 billion yuan, which is what triggered the competition among many environmental protection enterprises.
Letter No. 106 Sparks Controversy
[Jian Cun Shui Han (2015) No. 106] stated that the Ministry of Housing and Urban-Rural Development initially determined to carry out nationwide rural domestic sewage treatment demonstrations in 100 counties (cities, districts). To promote the demonstration work, the Ministry coordinated long-term low-interest financial loan support from the Agricultural Development Bank of China, and organized large state-owned enterprises such as CRRC Shandong Huateng Environmental Protection Technology Co., Ltd., Beijing Capital Co., Ltd., and Beijing Enterprises Water Group to participate. It requested the housing and urban-rural development departments of 17 provinces including Hebei, Shanxi, and Yunnan, as well as the Beijing Municipal Water Authority, to actively coordinate the demonstration counties (cities, districts) in their regions to connect with the Agricultural Development Bank, CRRC, Beijing Enterprises, and Beijing Capital and determine cooperation intentions, with relevant information to be reported to the department before November 20.
As soon as the document was issued, it immediately sparked controversy. Some private enterprises said that the document designated 3 state-owned enterprises as rural domestic sewage treatment enterprises, which violated the principle of market fairness.
"There is an extra threshold, and local governments dare not take responsibility. Since the central government has recommended enterprises, then just give it to them directly." The aforementioned vice president of the private environmental protection company said, or perhaps they thought these 3 state-owned enterprises could bring low-interest financial loan support, while other enterprises could not. There was already a bidding project they participated in that ultimately went to Beijing Capital, one of the 3 state-owned enterprises.
More than one enterprise had objections. On November 20, the Environmental Services Chamber of Commerce of the All-China Federation of Industry and Commerce submitted the "Recommendations of the Environmental Chamber of Commerce on Improving the Matching Work for Rural Domestic Sewage Treatment Demonstration County Projects" to the Department of Village and Town Construction of the Ministry of Housing and Urban-Rural Development, stating that recently the chamber had frequently received phone calls and letters from member units raising objections to the content of [Jian Cun Shui Han (2015) No. 106].
The Environmental Chamber of Commerce suggested that a supplementary explanation should be made in an appropriate manner regarding this letter, encouraging various types of social capital that are "enthusiastic, experienced, and technically capable" to participate broadly, and encouraging local governments, especially county-level people's governments, to innovate their thinking, respect market principles, set no thresholds, and broadly seek environmental protection enterprises suitable for the development needs of their regions to actively participate in local rural environmental projects including sewage treatment.
Ma Hui, executive secretary-general of the Environmental Chamber of Commerce, told this newspaper that the demonstration county approach was first of all worthy of affirmation, and that the government issuing policies to promote rural environmental pollution treatment was itself a good thing. However, in the process of advancing it, the government's responsibility is to open up the market and establish market rules, while specific market behavior should be governed by market laws and conducted according to market rules.
"As of now, the Ministry of Housing and Urban-Rural Development has not yet given a reply." Ma Hui said.
A 40.8 Billion Yuan Market Space
Why are private enterprises so sensitive to [Jian Cun Shui Han (2015) No. 106]? Profit is of course the primary reason.
In terms of the composition of the environmental protection industry, sewage treatment has always been one of its most important sectors. And within sewage treatment, municipal sewage treatment has long been the main force. However, after more than a decade of development, from 2006 to 2013, the national urban sewage treatment rate rose from 55.7% to 99.1%, and the municipal sewage treatment field was approaching saturation, with enterprises in the industry all looking for a new "blue ocean."
At the same time, the rural sewage treatment market had enormous shortcomings. In 2012, the national village sewage treatment rate was only 7%, a huge gap compared with the urban sewage treatment rate of 99.1%. According to a sewage treatment report by the Forward Industry Research Institute, in 2013 the chemical oxygen demand emissions from agricultural sources reached 11.258 million tons, accounting for 47.85% of the total chemical oxygen demand emissions in the country's wastewater.
"Without solving the rural sewage problem, China's water pollution problem cannot be solved." Xue Tao said.
Why does such a large gap exist? In Xue Tao's view, it is not that enterprises do not want to do it, but that there is no business model. The environmental protection industry is a highly policy-oriented industry. Without relevant policies at the national level, local governments have no pressure to treat it, and naturally there is no market demand.
However, with the continuous introduction of relevant policies in recent years, rural sewage treatment has begun to show signs of dawn. According to the "Guidelines for Construction and Investment of Rural Domestic Sewage Treatment Projects" issued by the Ministry of Environmental Protection in November 2013, the investment unit price for decentralized rural sewage treatment facilities in 2014 was 5,000 yuan per ton. The market estimates that rural sewage discharge in 2017 will be approximately 14.8 billion tons. If calculated at a rural sewage treatment rate of 20%, the potential market size for rural sewage treatment in 2017 will reach 40.8 billion yuan, and this does not include the operational market size after the facilities are completed.
"The rural sewage treatment market is an undeveloped 'virgin land.' Although the scale of individual treatment is relatively small, there are 2,856 counties, 40,906 townships, and hundreds of thousands of villages across the country, so the market size will also be dozens of times that of municipal sewage treatment." Ma Hui said.
Many Problems Remain to Be Solved
At present, many environmental protection enterprises have loudly proclaimed their entry into the rural water market.
Dong Zhiming, deputy general manager of Sound Global, said that the Sound Group began laying out its rural water market in 2009, and in 2011 began exploring the construction of village and town sewage treatment projects in Fushun, Liaoning, and other places. It has now undertaken sewage treatment projects in more than 300 towns and hundreds of villages, making it one of the earlier enterprises in China to enter this field.
A business manager of Beijing Capital Co., Ltd. also told a reporter from China Times that rural sewage treatment and industrial sewage treatment are two major emerging markets, and the company's existing rural projects have landed in Zhejiang, adopting a model of overall packaging with the county as a unit, so profitability is still acceptable.
Ma Hui said that individual rural sewage treatment projects are relatively small, with a treatment capacity of only a few thousand tons per day, and only by adopting an overall packaging approach with the county as a unit can a certain scale effect be achieved and costs be reduced.
In addition, China has not yet clarified the management and responsibility entities for rural sewage treatment, and there are great differences among regions. Dong Zhiming said that some are managed by water authorities, and some by housing and urban-rural development authorities. The billing methods are also diverse: some calculate by household, some by person, some by station (a certain amount of maintenance fee is given to a station per year), and some by water volume. This is obviously very different from the management system of municipal sewage treatment.
"Business models, charging mechanisms, and various other aspects are all imperfect, and there is no paying entity." Xue Tao said that the resulting outcome is that arrears are prone to occur and investment is unsafe.
Dong Zhiming said that county-level governments themselves have limited financial resources, and it is unrealistic to make ordinary people pay. He suggested that central and provincial-level finances increase policy support and fiscal transfer payments. In addition, some supporting financial tools need to be provided, such as policy-based low-interest loans.
On the positive side, in September this year, the Department of Village and Town Construction of the Ministry of Housing and Urban-Rural Development invited Sound Group and several other environmental protection enterprises to a meeting to understand the technical level, technical standards, and equipment conditions of rural sewage treatment, hoping to form an interaction mechanism of "experts + enterprises + ministries and commissions" to solve various problems encountered in the process of rural sewage treatment, which gave entrepreneurs like Dong Zhiming hope.
On November 11, the Department of Village and Town Construction of the Ministry of Housing and Urban-Rural Development issued the "Letter on Doing a Good Job in Matching Projects for Rural Domestic Sewage Treatment Demonstration Counties" [Jian Cun Shui Han (2015) No. 106], which stated that nationwide rural domestic sewage treatment demonstrations would be carried out in 100 counties (cities, districts) across the country, but only 3 state-owned enterprises were allowed to participate.
A vice president of a private environmental protection company told a reporter from China Times that this move violated the principle of market fairness and did not conform to the spirit of the state encouraging social capital to participate in the construction of rural human settlements, and was an obvious administrative-style "arranged marriage."
Xue Tao, executive director of the E20 Environmental Industry Research Institute, told reporters that in the past there were shortcomings in the rural water market, and with the publication of documents such as the "Water Ten Plan," the market space in this area was released, with some estimating its scale to reach over 100 billion yuan, which is what triggered the competition among many environmental protection enterprises.
Letter No. 106 Sparks Controversy
[Jian Cun Shui Han (2015) No. 106] stated that the Ministry of Housing and Urban-Rural Development initially determined to carry out nationwide rural domestic sewage treatment demonstrations in 100 counties (cities, districts). To promote the demonstration work, the Ministry coordinated long-term low-interest financial loan support from the Agricultural Development Bank of China, and organized large state-owned enterprises such as CRRC Shandong Huateng Environmental Protection Technology Co., Ltd., Beijing Capital Co., Ltd., and Beijing Enterprises Water Group to participate. It requested the housing and urban-rural development departments of 17 provinces including Hebei, Shanxi, and Yunnan, as well as the Beijing Municipal Water Authority, to actively coordinate the demonstration counties (cities, districts) in their regions to connect with the Agricultural Development Bank, CRRC, Beijing Enterprises, and Beijing Capital and determine cooperation intentions, with relevant information to be reported to the department before November 20.
As soon as the document was issued, it immediately sparked controversy. Some private enterprises said that the document designated 3 state-owned enterprises as rural domestic sewage treatment enterprises, which violated the principle of market fairness.
"There is an extra threshold, and local governments dare not take responsibility. Since the central government has recommended enterprises, then just give it to them directly." The aforementioned vice president of the private environmental protection company said, or perhaps they thought these 3 state-owned enterprises could bring low-interest financial loan support, while other enterprises could not. There was already a bidding project they participated in that ultimately went to Beijing Capital, one of the 3 state-owned enterprises.
More than one enterprise had objections. On November 20, the Environmental Services Chamber of Commerce of the All-China Federation of Industry and Commerce submitted the "Recommendations of the Environmental Chamber of Commerce on Improving the Matching Work for Rural Domestic Sewage Treatment Demonstration County Projects" to the Department of Village and Town Construction of the Ministry of Housing and Urban-Rural Development, stating that recently the chamber had frequently received phone calls and letters from member units raising objections to the content of [Jian Cun Shui Han (2015) No. 106].
The Environmental Chamber of Commerce suggested that a supplementary explanation should be made in an appropriate manner regarding this letter, encouraging various types of social capital that are "enthusiastic, experienced, and technically capable" to participate broadly, and encouraging local governments, especially county-level people's governments, to innovate their thinking, respect market principles, set no thresholds, and broadly seek environmental protection enterprises suitable for the development needs of their regions to actively participate in local rural environmental projects including sewage treatment.
Ma Hui, executive secretary-general of the Environmental Chamber of Commerce, told this newspaper that the demonstration county approach was first of all worthy of affirmation, and that the government issuing policies to promote rural environmental pollution treatment was itself a good thing. However, in the process of advancing it, the government's responsibility is to open up the market and establish market rules, while specific market behavior should be governed by market laws and conducted according to market rules.
"As of now, the Ministry of Housing and Urban-Rural Development has not yet given a reply." Ma Hui said.
A 40.8 Billion Yuan Market Space
Why are private enterprises so sensitive to [Jian Cun Shui Han (2015) No. 106]? Profit is of course the primary reason.
In terms of the composition of the environmental protection industry, sewage treatment has always been one of its most important sectors. And within sewage treatment, municipal sewage treatment has long been the main force. However, after more than a decade of development, from 2006 to 2013, the national urban sewage treatment rate rose from 55.7% to 99.1%, and the municipal sewage treatment field was approaching saturation, with enterprises in the industry all looking for a new "blue ocean."
At the same time, the rural sewage treatment market had enormous shortcomings. In 2012, the national village sewage treatment rate was only 7%, a huge gap compared with the urban sewage treatment rate of 99.1%. According to a sewage treatment report by the Forward Industry Research Institute, in 2013 the chemical oxygen demand emissions from agricultural sources reached 11.258 million tons, accounting for 47.85% of the total chemical oxygen demand emissions in the country's wastewater.
"Without solving the rural sewage problem, China's water pollution problem cannot be solved." Xue Tao said.
Why does such a large gap exist? In Xue Tao's view, it is not that enterprises do not want to do it, but that there is no business model. The environmental protection industry is a highly policy-oriented industry. Without relevant policies at the national level, local governments have no pressure to treat it, and naturally there is no market demand.
However, with the continuous introduction of relevant policies in recent years, rural sewage treatment has begun to show signs of dawn. According to the "Guidelines for Construction and Investment of Rural Domestic Sewage Treatment Projects" issued by the Ministry of Environmental Protection in November 2013, the investment unit price for decentralized rural sewage treatment facilities in 2014 was 5,000 yuan per ton. The market estimates that rural sewage discharge in 2017 will be approximately 14.8 billion tons. If calculated at a rural sewage treatment rate of 20%, the potential market size for rural sewage treatment in 2017 will reach 40.8 billion yuan, and this does not include the operational market size after the facilities are completed.
"The rural sewage treatment market is an undeveloped 'virgin land.' Although the scale of individual treatment is relatively small, there are 2,856 counties, 40,906 townships, and hundreds of thousands of villages across the country, so the market size will also be dozens of times that of municipal sewage treatment." Ma Hui said.
Many Problems Remain to Be Solved
At present, many environmental protection enterprises have loudly proclaimed their entry into the rural water market.
Dong Zhiming, deputy general manager of Sound Global, said that the Sound Group began laying out its rural water market in 2009, and in 2011 began exploring the construction of village and town sewage treatment projects in Fushun, Liaoning, and other places. It has now undertaken sewage treatment projects in more than 300 towns and hundreds of villages, making it one of the earlier enterprises in China to enter this field.
A business manager of Beijing Capital Co., Ltd. also told a reporter from China Times that rural sewage treatment and industrial sewage treatment are two major emerging markets, and the company's existing rural projects have landed in Zhejiang, adopting a model of overall packaging with the county as a unit, so profitability is still acceptable.
Ma Hui said that individual rural sewage treatment projects are relatively small, with a treatment capacity of only a few thousand tons per day, and only by adopting an overall packaging approach with the county as a unit can a certain scale effect be achieved and costs be reduced.
In addition, China has not yet clarified the management and responsibility entities for rural sewage treatment, and there are great differences among regions. Dong Zhiming said that some are managed by water authorities, and some by housing and urban-rural development authorities. The billing methods are also diverse: some calculate by household, some by person, some by station (a certain amount of maintenance fee is given to a station per year), and some by water volume. This is obviously very different from the management system of municipal sewage treatment.
"Business models, charging mechanisms, and various other aspects are all imperfect, and there is no paying entity." Xue Tao said that the resulting outcome is that arrears are prone to occur and investment is unsafe.
Dong Zhiming said that county-level governments themselves have limited financial resources, and it is unrealistic to make ordinary people pay. He suggested that central and provincial-level finances increase policy support and fiscal transfer payments. In addition, some supporting financial tools need to be provided, such as policy-based low-interest loans.
On the positive side, in September this year, the Department of Village and Town Construction of the Ministry of Housing and Urban-Rural Development invited Sound Group and several other environmental protection enterprises to a meeting to understand the technical level, technical standards, and equipment conditions of rural sewage treatment, hoping to form an interaction mechanism of "experts + enterprises + ministries and commissions" to solve various problems encountered in the process of rural sewage treatment, which gave entrepreneurs like Dong Zhiming hope.