Saturday, September 24, 2011

No. 84: Water business in Japan and the world (3) (September 24, 2011)

Waterworks system in Japan
The waterworks business in Japan is classified into three kinds: (1) Water service companies that provide water service supply to a population of more than 5,000, (2) Water distributors that supply water to the water service companies, and (3) Water service companies that provide simple water service to a population less than 5,000. (1) is mainly managed by municipalities, and there are 1,317 companies across the country. (2) is conducted by local governments and group of companies made up of several municipalities, and there are 78 businesses. The waterworks business is mostly managed by the public sector because of the necessity to maintain an appropriate pricing system and implement risk management in time of disaster and emergency. Accordingly, all the operators involved in the waterworks business adopted the independent accounting system, and about 90% of them report net profits. 

Although business is profitable, Japan’s waterworks business currently has two serious problems. One is the necessity to upgrade and renovate the existing facilities in the days of falling population, and the advent will be at one bust. The Ministry of Health, Labour and Welfare reports that demand for renewal will be one trillion yen per year in the mid-2020. At present, the revenue, which comes from cash flow and subsidies, is about 1,050 billion yen, whereas annual investments are about 770 billion yen. That is, capitals allocatable for new investment are only 280 billion yen. In view of the debt payment of 7,600 billion yen and an inevitable decrease of revenue due to falling population, it is rather hard to satisfy the demand for renewal from the capital point of view.

The other problem is with the inheritance of technology related to waterworks. Currently, staff members older than 50 account for about 40% in the waterworks business. They will retire in 10-15 years, but most operators are not active in recruiting new staff members. It will be increasingly an important issue to recruit new staff members for the inheritance of related technology in the waterworks business. It is too late to become active after the business fall into the red. It is necessary to promote collaboration between the public and private sectors and foster multi-regional business. (To be continued)     

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