No. 108: Water business in Japan and the world (27) (October 31, 2011)

Effective utilization of rainwater and reclaimed water

Increasing and expanding the use of general service water is one of the measures for effective utilization of water resources. General purpose water is rainwater and reclaimed water. It was in 1978 that general service water attracted wide attention in Japan. Fukuoka Prefecture had a severe drought in 1978, and the nation and local governments prompted the introduction of general service water. In Fukuoka Prefecture, it is regulated by an ordinance that a large building with more than a certain area of floor space should use general service water for flush toilets. The Tokyo metropolitan government also asks developers of buildings bigger than a certain level to use general service water for flush toilets and install a system for rainwater infiltration.  

The current sewage system is generally designed to cope with a rainfall of 50 mm per hour, but unexpected torrential downpours occur frequently these days because of global warming and the heat-island phenomenon, causing reverse flow in the urban district. Tokyo Sky Tree in Tokyo scheduled to be open next spring has an underground rainwater reservoir with a capacity of 2,635 cubic meters. In addition to this underground reservoir, the district where Tokyo Sky Tree is located has more than 300 reservoirs to prevent a flood caused by torrential downpours.  

The government estimates that if all single-family houses in the Kanto area have a rainwater reservoir with a capacity of 0.5 cubit meters, rainwater of 270 million cubic meters will be retained. This volume is about 7% of the total water supply amount in this area. Should half of this volume be used for daily life water, the volume of water restriction will be mitigated by about 5%. Using rainwater and reclaimed water for water spray, car washes, artificial cooling, and fire fighting contributes to building a society strong against drought and flood. At the same time, it will reduce the load of sewage treatment facilities and contribute to the improvement of water quality. (To be continued)

No. 107: Water business in Japan and the world (26) (October 29, 2011)

Growing competition between Japan and other countries

Japanese companies have great presence in the water treatment membrane business with a share of about 60% in the world market. The two leaders are Nitto Denko (32%) and Toray (27%). In recent years, however, Chinese companies chase Japanese companies at a rapid pace, underselling Japanese products by 30-50%. With the help of academic-industrial alliance, the Chinese government is facilitating domestic production of water treatment membranes. In view of the future growth in the Chinese market, Toray built a plant with a Chinese company on a joint venture basis in Beijing for the integrated mass production of reverse osmosis membranes with an investment of 7.5 billion yen. With the completion of this plant, Toray’s production capacity of reverse osmosis membranes increased to 1.5 times.

Korea is also chasing. It will invest about 19 billion yen between 2007 and 2012 to substantiate the state-of-the-art membrane treatment technology. Germany will subsidize the research on water treatment membrane with a huge investment. To cope successfully with these companies, Japan has already started projects to advance the membrane treatment technology to the next stage.

The Meta-ton Water System is participated by a total of 27 companies and universities including Toray and Tokyo University. This project aims to establish a seawater desalination system with a daily capacity of 10 million tons, two times bigger capacity of the current world’s largest seawater desalination plant in Algeria being constructed by Hyflux of Korea. With a subsidy of about 3 billion yen from the government, the Japanese project is trying to halve the desalination cost by dint of osmotic power that uses condenses seawater, a by-product of desalination. The research team is trying hard to establish a system that is highest in performance and lowest in desalination cost. The world water market is estimated at 86 trillion yen in 2025. The competition will grow intense continuously. (To be continued)     

No. 106: Water business in Japan and the world (25)

Decreased share of the four water majors

The combined share of the world four water majors decreased from 60% to 30% in the past eight years. In the suburbs of Oran, the second largest city in Algeria, a desalination plant with the world’s largest daily desalination capacity of 500,000 tons is nearing completion. It is Hyflux of Singapore that concluded the package contract of this plant. Founded in 1989, Hyflux is a Singapore’s national policy concern. The Singapore government placed orders for the construction of advanced water treatment plants with this company to let them accumulate experiences. With the accumulated results, Hyflux developed the global market, and 90% of its sales come from the Middle East and China.

K-Water of Korea is chasing Hyflux of Singapore. In 2007, Korea claimed that Korea would place more than two companies in the list world’s largest 10 water companies. Korea actively assists K-Water with their efforts to cultivate the global market. In contrast to these two governments, the Japanese government is awfully slow placing too much emphasis on domestic issues. To make up for the slowness of the central government, local governments are very active in the efforts to develop foreign markets.

Yokohama Water is a good example. Yokohama invested 100 million yen to found this public utility. The background of the foundation can be seen in many local governments across the country. Yokohama has water pipes that have a total length of 2,900 km, part of which has already pass the legal useful life of 40 years, meaning that a huge investment is required for renovation. On the other hand, with the progress of water saving technology, city’s revenue from water charges decreased more than 4 billion yen to 74.6 billion yen in 2008, meaning that unless a new revenue source is created, there will be no way to increase water charges. Tokyo drives its officials to develop the global market, placing emphasis on Tokyo’s excellent technology to keep the rate of water leakage at merely 3%. The rate of water leakage is usually 10-20% in advanced countries and nearly 50% in developing countries.

However, what is an urgent task is to build a business model that can utilize economies of scale. In Japan, there are about 8,000 public water business operators, and local governments manage these operators. That is, they are highly segmentalized. In addition, 80% of them are operators for simple waterworks covering a population less than 5,000. Form the business viewpoint, an operator needs to cover more than 30,000 people to be profitable. A drastic reform that takes privatization into consideration is vital to increase the competitive edge of the Japanese water business. (To be continued)

No. 105: Water business in Japan and the world (24) (October 24, 2011)

Future prospects of the Japanese water business

Japanese companies enjoy high technological excellence in such elementary technologies as membrane filtration and reverse osmosis membrane necessary to transform murky water and seawater for drinking water. The elementary technologies developed by Japanese companies are used in the water service projects worldwide. Nonetheless, few Japanese companies are involved in the management of water business. The following three approaches are recommendable to facilitate their involvement in the water business abroad: (1) investing in existing water business operators, (2) becoming a trustee company based on the concession method, and (3) participating in renovation projects of water facilities.

Japanese water business operators started to branch out into foreign countries lately with the initiative of big trading companies, but they are mostly not experienced enough to participate in the existing projects abroad on a concession basis. The same is true of local governments. That is why both private operators and local governments have few opportunities to get involved in water business abroad. Therefore, they are required to develop the ability to make a proposal for rationalization and streamlining from a viewpoint of a private company to a target country, while promoting the cooperation between the public and private sectors.

There are various problems inside Japan. Facing the huge demand for renovation of the existing facilities, water service operators have to pave the way for the joint management of the water business on a public and private partnership. And the central government is required to modify the legal system by facilitating the cross-sectional cooperation among government agencies. As described so far, the government initiative is vital to increase the competitive edge of Japanese companies. Otherwise, it is hardly possible for them to be entrusted with an integrated project that includes management and operation of the whole business in the global water market. (To be continued)

No. 104: Water business in Japan and the world (23) (October 22, 2011)

Japanese efforts are lacking in strategy

Japanese local governments with accumulated management know-how of the waterworks business dispatch engineers to developing countries and accept trainees from them, but they do not seem serious about promoting business through these efforts. The central government is involved in the development of water facilities in foreign countries though official development aid programs, but Japanese companies rarely participate in the management of the facilities. This is the reality caused by the lack of strategy. A water purification plant constructed in Cambodia as part of a Japanese ODA program was about to be sold to a foreign company in 2006, partly because the plant was too sophisticated for the local staffs to manage.

In foreign countries, Japanese companies are often not awarded a contract because the projects they offer need a high initial investment, even though their technology and competitive edge are evaluated highly. It is vital to provide both hardware and software for stable and secure water supply in foreign countries. Japan has to realize the importance of understanding the needs of a target country, having its competitive edge understood by the target government, and getting involved in the project from the very beginning to materialize business.

The Japanese government is discussing a new type of public-private partnership project with the Vietnamese government, in which the governments approve a project proposal submitted by a private company. Metawater submitted a proposal for the water project in Hanoi, and the project may be implemented as part of Japan’s ODA should it be approved. This system benefits Japanese companies whose technologies are not in a favorable position in a price competition.

As you have observed in this series articles, France and Great Britain excel in developing foreign markets in the water business. The key is the support from the central government. It is urgent for Japan to increase its presence in the world market with the support from the central government that includes sales activities of high-ranking government officials and submission of project proposals in the government-level negotiations, placing emphasis on the technological advantage and product differentiation. (To be continued)  

No. 103: Water business in Japan and the world (22) (October 21, 2011)

Government initiative in Singapore

Singapore is a small and flat country with a population of about five million. Because the country has difficulty securing water resources, it traditionally satisfied about 50% of its domestic water demand with raw water from Malaysia. When Malaysia raised the price of raw water in 2000, Singapore decided to increase the self-sufficiency rate of water and worked out various measures. To be specific, Singapore diversified the sources of raw water into four kinds: (1) water reservoir, (2) import from Malaysia, (3) reuse of sewage, and (4) seawater desalination. Ultimately, the country wishes to decrease the share of (2) and increase the self-sufficiency rate to 100%. Currently, it has five sewage treatment facilities, and they have a combined capacity to meet about 30% of the domestic water demand.

At the same time, Singapore promotes the policy to integrate world’s state-of-the-art water technology under the concept of the Global Hydrohub. Besides providing advanced research facilities and the place for substantiative experiments, the country is trying hard to establish networks of companies worldwide by developing human resources and organizing international conferences. Companies worldwide involved in the water business get together in Singapore and help Singapore companies acquire latest technology and know-how of the water business. PUB, Singapore’s national water agency, manages all water-related policies.

Korea shows the same trend. It started the “SEAHERO” project that aims to develop seawater desalination technology in 2006. With the background of the government support, Hyflux of Singapore and Doosan of Korea are now among top 10 of the world’s largest manufacturers of seawater desalination plants. (To be continued)   

No. 102: Water business in Japan and the world (21) (October 20, 2011)

Global expansion of Japanese companies

Because local governments manage most parts of the waterworks business in Japan, private companies have not accumulated enough management know-how and results in the water business. This is why general trading companies participated in projects abroad in alliance with proven foreign companies. For example, Mitsui & Co. and Sumitomo Corp. received an order for a large-scale waterworks project in Turkey in alliance with Themes Water of Great Britain in 1995. Likewise, Marubeni Corp. won a bid for a seawater desalination project in Mexico in alliance with a subsidiary of Suez Environment of France in 1997, and Mitsubishi Corp. obtained an order for a waterworks project in the Philippines with United Utilities of Great Britain in the same year.

Lately, however, Japanese companies have grown active and aggressive. Marubeni acquired a local waterworks company in Chile in 2006, and each of Mitsui & Co. and Toyo Engineering acquired a local company to participate in the waterworks business in Mexico in 2008. They are developing the business in these two countries independently of water majors. Japanese manufacturers show the same trend. Asahi Kasei producing membranes for sewage treatment and Kurita Water famous for its technology to produce ultrapure water are reportedly planning to expand the business to foreign countries including China.

You can also observe cross industrial moves. In April 2011, Ebara, Mitsubishi Corp., and JGC Corp. started to work together to promote the water business. The idea is to get a package contract from project development to maintenance in foreign countries with the power of Ebara’s know-how on water treatment, IGC’s engineering capability, and Mitsubishi’s global network. Subsequently, a group of Japanese companies acquired an Australian water business operator in May, and Bureau of Waterworks of Tokyo Metropolitan Government will extend technical assistance to the acquired company.

As described the above, Japanese companies started to grow active and aggressive, though they are a little bit late to realize the importance of the global market. They are growing more and more active rapidly in contrast to the slow move of the Japanese government. (To be continued)

No. 101: Water business in Japan and the world (20) (October 19, 2011)

Approaches of large western companies

In addition to the two French majors of Veolia and Suez Environment, GE of the U.S. and Siemens of Germany have great presence in the world water business. In particular, GE exerts lots of energy in the water business under the slogan of “Ecomagination” that makes environment and economy compatible for the problem-solving of the world. GE acquired water-related companies in succession to enter into the market and expanded the business scale quite rapidly. The companies acquired by GE include an American company producing reverse osmosis membranes, a Canadian company building seawater desalinization equipment, and a Canadian company producing ultrafiltration membranes.

A series of acquisitions allowed GE to increase its presence in the market and expand the scope of business. Especially, it focuses on the reverse osmosis membrane used for seawater desalination and the ultrafiltration membrane for the highly advanced sewage treatment called the membrane bioreactor method. As a result, GE is the world’s leading producer of membrane bioreactors at present. It is expanding the share in the world market in alliance with water majors and local companies around the world.

Like GE, Siemens of Germany entered into the market through company acquisitions. Siemens acquired an American filter producer in 2004 and put it as the core of its water business. Subsequently, it acquired several companies including water treatment companies in the U.S. and China and a sewage treatment company in Italy. It has been expanding the business rapidly placing the membrane technology at the center of its business.

IBM of the U.S. announced its plan to participate in the water business in 2009. Realizing that IT technology is not fully utilized in the water business, IBM wishes to build systems in the waterworks business with the help of IT technology. To be more specific, it plans to build a system that automatically monitors the amount and quality of water from water storage facilities to drainage pipes for efficient water supply using sensors and monitors. As is often the case, large companies participate in a promising and profitable business field through company acquisitions and make the competition even fiercer worldwide. (To be continued)    

No. 100: Water business in Japan and the world (19) (October 18, 2011)

Strategy of the world leader Veolia

The privatized water business is supposed to cover about 800 million people worldwide on the water supply base, and the two French majors, Veolia and Suez Environment, cover 160 million people combined. Established in 1853, Veolia is the world’s oldest and largest water service company with sales of 12.5 billion euro, almost two times more sales achieved by Suez Environment, and nearly 100,000 people are working for this company.

Veolia dates back to a company established by the Napoleon III in 1853 to manage waterworks in Paris. Since 1884, the company has actively been expanding the business worldwide, and it covers about 140 people in 64 countries at present. It conducts a wide range of business including designing, procurement of materials, construction of facilities, and operation and management of the business. Especially, it excels at the operation and management that is the largest market in the water business. In addition to providing water treatment from water intake to water discharge, it offers a wide spectrum service that includes preservation of water resources, seawater desalination, and collection of charges.

It has competitive advantage in estimating precisely the needs of a customer and draws a proposal most suitable to the customer. For example, it made a successful bid in the tender for the management of a sewage treatment plant in Chiba Prefecture in 2009, though it outbid the competitors. This is because its proposal contained the plan to automate the measurement of water quality and introduce photovoltaic generation. It dispatches its staffs to public agencies of the target country and makes them involved in the project planning from the initial stage, while building close relations with international agencies. It procures a large sum of capital for investment from investment funds, and the country backs it up as the sales activities of the French president show.

In fact, Veolia has the following six advantages: (1) a big company size, (2) a wide range of business scope, (3) accumulated results, (4) the ability to draw an attractive proposal, (5) national support, and (6) excellent financial power. It is not too much to say that the ability to promote a project in an integrated manner is vital to the expansion of the water business to a foreign country. (To be continued)

No. 99: Water business in Japan and the world (18) (October 17, 2011)

The Manila’s case

A state-run public corporation managed the waterworks in Manila, the capital of the Philippines, up to 1997. Back then, the spread rate of the water service was 67%, and leakage and steal reached 60% of the water supply. The Philippine government decided to privatize the water business to increase the spread rate and realize efficient renovation of the existing facilities. It adopted the concession system that gives a private company an integrated business right. A subcontracting private company can handle the whole business from the operation to capital investment.

The government divided the city into the western part and eastern part to diversify risk and avoid monopoly, and advertised an international tender. The western part with a population of 5.2 million went to a private company in which Suez Environment of France invested, and the eastern part with a population of 3.4 million went to a private company in which Mitsubishi Corp. of Japan invested. Five years later, the former went bankrupt with a large sum of deficit, while the latter got listed in 2005. The failure of the former company can be attributable to many factors including inadequate assessment of the assets and liabilities and incorrect estimates of profitability of the business. It drew a business plan only on the basis of the available materials without conducting detailed survey on the aging of the existing facilities.

The successful company, Manila WaterCompany., Inc. (MWCI), reduced the water charge by making multiple households share a water pipe. This measure enabled poor households to pay the water charge and reduced the amount of stolen water. The company made efforts to locate leakage as soon as possible and renovated the facilities without the least delay. These efforts combined reduced the ratio of leakage and steal from 60% to 20% in 2008. In addition, it divided the western part into 43 areas and entrusted the regional manager with the business of each area. And it enforced the system that pays the manager in accordance with results. This measure to increase the motivation helped improve the service level.

The Manila’s case indicates how important it is to conduct detailed survey on the assets and liabilities, elaborate the management method, and devise a system to motivate local staffs to promote privatization of the water business abroad. (To be continued)

No. 98: Water business in Japan and the world (17) (October 16, 2011)

Privatization trend in foreign countries

Privatization of the waterworks business by the public-private partnership started to increase present in the 1990s. In Europe, various kinds of partnerships between the pubic and private sectors developed in the waterworks business. In Great Britain, the Thatcher Administration drove the privatization policy strongly and fully privatized the waterworks business in the England and Wales districts. At present, a total of 24 companies including Thames Water manage the waterworks business in Great Britain. The Waterworks Bureau of the British government that supervises them has the power to impose a fine on a company that fails to satisfy the contract and even terminate the contract to keep providing high quality water service at reasonable cost.

In France, a company (currently Veolia) was established by the Napoleon III in 1853. That is, France has a history of more than 150 years in the public-private partnership in the waterworks business. Although local governments take charge of the operation, they are free to entrust private companies with the entire business including capital investment. At present, private companies manage 70% of the water supply and 60% of sewerage in terms of population using such approaches as the concession system that is a comprehensive approach to transfer the whole business including capital investment to a private company. In Germany, privatization is not as advanced as in Great Britain and France. Local governments virtually manage the waterworks business, but many of them separate the management of organization and accounting from the operation for efficient management of the entire waterworks business.

In Spain, local governments manage the waterworks business, but they are allowed to take various measures at their discretion. They can collaborate with the local government of the neighboring regions to build an extensive network and entrust private companies with the business operation. Private companies got involved in the water business in the 19th century. At present, private companies and the public-private partnerships account for 44% of the waterworks business in Spain. All the companies established on the public-private partnership are independent to pursue operational efficiency and public interest simultaneously.

The above measures in Europe are very instructive and informative for Japan facing austerity. Private companies to get involved in the waterworks business need the integrated ability to manage all phases including capital procurement effectively and efficiently for a long period. (To be continued)

No. 97: Water business in Japan and the world (16) (October 15, 2011)

Growing markets in the water business

According to the estimates by the Ministry of Economy, Trade and Industry, East Asia and Oceania are the two leading markets in the water business at present, and they are expected to maintain the current growth rate for the next 20 years. In terms of growth rate, the Middle East, North Africa, and South Asia will maintain a growth rate of more than 10%. China, India, and Saudi Arabia are noteworthy in terms of market size and growth rate.

China has a population of 1.3 billion that is about 20% of the world population, but it has only about 6% of water resources on the earth. Because of the growing population and increasing living standard, the depletion of water resources and pollution of water quality are developing rapidly China. Water shortage is rather serious in the northern part of the country, and the Chinese government is promoting a national project to draw water from the southern part to the northern part through a waterway. It is also actively addressing the water-related issues including reuse of sewage and desalination of seawater. It is making lots of efforts to foster domestic companies in the water business, while promoting collaborations between Chinese companies and foreign companies. The Chinese market is expected to grow to be the world’s largest market in water business in 2025, accounting for 15% of the world market.

The same story can be applied to India. India’s population accounts for 16% of the world population, but it has only about 4% of water resources on the earth. The water business is expected to grow with the economic growth in India. However, it still has lots of entry barriers including complicated regulations and disputes between regions over the distribution of water resources.

The Middle East and North Africa have the lowest per-capita water resources in the world because of low rainfall and scarce rivers. Actually, salination of seawater mostly satisfies water demand in these regions, and the needs for salination of seawater will grow further. In addition, large-scale desalination plants built after the 1980s will need renovation shortly, and demand for sewage treatment will grow bigger there. Companies planning to expand business in them are required to develop a packaged service that can satisfy various needs. (To be continued)

No. 96: Water business in Japan and the world (15) (October 14, 2011)

The world water market

Demand for water increases not only with population growth but also with improved living standard due to economic growth. As water demand increases, the water business grows. The research team of the global development of the water business affiliated with the Ministry of Economy, Tradeand Industry estimated that the world water market will grow from about 25 trillion yen in 2007 to about 87 trillion yen in 2025. Of the 87 trillion yen, waterworks and sewage have a combined market of 74 trillion yen, and the remaining 13 trillion yen goes to highly promising business fields, such as desalination of seawater, cyclic use of industrial water, treatment of industrial sewer, and reuse of sewage. In terms of operation, construction and supply of materials has a market of 49 trillion yen, while management and maintenance has a market of 38 trillion yen.

Because the water and sewerage business is mostly managed by the central government and local governments worldwide, the privatized water market was 7.5 trillion yen in 2007. However, with an expected increase of the infrastructure business under the public-private partnership, private companies will increase presence in the water business. The research team predicted that the infrastructure-related business will increase to 31 trillion yen in 2025 with an annual growth rate of 8.4%, 3.7% higher than the growth rate of 4.7% estimated for the total market.

Water is indispensable to all human activities, and no products can replace it. In addition, the water market is stable because demand and price do not fluctuate as much as other resources including oil. Contracts on the water business usually extend as long as 30 years, during which the water charge can be collected to cover the investment. However, projects in developing countries cannot be free from the risk of exchange fluctuations because water charge is paid in the local currency, while loans should be repaid in dollars. Despite this risk, the water business is rather promising, and an increasing number of companies are expected to enter into the water business. (To be continued)   

No. 95: Water business in Japan and the world (14) (October 13, 2011)

Global business development of local governments

Local governments have traditionally tried to expand global business in alliance with  Japan International CooperationAgency (JICA) through JICA’s technical cooperation programs for foreign countries. Today, however, several local governments started to take the initiative in expanding global business. For example, the Tokyo Metropolitan Government announced three business models to be developed in alliance with a third sector company Tokyo Suido Services: (1) Independent business, (2) Joint business with private companies, and (3) Acquisition jointly with private companies. The government officials already started discussions with private companies in various industrial fields. Tokyo will get involved in the management of United Utilities Australia, an Australian water service company acquired by Mitsubishi Corp. and Innovation Network Corporation of Japan, under a consulting agreement.

Osaka City Waterworks Bureau is conducting a feasibility study on the construction of a waterworks system in Ho Chi Minh of Vietnam with Kansai Economic Federation as a project support by New Energy andIndustrial Technology Development Organization. Yokohama is scheduled to establish a company intended for the contribution to the development of the water business both at home and abroad utilizing the know-how it has accumulated. Kawasaki and Kitakyushu are also considering expanding the water-related business to foreign countries.

In the days of decreasing population, it is quite natural that local government gets interested in the water business abroad. The same is true of the central government. The Japanese government established a special task force team to assist local governments with their efforts to expand business globally. The close collaboration between private companies and the governments, both the central and local, will be inevitable to the global development of the water business. (To be continued)

No. 94: Water business in Japan and the world (13) (October 11, 2011)

Utilizing groundwater for drinking water

In the water business, various new services are emerging to satisfy the needs of the age. An example of these new services is a system to utilize groundwater to supply drinking water. This system not only reduces water charge but also realizes stable water service even in times of drought and earthquake. Wellthy, a medium-sized water treatment company in Tokyo, developed the “groundwater membrane filtration” system in 1997. Wellthy is coined from welfare and healthy, and it contained the word of well. The company has already shipped this system to more than 800 institutions, and it enjoys a share of 60% currently. This is a two-way water supply system made up of purified groundwater and tap water in the ratio 80% to 20%. The well used by this system is 100 m deep to avoid influence of soil contamination. The automatic monitoring system observes the water quality and the operational status around the clock. The supply of groundwater immediately stops should some irregularity arise, and only tap water will be supplied.  

In the purification process, the system uses membrane filtration besides sand filtration to eliminate impurities like pathogenic organisms. Because wells have a vertical structure, they are earthquake-proof and available for water supply even in times of disaster when such lifelines as water and electricity are unworkable. Taking advantage of this strength, the company proclaims the catch-phrase “Safe water within the travel distance by a bicycle.” Their customers are mostly institutions required to contribute to the local residents. Actually, hospitals and nursing-care facilities account for about 40% of their customers. In addition, the system is being used in schools and station-related facilities.

Other two-way supply systems that use rivers and other types of water resources are being developed with a view to exporting them to China and Africa where water shortage and deterioration of water quality are growing serious. Toho in Yamagata Prefecture and Yanmar in Hyogo Prefecture are the pioneers in this business fields. The above three companies are creating new markets making the best use of the integrated state-of-the-art technology available in Japan. (To be continued) 

No. 93: Water business in Japan and the world (12) (October 10, 2011)

Japan’s advanced elemental technologies

The membrane technology is one of Japan’s advanced elemental technologies in the water business. Japanese companies are offering various kinds of membranes for water treatment including those for seawater desalination, for purified water production for industrial purposes, for the elimination of pathogenic microorganisms in purification, and for the membrane bioreactor (MBR) method to produce high quality treated sewage. The pore diameter of a membrane varies with purpose. For example, the reverse osmosis membrane for seawater desalination has a pore diameter as small as 0.1 nanometer. Besides the precision and well-regulated pores, membranes need to be durable against pressure and chemical cleansing, not to mention that they should be stain resistance to prevent clogging.

Japanese companies, such as Nitto Denko, Toray, and Asahi-Kasei, maintain the leading position in the above technologies. For example, Japanese reserve osmosis membranes have a dechloridation ratio of 99.7% and a life period of 5-7 years instead of the standard 3 years. In addition, they allow for the collection of 60 units of freshwater out of 100 units of seawater, 20 units higher than the standard level. Accordingly, Japanese companies have a combined share of about 70% in the reverse osmosis membrane market and about 60% in the whole market of water treatment membranes including microfiltration membrane. At the same time, Japanese pumps for seawater desalination are enjoying a high popularity thanks to the reliability against continuous operation under high pressure. Torishima Pump has 40% in the world market of pumps for seawater desalination.

Leakage from water pipe is also a big issue for effective management of water resources. The rate of leakage is reportedly as high as 20% in some area of the world, but it is about 7% in Japan. Tokyo achieved a rate of leakage as low as 3.1% in 2008 because it tried hard to reduce it by virtue of the regular observation using leakage detector and acoustic bar besides the regular measurement of minimum flow rates. As mentioned above, the reliability of elemental technology and effective management of water resources are vital to the stable supply of water. All companies involved in the water business need to develop the technological advantage, while making continuous efforts for cost reduction. (To be continued)

No. 92: Water business in Japan and the world (11) (October 8, 2011)

Water treatment in Japan

You can drink safe water from a faucet in Japan. Raw water contains various impurities, and various technologies are being used to supply safe water. First, impurities in water collected from rivers are eliminated through deposition and sand filtration. Then, the treated water is chlorinated before it is delivered to households. Ozonation is sometimes added to make the purified water even better. Membranes are used to eliminate impurities of the purified water to produce ultrapure water for semiconductor production. If there is not enough water resources like rivers, desalination of seawater prevails. It is used to produce industrial water and in some isolated islands in Japan, but it is growing popular in such droughty areas as the Middle East and North Africa.

Two major methods of desalination exist. One is the evaporation method that distills seawater, and the other is the membrane method that eliminates chlorine using the reverse osmosis membrane. The latter attracts wide attention because it does not need energy. In 1993, a pathogenic organism that chloride could not deaden got mixed in with tap water and killed more than 400 people in the U.S. This accident promoted western countries to adopt the membrane method, and it is also growing popular in Japan.

Sewage collected from households is mixed with sludge containing microorganisms to resolve organic substances. The sludge undergoes separation by sedimentation to collect treated water. The membrane bioreactor (MBR) method that uses microfiltration membranes is also used in place of the method that needs separation by sedimentation of sludge. Demand for the MBR method will supposedly grow because it is easily manageable and it does not require a big facility, in addition to its high purification ability. The treated sewage is mostly discharged to rivers, and a small amount of it is reused as general service water.

In the above treatment processes, various kinds of companies, such as manufacturers of pumps, equipment, and membranes, engineering companies that design and construct facilities, and companies and municipalities that manage operations and facilities, are involved. The water business is growing bigger. (To be continued)

No. 91: Water business in Japan and the world (10) (October 7, 2011)

Approaches to promote wide area supply

In 1977, the Water Supply Act was revised to promote the construction of water facilities for wide area supply. Based on this revision, the policy to promote wide area supply was formulated to improve the hardware vital to water supply. Water supply companies supply water to water service companies, and they are mostly made up of local governments and multiple municipalities. It is true that they played a certain role to secure water resources and implement stable water service in a wide area. In the retail market, however, efforts to promote water facilities for wide area supply hardly made progress, and a medium- and small-sized regional water service companies is operating in each city, town, and village. Since each water service company is small, it is doubtful that old facilities will be renovated and water technology will be inherited.

Under the above circumstances, the Ministry of Health, Labor and Welfare published the “Water Service Vision” in 2004 to modify the existing policy that placed too much emphasis on hardware and laid down a policy to strengthen the operational infrastructure by introducing various management systems for wide area supply. It promoted the vertical integration of water supply companies and water service companies and the horizontal integration of water service companies in the retail market. Saitama Prefecture, for example, plans to divide the prefecture into 12 blocs and integrate all companies involved in the water business horizontally for the integration of the whole water business scheduled for 50 years later. In Osaka, discussions are in progress on the vertical integration of water supply companies and water service companies. However, the fact remains that the approaches shown by the above two local governments are not widespread.

The alliance between the public sectors still prevails in the planning and designing integration. However, it is necessary to get the private sector involved to promote wide area supply from the management and financial viewpoints because of the necessity to pursue economies of scale. The alliance between the public and private sectors and the promotion of wide area supply have to go hand in hand for better water business. (To be continued) 

No. 90: Water business in Japan and the world (9) (October 6, 2011)

The concession system

The concession system that a private company manages all phases of the water business, from the construction to the operation of a water plant, helped French water majors like Veolia and Suez enjoy the dominant power in the world market. In Japan, the Cabinet Office tries to introduce the concession system. However, no concession system has been introduced in Japan.

The concession system entrusts a private company with the right to operate and develop infrastructure for a long period, leaving the ownership of a plant to the government. That is, a private company collects water charge from the users and manages the water business with the charges under government license. The private company is expected to improve business operation and pursue efficient management with its originality and ingenuity.

However, some problems have to be solved to introduce this system in Japan. First, it is critical how to set the optimal water charge and scale of operation. The water business is primarily managed on the municipality basis, such as city, town, and village, and supposed to suffer demand decline due to falling population. For efficient management of the water business, therefore, it will be necessary to integrate it in the basin of a river, and formulate the charging system to make the cost for sustainable development of the water business reflect in the charging system, while maintaining the transparency of the system.

What is more, it will be necessary to organize the consistence of several governing laws including Water Supply Act, Local Public Enterprise Act, and Local Autonomy Act. In some situations, it may also be necessary to revise the law governing the dispatch of government employees to a private company because a government employee can work for a private company for only up to three years at present. However, these reforms will be vital for Japanese water-related companies to increase the presence in the world market. Revision of the related laws will be unavoidable in the near future. (To be continued)

No. 89: Water business in Japan and the world (8) (October 5, 2011)

Japan’s first case that introduced PFI

Kawai Water Purification Plant in Yokohama is the first water purification plant that introduced PFI. Constructed in 1901, it is the oldest of the four water purification plants in Yokohama. The local government of Yokohama felt the necessity to renew the whole facilities because its aseismic capacity decreased considerably. It planned to introduce the membrane filtration system, but it had no delivery record of this system. It decided to introduce PFI for the renewal of the facilities to utilize the management capability and technology of a private company.

In the renewal project, the local government concluded a contract that the private company builds facilities including purification facilities and transfers the ownership to the local government and that the private company maintains the facilities and takes care of the sludge for its effective utilization for the next 20 years. This is a full package contract based on the Build-Transfer-Operate (BTO) system. In this case, the point is that which party, the local government or the private company, should bear the responsibility if water quality is impaired. In this project, the local government governs the entrance and exit of water, while the private company secures daily water production of about 170,000 tons after it receives raw water of turbidity of less than 30 degrees and maintains the water quality required by the local government.

The PFI helped the local government reduced the project cost including expenses for maintenance to 27,7 billion yen, about 6% lower than the cost that could have been required by the conventional method. In addition, under the direction of the private company, the water purification plant did not run pumps using the difference in height between the water source and the purification plant, and operated the facilities using the power by photovoltaic generation inside the premises. At present, this water purification plant attracts attention as a successful case of PFI. (To be continued)

No. 88: Water business in Japan and the world (7) (October 4, 2011)

Increasing presence of PFI and DBO

Private finance initiative (PFI) has been increasing the presence as an approach for the operation and maintenance of various public facilities. The water business is basically managed on a stand-alone basis with revenues from the users, and management approach prevailing in the private sector like PFI is agreeable to the water business. However, PFI is introduced mostly for the renewal and renovation of part of related facilities instead of the whole of a water purification plant. In fact, PFI was introduced in major prefectures including Tokyo, but it was mostly for effluent treatment facilities and power generation facilities. This is presumably because of the necessity to prevent PFI from getting involved in water quality management.

Design Build Operate (DBO), which covers from facility construction to operational management, is an approach to cover the whole part of a water purification plant. Two prefectures in Kyushu jointly operate a water purification plant astride their boarder and entrust a private company with the operation and maintenance. This is a good example of utilizing the funds and initiative of the private sector, and a noteworthy example as a method for wide area supply. DBO gives the same benefits as PFI except that latter uses private capitals.

Both PFI and DBO are helpful to increase operational efficiency and reduce operational cost with the help of clear burden sharing between the public and private sectors and know-how accumulated in the private sector. In addition, private companies can get business opportunities. Lately, the situation is changing. PFI was introduced for several water purification plants inside the same area and for the whole of a water purification plant in Yokohama. The presence of the two approaches is expected to increase with various arrangements and modifications. (To be continued)  

No. 87: Water business in Japan and the world (6) (October 3, 2011)

Trend of cooperation between the public and private sectors

In the basic policy for future growth, the Japanese government showed the resolution to promote active utilization of public private partnership (PPP) for the strategic maintenance of social capitals. In Japan, the government has been improving the system for the private-public initiative in the water business. Private finance initiative (PFI) was introduced in 1999, and the Ministry of Health, Labour and Welfare Ministry allowed private companies to work on the maintenance of the water service in 2002. And private companies were allowed to take chare in the maintenance of public water-related facilities in 2003.

The above modifications were introduced by many water business operators nationwide, and they helped them strengthen their business infrastructure. However, there are few cases that introduced PFI. This is because local bonds are widespread as a favorable fund procurement method. However, fund-raising by local bond will not be as favorable as in the past because both the central and local governments have financial difficulty. In addition, the management efforts of the public sectors alone are not enough to cope with the declining demand due to decreasing population.

In the situation mentioned above, utilizing private funds based on the cooperation between the public and private sectors, such as PFI, will be indispensable. It is reported that the PFI promotion committee set up in the Cabinet Office is discussing the introduction of the concession system that private companies are allowed to get the right to operate the whole of the water business. That is, the concession system is one step ahead of the PFI and one step before the full-scale privatization. (To be continued)