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)