Jorge Mora, chief executive officer of Veolia Environment China (VE ), has been working in the Middle Kingdom for 10 years. The French company has invested $800 million in 10 water-treatment projects and two facilities that generate power with methane gas released from solid waste.
He recently spoke to BusinessWeek's Asia correspondent, Frederik Balfour, about China's commitment to cleaning up its environment and the business opportunities the effort provides. Edited excerpts of their conversation follow:
Q: Some foreign businesses have told me it's difficult to crack the environmental market in China. What do you think?
A:I don't agree it's difficult to do business here. What is difficult is to get a clear understanding of the Chinese culture.
Q: How much potential does the China market have for Veolia?
A:It's more than potential -- it's already a [real market] for us. When it comes to the environment, I must say that the [local] governments and central government have a very good understanding now about the difficulties China will face in the future without a proper environment assessment.
We see a lot of real opportunities for our business, whether it's water, energy, public transportation, or waste treatment. China probably offers more opportunities than any other country or region in the world because it's very much polluted and because of its high population.
Q: What model of investment do you prefer in China?
A:Build-operate-and-transfer [BOT] projects consume a lot of capital. We have to find financial partners to share the risk. The guarantee may be from Veolia or the project itself. The banks decide on the merits of the project. We don't necessarily incur a big debt, because we find partners who will take the financing risk. We are mainly the operators, designers, and builders, not the financial investors.
Q: How much of your business is tied to soft loans to China?
A:Very little, not enough, although the World Bank is helping us on a big project in China, on the Carbon Distribution Mechanism scheme [under the Kyoto Protocol for emissions trading]. We believe we have a real future here and could be very helpful setting up some projects in some cities that are not rich enough [to purchase green technologies].
One project in which the World Bank is very involved is the Laogan project in Guangdong province, where we process 6,000 tons of waste daily, including energy recovery. This is a whole concept of landfill, treating [fields] by leach, and energy recovery.
Q: How much energy can be recovered from solid waste?
A:About 150 cubic meters of gas [released by decomposing waste] would generate 160 kilowatts of electricity. And 200 acres can produce about 140,000 cubic meters of gas. But of course we can't, say, produce enough energy for a city from waste. But [still we're] protecting the environment.
Q: How much competition do you face from local companies?
A:We are competing with local companies in all sectors, though we have no real presence in energy and public transportation divisions yet. We have a lot of local competitors in the water and waste [cleanup] markets. But it's not yet very well organized, not like in other industries.
There are lots of [local] newcomers who don't really know the industry but were told [there was opportunity] here. They're not as prepared as we and the rest of the Western companies are.
Q: Is there demand for your services in second-tier cities?
A:It's starting, but we must be very creative if we want to help them build up good environmental facilities. We have already invested in them but haven't seen revenues yet.
Q: How much have you invested in China?
A:About $800 million in the past 10 years, and our managed revenue [not consolidated revenue] will be $400 million in 2005. We're expecting growth of 20% to 25% per year.
Q: What kind of returns can you expect in China?
A:A good internal rate of return is around 12%, so we expect to get that in China as we do in the U.S. and Europe and other parts of the world.
Q: What share of your business will come from governments, vs. the private sector?
A:In the future, our share of the market will be balanced between local governments and the industrial sector, whether it's foreign direct investment or locally invested.
Edited by Patricia O'Connell