Funds pouring in for clean water supply

Vietnam's clean water supply industry continues to catch the eye of local and foreign investors, which is good news for all.

Funds pouring in for clean water supply

The first phase of the AquaOne Group’s Duong River Surface Water Plant in Hanoi was inaugurated on September 5, with a capacity to pump out 300,000 cu m of clean water a day.

The regional-scale clean water plant is on a total area of 65 ha and investment in this first phase came to around VND5 trillion ($216 million). The project will be expanded to 600,000 cu m a day by 2023, 900,000 by 2030, and 1.2 million after 2030. 

The plant was built in accordance with Hanoi’s clean water supply planning to 2030 and vision to 2050. “Investing in clean water and surface water treatment is part of efforts towards sustainable economic development, improving quality of life in the community, preventing land subsidence, controlling and protecting water security, and ensuring safety in society as regards water, which are all priorities of the AquaOne Group,” Ms. Do Thi Kim Lien, Chairwoman of the Duong River Surface Water JSC, told VET. 

Wave of investment

Another clean water plant from DNP Corp’s DNP Water, with total investment of VND650 billion ($28 million), was put into operation on April 20 in Nhi Thanh commune, Thu Thua district, in the Mekong Delta province of Long An.

On 31 ha, the plant is equipped with modern technology and its maximum capacity of 80,000 cu m a day is expected to provide clean water to Tan An city and the districts of Thu Thua, Tan Tru, Ben Luc, Can Giuoc, and Can Duoc.

It uses uBCF bio-filtration technology, which is found in many developed countries. The environmentally-friendly technology helps improve water quality without the use of chemicals and meets standards set by the Ministry of Health (MoH). 

DNP Water has charter capital of some VND1.78 trillion ($77 million) and has 18 member units, associates, and projects in 12 cities and provinces with a total designed capacity of over 1 million cu m a day, serving more than 10 million people.

It was the first private company in the clean water industry and mobilized capital from major banks and financial institutions around the world, such as the IFC and Olympus Capital Asia.

Under a government policy of socializing the water industry and given increasing demand for clean water due to progressively polluted and low-quality water tables, DNP has found success in supplying clean water to large parts of the population.

As at the end of the second quarter of this year, the Refrigeration Electrical Engineering Corporation (REE) owned 42.07 per cent of the Thu Duc Water B.O.O Corporation, 40 per cent of the Saigon Water Investment and Trading Company, 44.17 per cent of the Thu Duc Wasuco JSC, 35.95 per cent of the Song Da Water Investment JSC (Viwasupco), 32 per cent of the Tan Hiep Water Investment Company, as well as holdings in other clean water companies, according to the corporation’s quarterly report released in July.

The report also noted that clean water is an important utility industry, and REE has chosen it as a strategic, long-term investment. 

Investment funds such as VOF, Dragon Capital, Maybank Kim Eng, Vietnam Securities Investment Fund, and Vietnam Growth Investment Fund have all bought stakes in subsidiaries of the Saigon Water Corporation (Sawaco).

Vietnam-Oman Investment (VOI), a joint venture between the State Capital Investment Corporation and the State General Reserve Fund of Oman, invested $19 million in building the Hau River Water Plant.

Manila Water Asia Pacific (Philippines), meanwhile, also invested in Vietnam’s clean water industry through the acquisition of shares in the Saigon Water Infrastructure Company (SII).

Over the years, Vietnam’s clean water industry has continually received attention from domestic and foreign enterprises as well as investment funds.

According to the “Vietnam: Towards a Safe, Clean, and Resilient Water System” report released by the World Bank last May, some 100 private enterprises have mobilized capital to invest in urban water supply works and several hundred in rural water supply works in all 63 cities and provinces.

Opportunities coming

The Ministry of Construction (MoC) has forecast that, by 2020, demand for urban water supply will increase from 9.4 to 9.6 million cu m a day as the urban population reaches 44 million.

“Clean water is a concern for all humankind, including Vietnam, because natural water supplies are becoming polluted,” said Ms. Lien. “We are therefore investing in clean water and contributing to building a circular economy in Vietnam.”

 

Generally speaking, investing in clean water is a profitable endeavor for companies and investors. The REE report noted that in 2018, it invested nearly VND1.5 trillion ($64.8 million) in the clean water industry and posted after-tax profits of VND154 billion ($6.6 million), up 63 per cent against 2017.

Viwasupco announced revenue of VND137 billion ($5.9 million) in the third quarter of 2019, up 17 per cent over the same period of 2018, with after-tax profit of VND72 billion ($3.1 million), up 28 per cent, in a report released in October.

In the plan on the development of water supply for urban and industrial areas to 2025, Vietnam targets all residents in urban areas having access to clean water with consumption at 120 liters per person per day.

Meanwhile, the capital needed to build new water plants or to improve existing networks and other needs is about $3.3 billion, and capital for urban wastewater treatment plants over the next five years is $6.9 billion. Achieving these targets requires more funds from companies and investors.

In addition, Decision No. 1232/QD-TTg from the Prime Minister on August 17, 2017, announced a list of enterprises divesting State capital to 2020.

Within the 2017-2019 period, the State is to gradually divest capital from 57 water companies, of which 24 will see half of their charter capital sold but less at the remaining 33. 

Most are already equitized, with full private or majority private ownership, according to the World Bank report.

Analysts say that the Decision opens up opportunities for new investors as well as for businesses already in the water industry to enhance their size and position through merger and acquisition (M&A) activities.

Investors will be able to expand their investments through participation in auctions of local water supply companies, while investment funds and foreign companies can invest directly or through companies in which they hold shares.

Risks exist

Investing in the clean water industry also carries risks, many unforeseen. Viwasupco has recently dealt with an incident involving water quality, when residents in the southwestern areas of Hanoi discovered their water supply from Viwasupco had a strange smell and oil scum floating on top.

The reason was determined as being that a large amount of waste oil had been dumped into a ravine close to Tram Canal in Hoa Binh province’s Ky Son district, about 800 meters from a water channel of the Song Da Water Plant.

Though the incident has now been resolved, it significantly affected the lives of people in areas relying on water from Viwasupco and also the company’s business.

Ms. Lien said that investment in the clean water industry requires substantial sums and is long-term by nature. The World Bank report noted that the cost of collecting, treating, and discharging wastewater can be several times higher than water supply costs.

“It is necessary to have stable mechanisms and policies, and businesses need to have faith in the government,” she added.

Though the government encourages equitization, the process faces a host of challenges, the World Bank report shows.

One is a lack of competition. Investors, whether State-owned or private, have no motivation to invest in improving efficiency or service quality. While equitization has seen an injection of private capital, the returns are not clear as yet.

The report also stated that the role of the government is to adjust regulations and service contracts so that people receive quality water supply at a reasonable price while the service provider can still earn a profit. VN Economic Times

Ngoc Lan

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