Presentation: A Decade-long Partnership of ADB and China Water Affairs Group Limited - Fifth Roundtable on Financing Water - Mr. Yong Liu

1. A Decade-long Partnership of ADB and
China Water Affairs Group Limited
- POE can also contribute
Mr. LIU, Yong
General Manager of China Water Affairs Group Limited
liuyong@chinawatergroup.com.cn

2. China Water Affairs Group – Concession Service Coverage
Jiangxi
Tap Water 1,574 641 3,384
Raw Water 345 - -
Sewage Water 88 60 25
Jiangsu
Tap Water 700 - 100
Raw Water 1,000 - -
Sewage Water 190 10 -
Guangdong
Tap Water 1,006 850 948
Raw Water 340 - -
Sewage Water 44 - 53
Henan
Tap Water 591 105 528
Sewage Water 35 33 37
Shandong
Tap Water 10 20 -
Raw Water 50 - -
Hebei
Tap Water 74 40 114
Sewage Water 73 - -
Tianjin
Sewage Water 50 - -
Heilongjiang
Tap Water 86 80 45
Sewage Water - - 70
Beijing
Tap Water 10 - -
Sewage Water 20 - -
Shanxi
Tap Water 130 5 237
Raw Water 55 - -
Hubei
Tap Water 865 320 345
Sewage Water 100 - -
Shaanxi
Sewage Water 170 20 -
Chongqing
Tap Water 185 - 200
Hunan
Tap Water 457 50 212
Sewage Water - - 28
Guangxi
Tap Water 355 - -
Hainan
Raw Water 100 - -
Current
Capacity
Under
Construction
Future
Plan
(‘000 tons/day)
Major Capacities Coverage
Total: 14.81 mn tons/day *
Current: ~8.94mn tons/day, Under-Construction: ~2.24mn tons/day, Future Expansion: ~3.62mn tons/day
* Data as at 31 March 2019 1

3. Mixed-ownership Reform Forming Differentiated TOO Business Model
Own both concession right and water supply assets, including the plant, pipeline
and land
Regional exclusivity with renewable concession rights for 30-50 years
Stable recurring cash flow relatively immune to economic cycles
CWA mainly adopts TOO business model,
and co-owns projects with local governments
TOO TOT BOT O&M
Definition Transfer-Own-Operate Transfer-Operate-Transfer Build-Operate-Transfer Operation & Maintenance
Process
• Project company is
responsible for financing,
constructing, operating
and managing the project
• Project company owns
and operates the facility
independently
• At the end of concession,
the project company has
the priority to renew the
concession or sell back the
asset to the government
(or qualified third party) at
market value
• Project company purchases
the facility and responsible
for financing and operating
the project for a specified
period
• Operational right is granted
by the government to the
project company
• Operational right transfer
takes place at the end of
the concession period
• Project company covers its
operational and
maintenance costs during
the concession period
• Project company
responsible for financing,
constructing and operating
the project for a specified
period
• Operational right is granted
by the government to the
project company
• Operational right transfer
takes place at the end of
the concession period
• Project company covers its
investment, operational and
maintenance costs during
the concession period
• Responsible for operating
and managing the project –
no ownership
• Usually not responsible for
financing and constructing
the project
• Project company covers its
operation and maintenance
costs during the concession
period
Key
Characteristics
• Tap water: usually no minimum volume guarantee
• Waste water: usually minimum treatment volume guaranteed by the
government
• Price adjustment mechanism included
• O&M: minimal capital
investment
• Waste water: usually
minimum treatment volume
guaranteed by the
government
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4. Sound Business Model Ensuring Strong and Steady Cashflow
Revenue Type GP Margin
 Water Tariff (Regulated)
(8 - 12% ROE as permitted by government for the
tariff hike)
30 - 50%
 Meter Installation and Engineering Construction Relatively High
 Sewage and Raw Water 35 - 60%
Monopoly water distribution operations with exclusive concessions
in the cities we have JV partnership with local governments
Collect tariff directly from end-users via monthly bills
Collect sewage and waste treatment fee on behalf of local
governments
Have strong government supports through grants, subsidies and
low interest loans
Strong Revenue Model for Core Businesses Stable Cash Flow & Strong Business Model
Immense Market OpportunitiesContinuous Growth Drivers
Efficiency
Improvement
Tariff Hikes
Capacity Expansion through
M&A and Organic Growth
Volume Growth through
Economy Development
& Urbanization
Urban and Rural Water Supply Integration
Continuous Industrialization and Urbanization Process in China
City Water Supply, Sewage Treatment and Drainage Integration
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5. Leading Water Operator Vertically Integrated Across the Value Chain
 Vertical integration across the value chain, providing end-to-end solution to
government and customers
 Tremendous room for value added services such as pipeline maintenance and
water meter installation
 Stable and growing utility business with economies of scale, relatively immune
to economic cycles
Strategically Positioned across the Value Chain
Water
Distribution
City Sewage City Drainage
• Water Supply
• Raw Water
• Underground
Distribution Pipelines
• Sewage Treatment
• Collection Pipelines
• City Drainage
Pipelines
Management and
Construction
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6. Background information - Severe Water Shortage in China
• China is one of the most water-deficient countries in the world,
recognized by the UN as one of the 13 countries with water
shortage
• According to the National Bureau of Statistics of China, China’s
average per capita freshwater resources was 2,355 m³ in 2016,
only slightly above one third of the global average.
• Acute inadequacy of natural water supply and uneven
distribution of water resources lead to severe water shortage in
the northern and part of the eastern areas
• Over 400 out of 660 cities suffer from water shortage
• Ever-increasing water demand resulted from the largest and fast
growing population as well as the rapid growth of economy,
industrialization and urbanization will continue to grow
• Total wastewater disposal increases with the accelerated
industrial and economic development, making serious impact on
the water environment and aggravating water resource shortage
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7. Huge Water Demand and Supply Gap
• Due to rapid industrial growth, 31% of the country’s wastewater was
released into rivers and seas without treatment, causing ecological
problems and substantial loss for fisheries
• According to SEPA, 35% of the water flows from the seven major river
basins is non-potable
• Over 30% of China’s water resources are considered grade 4 or 5,
namely, non-drinkable
• According to WHO and SEPA, water pollution may cost China up to
RMB 240 billion per year
• The World Bank and SEPA estimate that water shortage, insufficient
water usage and pollution can cost 8-10% of the nation’s GDP
• The 2030 Water Resource Group projects that if we carry on with
business as usual, the supply of water will not be able to meet the
demand for water by 2030. They predict the shortage to be 199 bn m³
378 358 369 385 403 420
114
129
145
194
230
265
57 68
77
88
111
133
619
549 555
591
667
744
818
0
100
200
300
400
500
600
700
800
900
2000 2005 2010 2015F 2020F 2030F 2030F Supply
Agriculture
Demand
Industry
Demand
Municipal
Demand
2030 Supply
Source: China Water Risk
199 bn m³
SHORT
(billion m³)
RMB 4 trillion to be spent on water infrastructure 2011-2020
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8. Low Water Tariff Compared to Global Level
3.48
2.82
2.63
2.12
1.92 1.92
1.53 1.49
1.29
1.19
1.08 1.05 1.01
0.85
0.72
0.63
0.44 0.41
0.12
0
0.5
1
1.5
2
2.5
3
3.5
4
Denmark
Australia
Germany
UK
France
Canada
US
Spain
Poland
Portugal
Turkey
Brazil
Japan
Italy
Mexico
SouthKorea
Russia
China
India
Water
Resources
Urban
Water
Plants
Sewage
Water
Treatment
End
Users
• Water Resource
Fee/Tax
• Depreciation
• Electricity
• Depreciation
• Wages
• Chemicals
• Electricity
• Depreciation
• Wages
• China ranks second from the bottom in the world’s major economies for water tariff (as of the year 2015), which in average costs about 1% of
Chinese resident's disposable income, far below world average of around 3% to 5%
• Low water tariff does not help the situation on improving the efficiency of water resources. As per unit of GDP, China’s water consumption is
5.5x the global average
• Current tariff adjustment only meets financial investment cost recovery at the stage (excluding projects run by state-owned entities that relies
on subsidies). But in the long run, water tariff should accurately reflect the long-run marginal cost in water supply and the opportunity cost for
scare (water) resource
(US$/ton)
Water Tariffs of Major Economies Major Cost in Water Supply Circle
Source：2015 data on Global water intelligence and various government websites
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