In this article, we will share “Global Innovation 260”, the 260th lecture delivered by Mr. Wang Yuquan, the chief consultant of Frost & Sullivan, a partner of Haiyin Capital. We will present the case of Suez Environment Group, and how? governments and companies can combine efforts to solve environmental problems.
I. Water crisis in the world and China
The word “water shortage” is certainly not unfamiliar to you. At present, nearly one-sixth of the world’s population does not have access to clean water. On average, one child dies every minute due to water-related diseases. China’s per capita water resources are far behind the world average. With the rapid economic development and rapid expansion of cities and industries, China’s demand for water resources is also increasing year by year.
Historical trend of growth in per capita water use and reduction in per capita water resources (Picture from chinawaterrisk.org)
Water scarcity means that many people do not have access to clean fresh water. You may not be aware of this problem if you live in a city where you can simply turn on the tap and have access to clean fresh water.
With rapid urbanization, the requirements for water quantity and quality are also increasing. How did we? solve this new problem?
The solution to this problem is inseparable from the model of government and enterprise collaboration, that is, the government provides policy support and the enterprise provides water treatment related technologies.
The following is the introduction of Suez Environment Group, which has been developing water treatment technologies for more than 160 years.
The birth of Suez Environment Group
When you mention the name “Suez”, you may think of the Suez Canal. In fact, the Suez Canal and Suez Environment Group are really closely related. More than 160 years ago, French diplomat and industrialist Ferdinand de Reiseb was invited by Egyptian Governor Pasha to go to Egypt to preside over the Suez Canal. The excavation of the canal was a huge project and required sufficient funding. So he founded the Suez Canal Company in 1858 with the support of his cousin Empress Eugenie and then the Emperor Napoleon III of France. Eleven years later, in 1869, the Suez Canal was officially completed, opening up a two-way water transport between Europe and Asia, and changing the world’s logistics landscape.
By the end of the 19th century, with the progress of the Industrial Revolution, the process of urbanization in the world had begun. At that time, there was no running water in the citizens’ homes. People needed to go to the river to fetch water for use, and then dump the sewage back into the river. The problem of water for citizens needed to be urgently resolved. For this reason, after 1880, large European cities such as Paris, Bordeaux and Barcelona began to build water supply and sewage pipe networks.
Suez also participated in the construction of water supply and sewage treatment infrastructure, and contributed to this change, and also started its own urban public health management business.
After the Second World War, the high-speed recovery of the European economy brought serious pollution problems, especially the rivers, the water was dirty and smelly, and the fish in the water were almost extinct.
Under the strong demands of the residents, France promulgated the Water Law in 1964, establishing six major river basin institutions under unified management across the country.
The “Water Law” stipulates that the Basin Water Authority can extract 18% of the “water tax” from the water and sewage charges for the construction of public sewage plants, sewage pipelines, and water supply systems within the basin, and can also help factory construction Sewage treatment plant, but it must be funded by local governments and factories. The Basin Water Authority is responsible for the management, and the specific operations are handed over to the enterprises in the form of franchise.
In the 17th century, the French successfully developed their navy through the use of private capital to build warships and ports through the use of private capital. In the later 18th century, canals and bridges were built, and in the 1970s, the franchise model has been widely used in various infrastructures, including sewage treatment and garbage treatment.
The advantage of this is that the state can make full use of private funds to increase the supply of public infrastructure with limited financial resources.
At the same time, it also provided opportunities for private enterprises to grow. The characteristics of French public infrastructure franchise can be summarized into 5 points:
1. Infrastructure is public;
2. The rights of both parties are stipulated in the form of a contract;
3. The government has the supervisory power over the operators, especially to avoid arbitrary management, they have set up a special management committee to manage the operators;
4. The enterprise has the development right;
5. The government reserves the right to intervene in prices and the right to unilaterally terminate the contract.
The investment period of public facilities operation is long, and franchising allows enterprises to invest with confidence. Of course, franchise management is also important, especially to avoid monopolies. The French approach is to use listed companies as much as possible, because listed companies are financially transparent, and if excessive profits appear, it indicates a suspected monopoly, and the government will recover the operating rights. On the other hand, if the company earnestly operates and maintains a reasonable profit, the business can be sustained for a long time, and if innovation is achieved in science and technology, there is still a chance to expand the field of cooperation.
This is how Suez Environment Group has complied with government policies, while following changes brought about by the development of urbanization, and cooperates with the government in infrastructure and municipal construction. With a stable source of business, Suez can continue to invest in technological innovation and explore more areas. It started with the construction of the Suez Canal, then the construction of water supply and sewage systems, the construction and management of waterworks, and the treatment of urban waste. These environmental protection projects with large investment and heavy assets are led by the government. The enterprise is responsible for implementation.
More importantly, with the experience and scientific and technological accumulation in the French market, they have sufficient strength to enter the international market. By the end of the 1990s, Suez’s business had spread all over the world. In 2015, Suez Group integrated more than 40 brands in more than 70 countries to form a unified brand, and identified 4 main business directions: management of water cycle extension, recycling and reuse of waste, and providing solutions for water treatment. And consulting services for sustainable development in cities and regions.
Continuous technological innovation
In the past few decades, China’s urbanization has developed rapidly, and Suez has also cooperated with governments across China in the construction of many municipal projects. As early as 1975, Suez Environment Group entered the Chinese market. After more than 40 years of development, it has participated in the design and construction of more than 200 water plants and sewage treatment plants, and managed more than 30 water projects in more than 20 cities.
For example, in 2012, Sino-French Water, a subsidiary of Suez, cooperated with Sichuan Dayi Water to provide operation and management services for 8 township sewage treatment plants in Shuangliu County, while investing in the construction and operation of the Maojiawan Wastewater Treatment Plant. In 2013, the two parties signed an agreement again to jointly operate the Chongzhou Dayi Wastewater Treatment Plant in the next 25 years, providing municipal sewage treatment services to more than 600,000 urban residents and industrial and commercial users in Chongzhou.
Suez technology also includes reverse osmosis technology. One of the uses of this technology is desalination. Why is it called reverse osmosis? Because it is opposite to the direction of natural infiltration. Its process is not complicated. If a semi-permeable membrane is placed between fresh water and salt water, this membrane only allows water molecules to pass through.
In this regard, Suez Group has nearly 50 years of industrial application experience, because they established the first desalination plant in France in 1969, and have now grown to 250 plants worldwide.
However, from a global perspective, there are not many desalination plants, and desalinated water only accounts for about 1% of global water consumption.
Now that the technology is mature, why is it used so little?
There are many coastal cities in China that are short of water. The rivers that supply fresh water to these cities will be seasonally dry or even cut off. If the groundwater is over-exploited, it will cause seawater to be poured back.
So, since it depends on the sea, it is better to desalinate directly with seawater?
That is because the current seawater desalination technology also has a disadvantage, that is, large energy consumption, resulting in high costs. Energy costs can account for more than 50% of the total desalination costs, and some even reach more than 70%.
But in some coastal areas with severe water shortages, such as Abu Dhabi, they are more willing to overcome this problem.
Abu Dhabi is called an oasis in the desert. Although it is an oasis, it is surrounded by the desert after all, and there is a shortage of fresh water resources. According to the statistics of the Abu Dhabi Environment Bureau in October 2017, due to excessive well drilling and irrigation, groundwater resource consumption accelerated. The current rate of groundwater consumption is 20 times that of recharge. As coastal cities, they want to use seawater cheaply.
So we can see that in fact we are not short of water. What we lack is cheap water. If we learn from France and use the government-led, enterprise-developed technology model, we are expected to continue to solve these environmental problems.
In this lecture, I introduce the history of Suez Environment Group, as well as its technology and latest progress in water treatment. I hope you can master the following three points:
First, from the experience of the European government, especially the French government, in successfully controlling water pollution:
First of all, we must unify the planning and distinguish responsibilities, rights, and interests;
Secondly, there must be sufficient long-term funding support;
Finally, we need to introduce corporate cooperation.
Second, the model in which the government cooperates well with enterprises in public facilities services is a franchise model. The advantage of adopting this model is to adapt to the characteristics of the environmental protection industry, that is, asset-heavy operations, long investment returns, and strong public attributes. Cooperating environmental protection companies should be listed companies with financial transparency as far as possible to avoid monopoly. Once long-term cooperation is achieved, enterprises will have the ability to increase investment in science and technology, gradually form their own technological advantages, and expand into new areas. Thirdly, benefiting from the arrangement of this system, Suez has gradually developed its own superior technology and realized the global expansion of its business. It is the best model for the government and enterprises to jointly solve environmental problems.
The development of the environmental protection industry depends on the support of government policies and the active implementation of enterprises in compliance with policy needs.
France’s franchise model is worth learning from, not only avoiding the possible monopolistic behavior of the company, but also allowing the company to operate for a long time with reasonable profits. With the support of stable business, enterprises can also carry out technological innovation and seek to expand areas.
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