PR China’s Growth Potential

The People’s Republic of China (“PRC”) has experienced an average of 11% growth in its Gross Domestic Product (“GDP”) annually in the last three decades (source: USA Today). Growth moderated somewhat during 2010, declining from 10.6% in the first half to a still surprisingly strong 9.6% (year-on-year) in the third quarter. The domestic economy cooled with the fading of the stimulus impact and the normalisation of the monetary stance, and investment and urban consumption decelerated, as did imports. However, with exports still going strong, net external trade contributed significantly to year-on-year growth and the external surplus is now rising again (source: World Bank: China Quarterly Update November 2010).

In China’s 12th Five-year Plan, the environmental protection investment budget is set to more than double. Assuming water treatment maintains its share (36% in 2008) of environment protection spending over the life of the Plan, there should be a boom in the segment over the next five years (source: Goldman Sachs).

 
Company’s Venture into PR China

On 22 May 2008, PNHB executed a Sale and Purchase Agreement In Respect Of The Agreed Projects with Global Environmental Solutions Ltd (GESL), (“Sales and Purchase Agreement”) and a Shareholders’ Agreement In Respect of Sino Water Pte Ltd with Environmental Holding Pte Ltd (EHPL) (Shareholders’ Agreement”). The execution of these agreements marked PNHB’s venture into the water and wastewater industry in PRC.

Under the Sale and Purchase Agreement, PNHB acquired the rights to the concessions of The Agreed Projects in the PRC from GESL. These water and wastewater projects were be injected into Sino Water Pte. Ltd. (SWPL), a company incorporated in Singapore initially with 80:20 equity holdings between PNHB and EHPL, which had now changed to 98.65%:1.35%. The Shareholders’ Agreement regulates the relationship of SWPL shareholders and the conduct of SWPL ‘s business.  

As at 31 December 2008, two projects namely Lushan Water Supply Project and Binzhou Wastewater Project had been successfully transferred and injected into SWPL. On 27 July 2009, SWPL successfully acquired 80% ownership  of Luancheng Dayu Water Supply Co. Ltd., which is involved in the treatment and distribution of water and related services in Luancheng County Township. On 16 September 2009, SWPL become a 80% owner of Hebei Sino Panlong Industrial Water Co. Ltd, a joint venture in PRC to undertake the Yuanshi Industrial Water Supply Project together with Yuanshi County Panlong Industrial Water Supply Co.Ltd.

The project is located in Lushan County, Pingdingshan City of Henan Province. Currently, Luwei (Pingdingshan) Water Co Ltd, a Sino Water’s 91.34% owned China subsidiary, is supplying water to approximately 6,000 consumer accounts in Lushan County township from the existing 2 MLD underground water well pumping station, with the daily supply ranging from 1.4 MLD to 1.8 MLD. Water is abstracted from underground and supplied directly to consumers by five pumping stations.
Lushan Water Supplies Project involve the rehabilitation of the existing water supply system in Lushan County Township, and to build a new 30 MLD WTP (Phase 1) complete with the laying of 14.65km length of raw water pipeline and new reticulation pipeline in Lushan County township.

The construction of a new 30 MLD WTP had been completed.The laying of 14.65km length of 800mm dia. combination of Concrete Pipe and MS Pipe raw water pipeline is ongoing, and has achieved 97.87% of progress by December 2011. Upon the completion of the raw water pipeline laying work, water from Zhaopingdai Reservoir will be conveyed to the new 30 MLD WTP to commence Testing & Commissioning work. The new 30 MLD WTP is expected to be operational by end of March 2012, supplying treated water to the consumers in Lushan County Township. With the supply of water from the new 30 MLd WTP, the private wells will be closed gradually and marking a new era for water supply in Lushan County.

A total length of 40km reticulation pipeline will be laid to cover the supply of treated water in Lushan County township for a population of about 130,000. Currently some 15.2 km of the reticulation pipelines were laid and/or replaced, with a further 8.8 km length will be laid and/or replaced from now till end of 2011. Another 16km length of pipe shall be laid alongside with the development of the Lushan County township and industrial zone. 

A new water meter installation and replacement programme to facilitate a more efficient water usage records and billing collection system will be carried out. This programme involves the replacement of 6,000 existing meters and installation of another 18,000 meters for new additional consumer accounts. A total of about 3,000 old meter had been replaced under the meter replacement programme. The 18,000 new consume programme is expected to commenced in March 2012 and complete within 3 years time.

The project is located in Laodian Village, Yangxin County, Binzhou City of Shandong Province of PRC, under SWPL's 100% owned China Subsidiary, Xinnuo (Binzhou) Co. Ltd.

The project involves the construction of a 30 MLD wastewater treatment plant in two phases of 15 MLD each. It is designed to treat wastewater from the nearby factories that process tannery, building materials and chemicals. The wastewater pipelines from these factories have already been laid and connected to the inlet of the Binzhou WWTP. On the completion of the Binzhou WWTP, the waste from these factories, which is estimated at 15 MLD, will be channeled to the WWTP for further treatment before being discharged into the nearby river.
 
To commemorate the project commencement, a groundbreaking ceremony was held on 28 September 2008, attended by the Binzhou Government and Chinese Communist Party officers as well as PNHB’s and SWPL's representatives.
The construction of the Phase 1 15 MLD wastewater plant and the plant equipment Commissioning work had been completed. The WWTP Testing & Commisioning work had been defer to February 2012 due to winter weather conditions and also the installation of the pre-treatment facilities by the tanneries factory.

With the completion and operational commencement of the new Binzhou WWTP, the current environmental degradation caused by industrial waste will be significantly reduced, resulting in a better environment for Laodian Village in general and the Chenlou Industrial Park, in particular. According to the Laodian Village Government, investors are eagerly awaiting the completion and operational commencement of the Binzhou WWTP to set up new factories in Chenlou Industrial Park. If this happens, the Binzhou WWTP’s capacity will need to be upgraded in the near future.