Weihai, China

City Name Weihai, China
Project Name Feasibility study on the privatisation of industrial wastewater treatment
Status Completed
Time Period Jun 2002-Jun 2003

Description of Project

This pilot activity was a feasibility study on the development of public-private partnerships for the construction and operation of a wastewater treatment facility. The study was conducted on a sewage treatment plant as a joint venture between a tannery and the local government. The project developed a comprehensive wastewater management plan, including the establishment of a long-term vision for wastewater management and introduction of methods to decrease pollutant load. It also developed a proposal for the construction and management of a wastewater treatment plant through public-private partnerships, with public participation, local governmental coordination and capacity-building.

Because rainfall is low and water resources are scarce, Weihai is susceptible to marine pollution, which has an impact on the main industries. In response to these issues, Weihai has actively been involved in wastewater treatment and recycling of water for many years. The pilot activity being carried out in Weihai is a feasibility study on the development of public-private partnerships for the construction and operation of a wastewater treatment facility.

The municipal wastewater treatment facility in Wendeng City (under administration of Weihai) is reaching capacity (40,000 tons per day, total investment is RMB 500 million) due to rapid urbanisation and industrialisation, and is unable to accept wastewater from heavily polluting industries. Due to the heavy burden on the treatment facility and protests from the residents who live downstream, the plant must proceed to the construction of its second phase.

One such industry, a tannery (1,000 persons), is currently paying high user fees to the city in order to have its wastewater treated at the central wastewater treatment plant. The plant, with a processing capacity of over 300 million pieces annually, discharges 4,000 tons of wastewater per day. The concentration of pollutants is high: COD=2,500mg/L, BOD=1,000mg/L, SS=1,500mg/L. In 1998, the company invested RMB 10 million and constructed a secondary treatment plant, however because it is located too close to residents, there have been claims of heavy odours and noise pollution. There is also a monosodium glutamate plant in the city which has a similar problem.

At the same time, the stakeholders are searching for a suitable management system for the plant. Though negotiation, the local government, the sewage treatment plant, the tannery, and the monosodium glutamate company reached a consensus, as follows: (1) Establishment of a joint venture by the sewage treatment plant and tannery to construct the second phase of the sewage treatment plant; (2) Total investment for the plant will be approximately 40 million yuan, with the sewage treatment plant investing in the land and the tannery responsible for construction and equipment investment according to their discharged wastewater volume; (3) Joint establishment of treatment fee collection methods and levels by the government, joint venture, public and other stakeholders; and (4) Transfer of the second phase of the sewage treatment plant to the sewage treatment plant after 15 years. Issues in the implementation of this project include basic background information such as the application of appropriate technology, regulations for the treatment plant, and user fees, as well as investment rates, improvement of technology and efficiency, treatment fees when accepting industrial wastewater from other industries, and risk management.

In principle, industries are responsible for the treatment of industrial wastewater however, when there are a large number of small and mid-sized enterprises (SMEs), a centralised treatment plant is a rational choice. In developed countries, financial support from the national and local government, as well as related foundations and financial institutions is carried out in the construction of centralised treatment plants, however, for cities in developing countries, where lack of capital is an issue, the issue of inviting private funds in the construction and improvement of environmental infrastructure has become a topic of discussion. Some important features to note:

  • Weihai is developing very rapidly, as from 1987 to 2000, GDP increased from 2.56 billion RMB to 56 billion RMB
  • Weihai municipal government introduced polluter pays principle to construct the second treatment plant and asked industry to pay 700 RMB per ton per day according to discharge volumes that cover part of real cost (Real cost: 2000-3000 RMB per ton)
  • For the running costs of sewage treatment, the government allows users to pay only 0.15 RMB per ton at the beginning. In year 2000, the government raised it to 0.2 RMB for residents and 0.4 RMB for industries. This covers 30% and 60% of actual running costs (Actual running cost: 0.6-0.7 Yuan per ton)
  • The government also raised the price of the water three times during the last two years (1999-2000) from 0.8 RMB to 1.8 RMB per ton. At that time, the government used a progressive pricing schedule that raises the cost per unit of water service in the blocks of higher consumption; it can even reach 40 RMB per ton
  • Weihai municipal government is undertaking its first local public-private partnership in Wendeng city with a population of 200,000. The government has already constructed one sewage treatment plant in year 2000 with an investment of 500 million RMB for a capacity of 40,000 tons per day
  • The industrial wastewater has increased rapidly over these years. Now the treatment plant is full and sometimes overloaded with the industrial pollution. The municipal government negotiated with these two major polluting industries to build and operate a new treatment plant under a joint venture with the municipality based on PPP, where the industrial wastewater of all the industries will be treated
  • For this system, the major challenge is to establish an autonomous regulatory body
  • In the joint venture, the operations will be contracted out to the same industries, as was the case in Cartagena city of Colombia (this case is discussed above)

In the conduct of the study, test activities were also carried out, including public bidding, in which more than 16 environmental engineering companies participated. Final selection was given to the Environmental Science Research Institute. Construction of the second phase of the sewage treatment plant in Wendeng (capacity 50,000T/d) has begun and will be completed and put into operation by the end of this year. Stakeholders are currently working on a suitable management system for the plant.

The study pointed out the following issues to be further considered:

  • Change of concept: Government is not able to take every responsibility for all aspects of environmental protection due to financial and infrastructure constraints. Market mechanisms should be used in certain areas of environmental protection. It is important to raise public awareness and encourage people to take responsibilities in environmental protection.
  • Establishment of laws: There is a lack of proper laws regarding conflict resolution in the case of BOT and TOT.
  • Relevant issues: Applying the market mechanism to establish a sewage treatment plant is a fairly new subject and some relevant issues should be given attention, such as percentage of registered capital of investors, proper time framework for operation and transfer, percentage of investors’ profit, supervision of operations, etc.

This is first experience to launch this type of public-private partnership at the local level and for the industrial wastewater management. This is a very innovative and bold decision by the local governments and industries as well to treat the industrial wastewater efficiently due to economies of scale. For developing countries, where wastewater is one of the biggest challenges due to unavailability of investment as well as the low efficiency of wastewater treatment plants, this example can be replicated very well due to its simplicity.

Recent Activities

Related Reports and Links

United Nations Economic and Social Commission for Asia and the Pacific

Environment Section
Environment and Sustainable Development Division
United Nations Building, Rajdamnern Avenue
Bangkok 10200 Thailand
Email: escap-esdd-evs@un.org

Institute for Global Environmental Strategies

Kitakyushu Initiative Network Secretariat
3-9-30 Asano, Kokurakita-ku
Kitakyushu City 802-0001 Japan
Email: kitakyushu-initiative@iges.or.jp