Low water rates undercut China’s desalinization effort

Low water rates undercut China’s desalinization effort

Staff Reporter

2013-10-21

Two years ago when facing water price hikes in cities and risks of water shortages, companies had been eager to invest in desalinization efforts in China, but they soon sidled off to the the sidelines, waiting for the government to unveil its core subsidy policy for desalinization, the Beijing-based Economic Observer reports. That said, some enterprises have begun to step in to the breach. Hydrochina Huadong Engineering Corporation, a subsidiary of the state-run Power Construction Corporation of China (Powerchina), acquired eastern China’s biggest desalinization firm Zhoushan Liuheng Water Supply Co for 144 million yuan (US$23.6 million) in September.On Aug 26, state-run China National Chemical Corporation’s Hangzhou water supply unit signed a contract to desalinize 50,000 tons of sea water per day for Cangzhou’s Bohai New District, though they declined to reveal the value of the contract, a similar case completed in 2011 had an investment of 428 million yuan (US$70 million), the report said.

On Sep 18, the National Development and Reform Commission unveiled Yancheng and Qingdao as the second batch of pilot zones for desalination, after earlier this year, it announced eight cities and enterprises, including Zhoushan, Tianjin and Cangzhou’s Bohai New District, as the first batch pilot zones for desalinization. Officials believe the desalinization industry will have a bright future, though no clear subsidy policy was unveiled.

Zhoushan’s water supply officials said Liuheng currently has a population of 100,000, but the island’s water supply, including desalinized water still cannot match up to increasing demand. Currently, Liuheng’s eight reservoirs supply half of the water used in the island, while the other half is from desalinized water, each supplies about 20,000 tons per day.

Liuheng plans to complete by the end of this year to offer an additional 30,000 tons of desalinized water a day, reaching a total of 50,000 tons per day. It aims to build up a desalinization capacity of 100,000 tons per day.

In the nation’s 12th five-year development plan, China aims to produce 2.6 million tons of desalinized water per day by 2015, up from 700,000 tons per day at the end of 2012.

However, little progress has been seen in the desalinization industry so far. Zhao Heli, director of Tianjin Institute of Seawater Desalination Research under the State Oceanic Administration, attributed the slowing progress to unreasonable market price mechanisms, as the state policy now demands desalinization enterprises take on the costs of both desalinization and that of forging distribution channels, while the government takes care of the construction of reservoirs and distribution networks in the supply of running water from rivers.

Zhao said the reasonable price for desalinized water should be 10 yuan (US$1.64) per ton considering its production costs, distribution costs and the need for some profit. In Tianjin, however, running water is charged at a rate of just 4.9 yuan (US$0.80) per ton, far cheaper than desalinized water, thus making the commercialization of desalinization difficult, experts said.

Some regions such as Zhejiang and Zhoushan have begun subsidizing corporate clients using desalinized water to encourage desalinization efforts, the report said. However, the nation as a whole still lacks a clear mechanism which would subsidize the use of desalinized water, experts said.