Shenzhen Water Group yesterday signed an agreement with France-based Veolia Water, transferring 45 per cent of its property rights to the French company.

In return, Veolia Water, a world leader in water and wastewater services, will put US$390 million in capital into the group.

The deal is the largest property right purchase involving foreign investment in China this year as well as the largest water project purchase ever in China.

"The transaction marks a successful completion of Shenzhen's vanguard attempt to transfer the State-owned property rights of five State-owned enterprises (SOEs) to global investors through international competitive bidding,'' said Li Hongzhong, acting mayor of Shenzhen. "This has not only built up our experience for further SOE reforms in the future, but also provides a constructive reference for SOE reform in other parts of the country.''

Previously, the city transferred property rights in its energy, gas, public transportation, and foodstuff groups.

With net assets of some 6 billion yuan (US$722.89 million), Shenzhen Water Group has five water plants and four wastewater treatment plants, and a daily water supply capacity of 1.67 million tons and a wastewater disposal capacity of 1.08 million tons.

The partnership will last 30 years, and hopefully, it will be extended to 50 years.

Veolia Water will be involved not only in water supply but also in a wastewater treatment system covering the whole city, the first system of this scale in China.

"The partnership indicates the long-term commitment of Veolia Water to China's water supply and wastewater treatment industry,'' noted Antoine Frerot, chief executive officer of Veolia Water.

He said that Veolia Water is fully confident of promising business prospects in China, basing his upbeat analysis on the gigantic potential for water supply and wastewater treatment facilities.

The Chinese Government is well aware of the importance of the environment and sustainability in the process of industrialization, he said.

He said that his company will take good advantage of its expertise and know-how for the improvement of water quality, supervision of pipeline networks, avoidance of water leakage and for the disposal of wastewater here.

The city aims to be treating 80 per cent of its wastewater by 2005 and 90 per cent by 2009.

And it aims at providing directly drinkable tap water by 2010.

Veolia Water has successfully won bids for eight water projects in China thus far, with a total investment of 600 million euros (US$744 million).

Another project of the firm in Guangdong Province is the operation and expansion of the Xiangzhou Wastewater Treatment Plant in Zhuhai.

Its other projects in China include the renovation and operation of a drinking water plant in Tianjin, the country's first Build, Operation and Transfer (BOT) international water supply contract, in Chengdu, and the 50-year full-service water supply service in Pudong, Shanghai.

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