A proposed water price hike in Lanzhou, capital of Gansu province on the banks of the Yellow River, has infuriated residents who are demanding to know why such price increases are necessary.

The State Council will soon receive a report on the proposed price increase by Lanzhou Veolia Water, which comes two years after French company Veolia invested 1.7 billion yuan ($248 million) to build a joint venture with Lanzhou Water Group Company, a State-owned enterprise established in 1955.

"The investigation group has just completed the survey on the issue and will report to the State Council. We hope to find a better solution," said an unnamed official with the municipal development and reform committee.

The date for a final decision remains unknown.

The local government is trying to balance the interests of residents against those of the company, the official said.

Liu Yanping, an official of Caojiating residential community in Lanzhou's Chengguan district, said she surveyed 10 percent of the 2,400 households in her community and learned that 95 percent of the households oppose water price increases.

From December 2005 until now, water prices have risen from 0.9 yuan (13 cents) per ton to 1.45 yuan (21 cents) per ton, Liu said.

"We hope to have a stable water supply with a stable price," Liu said.

Cao Sanqing, a resident in Liu's community, said official statistics show the average income of local residents is fourth among the five provincial capitals in northwest China, but the water price is second highest.

"How can we bear it?" Cao said.

Officials at Lanzhou Veolia Water, which controls the water supply in the city, said that the company suffered a loss as the water supply cost increased to 1.95 yuan (29 cents) per cu m. But the water price for residents is only 1.45 yuan per cu m.

Lanzhou Veolia's financial records show that in 2008 its actual water supply was 210 million cu m, its sales income was 288 million yuan, but its costs were 346 million yuan.

When the joint venture was created in 2007, observers believed Veolia would only get back its huge investment if it raised the water price.

"We hope the water price rises to 2.16 yuan per cu m," Sun Xiaoxia, chairwoman of Lanzhou Veolia Water Company, told 21st Century Business Herald.

Chen Shengying, 46, a resident in Hongxing residential community in Lanzhou's Xigu district, said he understands that the price will increase, but he questioned the water company's losses and how much of that was caused by overstaffing, inefficiencies and mismanagement.

On July 20, the local government held a hearing about the price hike and many residents wanted to know how the increase was structured, but Lanzhou Veolia Water refused to give this information.

He Wensheng, a Lanzhou University professor who was at the hearing, said local residents could not know the real cost if Lanzhou Veolia Water did not provide its cost structure.

According to the Gansu provincial cost investigation team, the final cost of Lanzhou Veolia Water was 1.72 yuan per cu m, which meant that charging 2.02 yuan per cu m of water could cover the cost.

Fu Tao, director of Water policy research center at Tsinghua University, said that Lanzhou Veolia Water gets good-quality water at low cost from the upper reaches of the Yellow River, and the processing cost for the company would be about 1 yuan per ton.

However, company officials said they put more money into the water supply because of the rising cost of labor and raw materials, such as water purification equipment, monitoring facilities and distribution networks.

"We had invested some 1 billion yuan to urban water supply facilities in the past two years," Sun said.

Veolia Water, the water division of Veolia Environment, is the world's leading water services company. The company went into Lanzhou and obtained 49 percent of equity of Lanzhou Water supply Company in 2007 and became the only water supply firm in the city.

(China Daily September 4, 2009)