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FEBRUARY 14, 2012 press release:

“Veolia Water signs three contracts to operate and maintain water and wastewater plants in Japan.”

www.veolia-newsroom.com

February 2012 ) Veolia Environnement, Veolia Water Communications Department

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BACKGROUND The Japanese water market According to the French economic mission’s most recent study in Japan, the Japanese water market suffers from two major weaknesses: > Horizontal fragmentation: Japanese law has led municipalities and local authorities to manage their own water supply and sewage treatment facilities. The result is scores of local water companies, which are often publicly owned and managed utilities. > Vertical fragmentation: Businesses in different sub-sectors—pumps, filters, pipes, operation— usually do not pool their capabilities and expertise and do not know how to offer an integrated service. There are more than 17,000 “water companies,” most of them small public utilities responsible for delivery and treatment. Unlike France, Japan has no big companies responsible for the entire production chain, from the treatment facility to service management. A few large companies do exist, but most specialize in the design and construction of treatment plants or delivery systems. Despite its horizontal and vertical fragmentation, Japan’s water industry boasts great technical expertise in production, delivery and treatment. What’s more, Japanese know-how is recognized worldwide, both in the fields of treatment (60% of the global market for ultrafiltration and microfiltration membranes) and desalination (70% of the global market for reverse osmosis membranes). For example, the major global specialist in carbon fiber, the Japanese group Toray, is also the leader in the membrane filters market. Nonetheless, as in many other sectors, such as nuclear power and transportation, Japan suffers from a saturated national market plus a decline in infrastructure needs due partly to a plummeting birth rate. Japan’s population—127 million in 2006—is slated to shrink to 101 million by 2050. Domestic market saturation is pushing public authorities and Japanese companies to look for customers outside the country. The Japanese government aims to capture 6% of the global water market by 2025. However, Japan is hindered by its domestic structure and struggles to grow internationally against well-established, albeit unevenly distributed, competitors. Because Japan’s market is relatively protected and highly lucrative, Japanese companies—which have never had to compete on price locally—have very high-cost structures that undermine their international competitiveness. Moreover, they have trouble co-planning credible projects with local companies or municipalities abroad. Lastly, although equipment and plants, areas in which Japanese companies excel, make up a significant share of markets, services, which are much farther removed from the Japanese offer, are not their strong suit.

www.veolia-newsroom.com

February 2012 ) Veolia Environnement, Veolia Water Communications Department

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FAQ 1. What do the contracts Veolia Water Japan has just won involve? 2. Why are Japanese municipalities turning to you? 3. How many workers do you employ in Japan? 4. What is Veolia Water Japan’s revenue? 5. Which cities are you located in? 6. W  hat is the situation with delegated management contracts to supply drinking water? 7. Do you have other types of contracts besides delegated management contracts in Japan? 8. Who are your main competitors?

www.veolia-newsroom.com

February 2012 ) Veolia Environnement, Veolia Water Communications Department

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FAQ 1. What do the contracts Veolia Water Japan has just won involve? Veolia Water has landed tenders to operate and maintain (O&M) two treatment plants, in Hiroshima and Kyoto. Veolia Water Japan, their operator since 2006 and 2009 respectively, re-signed for four years in Hiroshima and three years in Kyoto, to treat wastewater for 649,000 and 51,000 inhabitants respectively. In addition, in Matsuyama, located on Shikoku Island on the southern end of the archipelago, Veolia Water Japan was selected to operate and maintain all drinking water plants, serving a population of 515,000, for five years. This is the first drinking water contract for a Japanese city of this size Veolia Water has won. The three contracts will generate €49 million in total revenue over the course of their duration—€26 million for Hiroshima, €12 million for Kyoto and €11 million for Matsuyama—and are set to take effect in the second quarter of 2012.

2. Why are Japanese municipalities turning to you? Veolia Water moved into Japan in 2002, the year the country enacted the Waterworks Amendment Act authorizing Japanese municipalities to outsource the management of their public water utilities. Veolia Water’s commitment to operational and environmental excellence and our ability to introduce efficiency into utilities with aging infrastructures is what prompted local Japanese authorities to turn to us. In addition, Japan’s lower birth rate and high standard of living demand high quality and more eco-efficient public services, requirements Veolia Water is perfectly capable of meeting. The capital expenditure necessary to replace and upgrade Japan’s water infrastructures is $13  billion a year through 2025, according to figures provided by the Japanese Ministry of the Economy, Trade and Industry (METI). Japanese public utilities are faced with the problem of an aging workforce. Some 40% of the sector’s employees are over 50. Although Japanese companies are highly rated in terms of water technologies, over the years none has developed expertise in services.

3. How many workers do you employ in Japan? We employ 3,122 people.

4. What is Veolia Water Japan’s revenue? €400 million, or 3% of Veolia Water’s global revenue.

www.veolia-newsroom.com

February 2012 ) Veolia Environnement, Veolia Water Communications Department

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FAQ 5. Which cities are you located in? Veolia Water primarily manages public wastewater services. We treat wastewater for three million people residing in the cities of: > Hiroshima (capital of Hiroshima Prefecture, Honshu, the archipelago’s biggest island) > Chiba City (capital of Chiba Prefecture, in the Greater Tokyo suburbs) > Saitama City (capital of Saitama Prefecture, in the Greater Tokyo suburbs) > Yamato (Kanagawa Prefecture, central Japan) > Kanoya (Kagoshima Prefecture, Kyushu, the archipelago’s southernmost city) > Oita (capital of Oita Prefecture, Kyushu) > Kyoto (capital of Kyoto Prefecture) > Port Island (Kobe) > Suzurandai (Kobe) > Shimada (Shizuoko Prefecture) > Oozu (Ehime Prefecture, Shikoku) > Nisshin (Aichi Prefecture) > Ino (Kanagawa Prefecture) > Ichigo (Aichi Prefecture) > Taniyama (Kagoshima Prefecture, Kyushu) > Ibusuki (Kagoshima Prefecture, Kyushu) We treat a total of 485,600 cubic meters a day in Japan.

6. What is the situation with delegated management contracts to supply drinking water? We supply water to 40,000 inhabitants in Omuta (Fukuoka Prefecture, Kyushu)—that is, 27,260  cubic meters a day. Until just recently, this was the only drinking water supply and distribution contract we managed in Japan. That is no longer the case, since we have just won a major contract with the city of Matsuyama.

7.

 Do you have other types of contracts besides delegated management contracts in Japan? We also manage a large number of other service contracts, with an average term of one to three years, including meter reading for 20 million people in Tokyo, Chiba, Osaka and Otsu through our wholly owned subsidiary, Jenets. We also manage 350 leak detection contracts all over Japan. Our biggest contract in the area of leak detection is the Osaka contract. We also have a number of contracts with industrial companies.

8. Who are your main competitors? Our biggest competitors are national companies such as Kurita Group and Swing (a Mitsubishi, Ebara, JGC joint venture). There are also some purely local companies based in certain cities that do not operate nationally. Suez Environnement does not have a Japanese presence.

www.veolia-newsroom.com

February 2012 ) Veolia Environnement, Veolia Water Communications Department

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MAP Locations CHINA RUSSIA

JAPAN

Hokkaido

DEM. PEOPLE’S REP. OF KOREA

Sea of Japan

Kyoto RÉPUBLIC Hiroshima OF KOREA

Kyushu

Sea of China

www.veolia-newsroom.com

Shikoku

Matsuyama

Honshu

Tokyo

Pacific Ocean 200 km

February 2012 ) Veolia Environnement, Veolia Water Communications Department

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Discover more: Veolia Water wins three O&M contracts