The Pitfall of Low Prices – The Chaotic Competition in the Environmental Protection Industry Turns Into Fierce Competition

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On December 1, at the Beijing Yuyuanhui Business Club, a strategic communication meeting for the E20 environmental platform as well as a ceremony to mark its official launch were being held. On November 11 of the previous year, the E20 Environmental Platform was officially listed on the New Third Board, becoming the first stock in the sector dedicated to environmental protection. Fu Tao, the first partner of the E20 environmental platform, said that this \"Alibaba\" in the environmental sector was created because of a serious \"mismatch\" in the environmental industry: everyone competes fiercely at low prices in a narrow and well-known area, while many areas that are not well-understood remain unaddressed. 　　Wen Yibo, chairman of Sande Group, told a reporter from China Times that the two traditional sectors in the environmental protection industry – municipal water treatment and municipal waste treatment – are in such a chaotic state that they can no longer function properly; the return on investment in municipal wastewater treatment has dropped to just over 1 percent. Everyone fights fiercely against each other, creating a vicious cycle that drives the entire industry chain downward. 　　Currently, industry leaders have shifted their attention to new “blue oceans”. Sande Group has begun to focus on internet-based waste management services, with the goal of achieving revenue of 5 billion yuan by 2017. Veolia is optimistic about the fields of hazardous waste treatment and energy conservation, aiming to double its capacity for hazardous waste treatment by 2018 compared to the current level. 　　During the Warring States period, at around 10 a.m. on October 20, hundreds of people from the public security forces, urban management agencies, and the Xining Sewage Treatment Company suddenly arrived in Xining and took control of the third sewage treatment plant operated by Xining Pengyao Sewage Treatment Co., Ltd. (hereinafter referred to as “Pengyao Environmental Protection”). 　　The reason for the takeover was suspected excessive pollution discharge. Since March this year, Pengyao Environmental Protection has received 13 fines and notices of penalty hearings, with total fines amounting to over 25 million. Among them, the total amount of the two fines imposed on a daily basis is nearly 23 million yuan. Pengyao Environmental Protection feels compelled to resist. They stated that the wastewater from the treatment plant exceeded the specified standards because the incoming water already met those excessive standards; the plant they operate is a municipal domestic wastewater treatment facility, and it does not have the capacity to handle large amounts of industrially-generated wastewater that exceeds regulatory limits. Since August 2014, a large amount of high-concentration wastewater has flowed into the sewage treatment plants in Xining, causing severe damage to the sewage treatment systems. 　　An industry insider in the water sector who wished to remain anonymous told our reporter that when the concentration of water entering the system exceeds the design specifications, companies can address this issue through technical upgrades. However, because Pengyao Environmental Protection’s initial bid price was extremely low, it caused a sensation in the industry, leaving them with no extra funds for upgrades, which resulted in excessive pollution emissions. In fact, Pengyao Environmental Protection is also a victim of low-price cutthroat competition. 　　Not only in the water sector, but competition based on low prices is also widespread in another major segment of the environmental protection industry, namely waste management. Since the beginning of this year, the winning bid prices for waste incineration power generation projects across various regions have continued to rise. In June, Everbright International won the bid for the waste incineration power generation project in Xintai City, Jiangsu, at a price of 48 yuan per ton ； In August, Green Power Environmental Protection Group Co., Ltd. won the waste incineration power generation project in Bengbu, Anhui, at 26.8 yuan per ton. 　　However, the prices of those projects recognized as \"high-quality\" in the industry are much higher than this; the winning bid for the Pudong Yujiao waste incineration plant was 247 yuan per ton, while that for the Shanghai Jiangqiao waste incineration plant was 213 yuan per ton. 　　Industry experts say that 60 to 80 yuan per ton is a more reasonable price for waste disposal. If all environmental standards are met, the cost for waste disposal in a typical BOT project should be around 150 yuan per ton; therefore, a fee of 26.5 yuan per ton for waste disposal is well above the acceptable threshold. 　　Wen Yibo said that the environmental protection industry appears to be booming at present, but in reality it is a chaotic situation. It seems large when everyone is together, but in reality there is fierce competition in a very small area, with people fighting to the death. If the cost of waste incineration is only a little over 20 yuan per ton, it’s certainly not possible to make a profit. Companies might try to reduce costs by lowering the standards for construction or operation, which ultimately leads to problems. This is also the reason why the public opposes waste incineration for power generation. 　　Why does this happen? In the view of Huang Xiaojun, vice president of Veolia in China, many companies that win bids at low prices do so in order to \"tell stories\" on the capital market. Obtain projects at low costs, then connect with the capital market to make money from it, rather than earning returns by working diligently in the real economy. 　　On the other hand, a large number of foreign companies, including many state-owned enterprises, have entered this sector; lacking both management teams and technology, they can only compete by offering low prices, which serves as a very poor example to follow. 　　Huang Xiaojun said that China’s environmental protection industry is still in its infancy, with over 40,000 enterprises across the country. In the future, aggregation will be needed, moving from the \"Spring and Autumn Period\" to the \"Warring States Period\". 　　Battlefield Shift 　　How to address the issue of low-price, destructive competition? In Wen Yibo’s view, it is only necessary to **strengthen environmental law enforcement**. From the initial construction phase of a project to its subsequent operation, strict inspections are carried out, which naturally leads companies to return to rationality. 　　Apart from addressing low-price malicious competition, there are many other ways to promote the healthy development of environmental protection enterprises. “I believe the environmental protection industry is large enough, with many blue oceans yet to be explored. ”Wen Yibo said that they are pursuing the Internet+ approach; they began to focus on Internet-based waste management services two years ago. The framework for this business has now been largely established. Last year, their revenue was 80 million yuan, and it is expected to reach 400 million yuan this year. They aim to reach 1.5–2 billion yuan next year, with a goal of 5 billion yuan in the year after that. This still represents a \"very conservative\" growth curve. 　　There is also the industrial sector; in the past, due to lax regulations and a lack of truly high-quality technologies, products, and services, there is still vast market potential ahead. On December 3, Veolia invited numerous media outlets to visit Phase 4 of the Lao Gang landfill in Shanghai, which it operates, as well as Veolia Water Supply Co., Ltd. in Pudong, Shanghai. Camille, SVP Global at Veolia and Chairman of Veolia Asia, told a reporter from China Times that Veolia will focus on hazardous waste treatment and energy conservation as two new areas in the Chinese market in the future. Currently, their capacity for handling hazardous waste in China is 250,000 tons per year, with the goal of doubling this amount in 3 years. Xiaojun said that Veolia will focus its efforts in the future on areas where it has a greater advantage, namely the treatment of hazardous waste, which requires higher technology, better management skills, and more complex solutions. 　　In terms of energy conservation, Veolia can use technology to assist industrial enterprises in recovering thermal energy, thereby saving on electricity costs ； Treat industrial wastewater to enable recycling and save on water costs ； It is even possible to turn solid waste into bioplastics in order to generate profits. “We advocate the concept of a circular economy; we shouldn’t just make companies pay, but rather help them reduce costs, and the savings resulting from that are the companies’ profits. ”Huang Xiaojun said. 　　In this regard, the vision of the E20 Environmental Platform is also to help environmental protection companies clarify their thinking, conduct strategic positioning and restructuring, so that they do not get trapped in a very narrow path. Fu Tao said that the next 5 to 10 years will be a period of profound restructuring for the environmental protection industry; through optimization and improvement, brands will be established, and in the end only 500 to 1,000 outstanding companies will remain. “As laws, regulations, and industry standards continue to improve, financing platforms become more accessible, and the environmental protection industry stops relying on \"capital games\" to make profits; instead, it earns money through the added value generated by its activities. Only then can the environmental protection industry truly achieve stability. ”Huang Xiaojun said.