Linyi City Salcon Water Concession

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In June of 2004, Slacon Bhd. unit salcon Water (HK) Ltd. was awarded a 30-year concession contract by the state-owned Linyi Municipality Water Supply Co. (LMWS) to operate the water supply system in Linyi City, Shandong Province. The project involved the supply water to Lanshan, Luo Zhuang and He Dong areas, as well as the High Tech Development Zone and the Economic Development Zone in Linyi Municipality. Linyi City was composed of over 1 million residents, yet less than half had access to potable water by 2004. To implment the contract, Linyi Salcon Water Co. Ltd. (LWSC) was formed as the project company which was owned by Salcon Water subsidiary Salcon Linyi (HK) Ltd. (60%) and LMWS (40%). Although the agreement to form the JV had been signed in mid-2004, the project experienced delayed and did not reach financial close until November of 2005. Salcon injected US$4.4 million (RMB 36 million) into LWSC and tookover the entire operations of the water supply system in January 2006. At the time of the contract signing in June 2004, LWSC owned assets valued at US$21.7 million (RMB 180 million) and the registered capital of the company was US$7.3 million (RMB 60 million) The weighted average water tariff was US$0.17 (RMB 1.41) per cubic meter. The non-revenue water (NRW)rate for LInyi city stood at 26%, but Salcon promised a reduction to below 20%.