TOKYO -- The first concession to operate part of Japan's roughly 90 trillion yen ($804 billion) in sewage system assets marks an expansion of opportunities for private investment in infrastructure.
The city of Hamamatsu on Tuesday granted the right of first refusal to a six-member consortium including Veolia, the world's largest water treatment company, on a deal to run a municipal sewage facility. While airport and road concessions already exist in Japan, this is the first for a sewage system -- the nation's biggest infrastructure asset class.
Located roughly midway between Tokyo and Osaka, Hamamatsu is expected to transfer operating rights to the Seien facility, which treats half of the city's sewage, to the consortium that also includes JFE Engineering and leasing group Orix for 2.5 billion yen. A 20-year contract starting in fiscal 2018 is expected around October.
Veolia and other consortium members are known for efficient management using sensor technology and turning sewage sludge into biomass energy. The six-way partnership's proposal for promoting renewable energy through capital investment appears to have helped it secure a narrow victory over a group including Hitachi.
"In the long run, this will greatly reduce costs," Hamamatsu Mayor Yasutomo Suzuki told a news conference Tuesday. He also expressed a hope of local companies playing a role, saying that "this is also significant in that business opportunities will expand."
Deteriorating sewage infrastructure is becoming a serious problem in Japan, where replacement costs are expected to balloon 70% to 1 trillion yen by 2030. With income from usage fees falling as populations decline, putting public-sector operators in a tough spot, many voices are calling for new thinking. Osaka and Miyazaki Prefecture are also looking at concessions for their sewage systems.
With concessions spreading throughout Europe and Australia, the government of Prime Minister Shinzo Abe has made increasing public-private partnerships part of its economic growth strategy.
Japan has an estimated 185 trillion yen in income-generating infrastructure assets. Kansai International Airport, the smaller Osaka International Airport and Aichi Prefecture toll roads have all moved under private operation.