Basically not just CGGC, but the whole of the Chinese government, realized that after the 13th 5YP targets had been released, that rural sewage was going to be a lot more difficult to conquer than they had first envisaged. Sometimes with their targets, Beijing sets a goal, then provinces are left scrambling to figure out how to achieve it. It didn't help that most individual provinces didn't even have rural treatment standards in place until close to the end of the plan. It was found that there were so many different types of treatment required depending on the type of weather, terrain, population, cost, provincial standards, and staffing experience that it was never going to be a one size fits all easy to implement solution for the whole of China. Not just that, but getting financing for the smaller rural sewage space was more difficult than getting financing for the large urban plants.
CGGC admitted in 2018 that rural sewage was still in a germination period, companies and government leaders were still trying to understand how to tackle the issue. We can see now, even 3 years later, and with the 14th 5YP, that even the largest water companies like BEWG are still trying to understand how best to tackle rural sewage. The brakes were put on a bit in terms of rural sewage and everyone instead tried to hit the urban sewage targets, as larger treatment plants were easier to understand.
Then in 2018, 3 Gorges Group Environmental Protection came into being. Around the Yangtze River Delta, they have been able to throw their weight and funding around to get ownership of a lot of the projects, in order to set some provincial benchmarks/best practice demonstration projects, for future projects to take note of and follow suit. Note that 3 Gorges and CGGC are both based in Hubei Province, so in 2016 there may have been whispers around the SoE groups that one of the big Hubei SoE's was going to be granted special powers and funding from Beijing to tackle the Yangtze River Delta watershed cleanup. Oops, sorry CGGC, not you. CGGC were even responsible for building about 65% of the 3 Gorges Dam project itself, so a bit of a slap in the face to them to have 3 Gorges get given special powers by Beijing.
Back in those CGGC days I think Eytan Levy was also in startup mode, just trying to raise money and awareness and pumping up (the share price) with every announcement made to sound like a game-changer. The CGGC announcement was touted as an $800 million dollar deal, $130m in the first year. Richard was also around in those days and I think he has learnt his lesson, or at least is becoming smarter. The ASX has also cracked down on that sort of announcement, 2014 to 2016 was a bit of a crazy time for reverse listed shell corporations and all sorts of ridiculous hyping announcements.
The 20m3/d plant in Jingmen was just a Emefcy demonstration plant, which would have had Emefcy plastered all over it. If there was a falling out when the CGGC agreement didn't eventuate, whether for forced technology transfer, non sale of assets or whether CGGC didn't deem MABR a right fit, I'm sure that this plant was not continued with. After Emefcy got their Jiangsu factory built and started building C-MABR/Aspiral plants in Sept/Oct 2017 and started selling to other partners, I haven't ever really seen any reference to that Jingmen CGGC plant again since March 2018.
CGGC does have a specialist water arm. In 2018 they were trying to develop MBR for decentralized rural sewage treatment. Now CGGC has been merged with CEEC - China Energy Engineering Corporation to form an even larger entity.
With BEWG, the current agreement is a JDA- Joint Development Agreement, which could be another term for an R&D agreement. The Chinese news announcement said that they may have to sign more agreements in future, maybe something like a framework agreement for MABR module purchase or distribution agreement. So BEWG are currently just another one of at least 40 Chinese partners they have, although quite a notable one being a market leader. Will be more worthy of an ASX announcement if BEWG start spending some money to buy things, just like the first Aspiral sales to 3 Gorges Group and China Rail made news even though they were only very small initial purchases. Richard has said that 3 Gorges were very impressed with the quality of MABR and the amount of data that Fluence can capture out of their products as well, which is probably important reporting if creating a whole network across China for entire watershed remediation.
Fluence is a very different company now to what Emefcy was at the time of the CGGC agreement. The product range is starting to mature and there are now some very real installations and partnerships and MABR has gained a lot of worldwide support and recognition. Can the BEWG agreement be as valuable as Emefcy were forecasting the CGGC agreement to be? $130 million first year/$800 million near term seems quite wishful thinking. But Fluence have not been involved in one of the really big multi-billion yuan PPP agreements yet either, so BEWG modified MABR Aspirals with 3 Gorges Group backing could change the type of business contracts Fluence is getting involved in. We will probably need to wait until at least next year to find out.
I think BEWG is one of the National SoE partnerships that Richard Irving has been referencing, that has been delayed by C19. They need face to face meetings to sort out physical R&D cooperation. You can also understand why, when asked how big the potential related sales could be, he just starts laughing and says "BIG!!!!"
FLC Price at posting:
18.5¢ Sentiment: Buy Disclosure: Held
(20min delay)
