Thames on the way to Indonesia

Utility closes in on pounds 250m deal to manage and improve water suppl y in Jakarta

Thames Water is close to winning its biggest-ever contract to operate an overseas water-supply system. The city of Jakarta is expected to announce shortly that it has signed a $400m (pounds 245m) deal with Thames to manage water supply for the Indonesian capital.

Thames is the majority shareholder in a joint-venture business that will operate the water system for 5 million people in the east half of the city. Lyonnaise des Eaux will be separately responsible for the west half.

The contract will reaffirm Thames' commitment to systems management and operation as the core of its foreign business.

Analysts expect Thames' international operations to move into the black this year. Even without the Jakarta contract, they believe the overseas business could make pounds 30m a year by early in the next decade.

Under the 20-year Jakarta contract, Thames will not only be responsible for running the water services business but also improving it. This will give it the opportunity to extend the local infrastucture, which currently provides mains water for only a minority of the City's population.

The assignment will confirm Thames as one of the top five players in the international management contract business. The company has commanded respect for the way in which it has established its credentials in a market previously dominated by the two French giants, Lyonnaise des Eaux and Generale des Eaux.

Thames has demonstrated that it can more than hold its own against this established competition. The company now finds itself in a position where it is often called on to work alongside rather than against one of the French giants.

The Jakarta contract builds on the success Thames has had elsewhere in the world. The company already has three separate operating concessions in Malaysia, a 25-year water services supply contract in Thailand and a joint venture in Adelaide to operate and manage a water service system. Following the three-year construction of a dam and water-treatment plant, Thames now has a 15-year contract to operate the system supplying Izmit in Turkey - the largest contract won by a British company in that country for 25 years.

A water-treatment works may also be commissioned under the terms of the Jakarta agreement. Thames has a 20-year contract to operate a water-treatment plant in Shanghai and operates a concession for water treatment and distribution in Puerto Rico.

The focus on operations and management represents an important shift in Thames' international business. A year ago, after an extensive strategic review, it announced it was pulling out of its international design and contracting activities in order to concentrate on long-term concession businesses.

The withdrawal from these activities, which were too far removed from the core utility business, was completed last year and allowed Thames to focus on the management and operation of water systems.

The management team led by chairman Sir Robert Clarke has made it clear that the company will exploit its core operating skills and not be distracted into areas which it does not fully understand.

The international business represents an important plank of Thames' long- term strategic ambition to grow its unregulated earnings.

Currently, the company relies on the environmental services, product and property companies for its non-regulated earnings. Together they generate around pounds 20m of unregulated profit each year. Now that the international operations are moving into the black, this number will steadily increase.

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