Operations Review

INDUSTRY OUTLOOK

China is currently facing water issues with around two-thirds of its 660 cities having severe water shortages. Although China ranks sixth in the world in terms of water resources, its per-capital water resources are only 28% of the world's average and ranks among the 13 lowest countries in the world. In addition, to reduce water shortages, China is also facing severe water pollution due to rapid industrialization and urbanization.

To combat its issue of severe water shortages and water pollution, the Chinese government has in its 11th Fifth Year Plan ("FYP") committed a total investment of RMB 1 trillion over 2006-2010. According to the FYP, China has pledged to provide safe drinking water to 160 million rural residents by 2010 and all its rural residents by 2015.

The Group has been operating in China for the past 24 years as an integrated water and wastewater treatment solutions provider. With an in-depth understanding of the industry, combined with its technical and project capabilities, the Group is well placed to take the opportunities offered by the growing industry.

Corporate Development
Milestones

In January 2007, the officials of the Nanchang Government passed the Nanchang BOT wastewater plant with its inspection and tests (工程验收) by the officials of the Nanchang Government for the successful completion of the construction phrase for the 200,000 tons/day wastewater treatment plant in Nanchang, Jiangxi province. With that, the Group has satisfied a pre-requisite condition for commercial operation in Nanchang. In addition, this marked another major milestone of the Group in the successful transformation of the business model. From that of a turnkey service provider for small to mid-sized wastewater treatment projects, the Group has transformed to one that is able to invest in, execute, deliver and manage large scale municipal and industrial water and wastewater projects.

In April 2007 and July 2007, the Company entered into placement agreements with SBI E2- Capital Asia Securities Pte Ltd ("Placement Agent") , in which the Placement Agent will subscribe or procure subscription for a total of 28 million and 30 million shares respectively in the capital of the Company. The net proceeds of the placement were used primarily to finance the Group's investments in its new and existing Build-Operate-Transfer ("BOT"), Transfer- Operate-Transfer ("TOT") and Build-Own-Operate ("BOO") projects.

In July 2007, pursuant to the terms and conditions set out in the Share Award Plan ("Plan") approved by the shareholders of the Company in an EGM held on 25 July 2006, 773,200 share awards was released to the participants of the Plan by transferring treasury shares of the Company. The Share Award Scheme was implemented to provide the Group with an additional tool in recruiting, retaining, motivating and rewarding talented employees and employees who contributed to the Group's growth and development.

In October 2007 / November 2007, the Company has entered into an agreement with International Finance Corporation ("IFC") in which IFC will subscribe for up to 20.4 million non-listed warrants issued by the Company exercisable into 20.4 million new ordinary shares in the capital of the Company in consideration for IFC extending a revolving loan of up to USD 15 million. The Company intends to use primarily of the proceeds to finance the Group's investments in its BOT and TOT projects.

In November 2007, the Company through its wholly owned subsidiary, WB Engineering & Consultancy Pte Ltd, has received the notification of award from Bangladesh Small & Cottage Corporation for the turnkey project tender in Bangladesh. This is in furtherance with the Group's strategies to leverage on our wide range of wastewater treatment equipment to expand into the overseas markets. The Group is confident that the overseas market will contribute positively to the Group's performance in the coming years.

EXISTING BUILD-OPERATE-TRANSFER (''BOT'') PROJECTS

Nanchang BOT project

We secured the Nanchang BOT project in 2004. This is a wastewater treatment project with a phase one capacity of 200,000 ton/day in Nanchang city, Jiangxi province and a concession period of 20 years. As at 31 December 2007, the Group has complete ownership in this project.

In FY2006, the Group completed the construction of the Nanchang wastewater treatment plant and in 1Q2007, the project passed the inspection and certification tests by the government and has therefore satisfied a pre-requisite condition for commercial operations.

Nanchang BOT project

The Nantong water supply BOT project is the first BOT project secured by the Group. This project has phase one capacity of 200,000 tons/day and involved the supply of clean water to Rugao city and Haian city carried through pipelines that stretches more than 70 km long for a concession period of 25 years. In FY2007, the project investment cost of Nantong BOT project was increased by RMB 65.8 million as the revised Nantong BOT project entails the supply of clean potable water to the cities of Rugao and Haian.

As at 31 December 2007, the Group has an effective interest of 17.52% in this project.

Complexity of execution for this project is much more challenging than the Nanchang BOT project. As this BOT project involves installation of water pipelines that stretches over 70 km from the water source to the distribution plants, execution of this project involves various authorities both at the national and local level, including the occupants of the affected area. However, we have overcome these complexities and work is progressing as scheduled.

Due to the additional investment to the Nantong BOT project, the project is targeted to complete by end of FY 2008.

Pizhou BOT project

We secured the Pizhou water supply BOT project in 2005 our third BOT project. This project entails the construction of a water supply facility with a capacity to supply up to 50,000 tonnes per day of clean water to Pizhou city, Jiangsu province with a concession period of 25 years during which the Group shall collect water tariffs for supplying clean water. The total investment cost of the Pizhou project is estimated to be RMB 43 million, of which the Group holds a 25% equity stake. Our joint venture partners for this project include SGX-SESDAQ listed Dayen Environmental Ltd which has a 50% stake, and Hongkong based investor Lionguard Investments Ltd which has a 25% stake. We target to complete the project within FY 2008.

NEW PROJECTS

Suzhou BOT project

In February 2007, the Group clinched another BOT project in Fenhu Economic Development Zone, Suzhou City, Jiangsu Province, PRC ("Suzhou BOT Project") for a concession period of 30 years. This involves the building and operating of a 50,000 m³ per day wastewater treatment facility and laying of a wastewater piping network within the Fenhu Economic Development Zone. As at 31 December 2007, the Group has an effective interest of 16% in this project.

The first phase of the Suzhou BOT project, with an investment cost of RMB 95 million (S$18.8 million), will involve the construction of a 25,000 m³ per day wastewater treatment plant and laying of the wastewater piping network while the second phase will see the capacity expansion of the wastewater treatment plant to 50,000 m³ per day. This project is targeted to complete by FY 2009.

Shanghai BOT project

In April 2007, the Group has entered into a BOT concession agreement with the management committee of Shanghai Jinshan Zone Industrial Park II to build and operate a wastewater treatment plant for a concession period of 26 years commencing from the date of signing of the BOT Concession Agreement. With an estimated total investment of RMB100 million for Phase 1, the project entails the construction of a wastewater treatment plant with total capacity of 50,000 m3/day, of which Phase 1 capacity is 25,000 m3/day. As at 31 December 2007, the Group has an effective interest of 20% in this project. This project is targeted to complete by FY 2009.

JingDeZhen BOT project

In June 2007, the Group has entered into a concession agreement with Jingdezhen city government to build and operate a wastewater treatment plant in Jingdezhen city, Jiangxi province for a concession period of 30 years commencing from the date of the concession agreement. This BOT project involves the construction of a wastewater treatment plant with total capacity of 80,000 m3/day. The total investment of this project is estimated at RMB 78 million. As at 31 December 2007, the Group has an effective interest of 20% in this project. This project is targeted to complete by FY 2008.

WangCheng BOT project

In June 2007, the Group has entered into a concession agreement with Wangcheng county government to build and operate a wastewater treatment plant in Wangcheng county, Hunan province for a concession period of 27 years commencing from the date of the concession agreement. This BOT project involves the construction of a wastewater treatment plant with total capacity of 40,000 m3/day and the total investment of this project is estimated at RMB 57 million. As at 31 December 2007, the Group has an effective interest of 20% in this project. This project is targeted to complete by FY 2009.

LiShui BOT project

In November 2007, the Group has entered into a concession agreement with Lishui county government to build and operate a wastewater treatment plant in Lishui county, Nanjing city, Jiangsu province for a concession period of 28.5 years commencing from the date of commercial operation of the plant. This BOT project involves the construction of a wastewater treatment plant with total capacity of 40,000 m3/day. This project is targeted to complete by FY 2008.

AnQing BOT project

In January 2008, the Group has entered into a concession agreement with the management committee of Anqing Economic Development Zone to build and operate a wastewater treatment plant in the Anqing Economic Development Zone, Anhui province for a concession period of 30 years commencing from the date of commercial operation of the plant. This BOT project involves the construction of a wastewater treatment plant with total capacity of 10,000 m3/day. The construction of the wastewater treatment plant is expected to be completed by end 2008.