China blames France's Veolia for supervision flaws in tap water pollution case

BEIJING (Reuters) - China has blamed French utility Veolia Environnement (PAR:VIE) for "supervision problems" in its water quality standards after authorities said a cancer-inducing chemical had been found in tap water supplied by the firm at 20 times above national safety levels, state media said on Wednesday.

The above-standards reading of benzene in the tap water in the northwestern city of Lanzhou was taken on Friday, forcing the city to turn off supplies in one district and warn other residents not to drink tap water for the next 24 hours.

Lanzhou, a heavily industrialised city of 3.6 million people in the northwestern province of Gansu, ranks among China's most polluted population centres.

Investigators looking into the incident found "there were supervision problems within Veolia Water Company related to water quality and safety", China National Radio said on its website, quoting a Lanzhou government spokesman speaking at a news conference. The spokesman did not elaborate.

The Lanzhou government and executives from Lanzhou Veolia Water Co, a local unit of Veolia, could not be reached for comment.

The Lanzhou government's complaints come on the back of rising scrutiny of foreign companies by Chinese state media. The government and state media have taken a series of firms to task on issues ranging from pricing to alleged poor quality products and shoddy customer service.

Lanzhou Veolia Water Company's deputy general manager, Yan Xiaotao, said there was no late reporting of the benzene spike or cover-up, Xinhua reported. Lanzhou Veolia Water Co, is majority-owned by the city government, with Veolia China, a unit of Veolia Environnement, holding a 45 percent stake.

The government has already blamed a crude oil leak from a pipeline owned by a unit of China National Petroleum Corp. for the presence of benzene.

Separately, a Chinese court has rejected for the second time a lawsuit filed by five residents from Lanzhou, the state-run China Youth Daily newspaper said on Wednesday.

The lawsuit, first filed on Monday afternoon, sought civil damages, a public apology and data from water quality testing in the past year from Lanzhou Veolia Water.

(Reporting by Sui-Lee Wee; Additional reporting by Li Hui; Editing by Kenneth Maxwell)