As filed with the Securities and Exchange Commission on June 29, 2006May 7, 2008

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549FORM 20-F

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g)

OF THE SECURITIES EXCHANGE ACT OF 1934

OR

  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended December 31, 2005

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended December 31, 2007

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-15248

VEOLIA ENVIRONNEMENT

(Exact name of Registrant as specified in its charter)

(Address of principal executive offices)

Alain Tchernonog, General Secretary, 36/38 avenue Kléber, 75116 Paris France  011 33 1 71 75 00 54

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

407,872,606470,719,806 ordinary shares, nominal value €5 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

IndicateU.S. GAAP International Financial Reporting Standards as issued by the International Accounting Standards Board Other  

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:follow.

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

*Listed, not for trading or quotation purposes, but only in connection with the registration of the American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

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FORWARD-LOOKING STATEMENTS

We make some forward-looking statements in this document. When we use the words “aim(s),” “expect(s),” “feel(s),” “will,” “may,” “believe(s),” “anticipate(s)” and similar expressions in this document, we are intending to identify those statements as forward-looking.  Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this document. In particular, from time to time in this document we state our expectations in terms of revenue to be generated under new contracts recently won or awarded or from new investments made and new assets or operations acquired, though we may have not yet commenced operations under these new contracts nor begun operating these new assets and operations at the time we make these statements. Some of these revenue estimates are based on our management’s current assumptions regarding future sales volumes and prices, which are subject to a number of risks and uncertainties that may cause actual sales volumes and prices to differ materially from those projected. As a result, actual revenue recorded under these new contracts or from these new investments, assets and operations may differ materially from those set forth in this document. Other than in connection with applicable securities laws, we undertake no obligation to publish revised forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events. We urge you to carefully review and consider the various disclosures we make concerning the factors that may affect our business, including the disclosures made in “Item 3. Key Information—Information — Risk Factors,” “Item 5. Oper atingOp erating and Financial Review and Prospects,” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”

Unless otherwise indicated, information and statistics presented herein regarding market trends and our market share relative to our competitors are based on our own research and various publicly available sources.

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TABLE OF CONTENTS

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

ITEM 3. KEY INFORMATION

SELECTED FINANCIAL DATA

You should read the following selected financial data together with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements. Our consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) adopted by the European Union as of December 31, 2005 and with IFRS issued by the International Accounting Standards Board (“IASB”) and as ofadopted by the same date.European Union.  We did not publish financial data in accordance with IFRS differ in certain significant respects from U.S. generally accepted accounting principles (“U.S. GAAP”).  For a description of2003, because at the principal differences between IFRS and U.S. GAAP as they relate to us and totime our consolidated subsidiaries, and for a reconciliation of our shareholders’ equity and net income to U.S. GAAP, see Note 50 to our consolidated financial statements includedwere required to be presented in Item 18 ofconformity with French Generally Accepted Accounting Principles. For this annua l report.reason, we have not provided selected financial data for 2003.  See also “Item 5. Operating and Financial Review and Prospects” for a discussion of accounting changes, business combinations and dispositions of business operations that affect the comparabilitycomp arability of the information provided below.

The U.S. GAAP figures for 2004 set forth below have been restated to take into account the new reporting unit definitions that we applied for 2005. See Note 50A to our consolidated financial statements, under the heading “Impairment of Goodwill” for further information.

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(1)

For your convenience, we have converted the euro amounts of our selected financial data into U.S. dollars using the December 31, 2005 rate of$1.00 = €0.8477. This does not mean that we actually converted, or could have converted, those amounts into U.S. dollars on this or any other date.

(2)

Based on the weighted average number of shares outstanding in each period for the calculation of basic earnings per share, equal to 390.4 million shares in 2005 and 396.2 million shares in 2004.

(3)

Based on the weighted average number of shares outstanding in each period for the calculation of diluted earnings per share, equal to 392.4 million shares in 2005 and 396.3 million shares in 2004.

(4)

As restated – see Note 50D to our consolidated financial statements.

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Dividends

Under French law and our articles of association (statuts), our statutory net income in each fiscal year, as increased or reduced, as the case may be, by any profits or losses carried forward from prior years, less any contributions to legal reserves, is available for distribution to our shareholders as dividends, subject to other applicable requirements of French law and ourstatuts.

At our general shareholders’ meeting on May 11, 2006,7, 2008, our shareholders approvedwill decide on a dividend payment proposed to be €1.21 per share in respect of our 2007 fiscal year, which shall be paid on May 27, 2008. On May 15, 2007, we paid a dividend of €1.05 per share in respect of the 2006 fiscal year.  On May 29, 2006, we paid a dividend of €0.85 per share in respect of ourthe 2005 fiscal year, which was paid on May 29, 2006.year.  On May 27, 2005, we paid a dividend of €0.68 per share in respect of the 2004 fiscal year. On May 28, 2004, we paid a dividend of €0.55 per share in respect of the 2003 fiscal year. On May 7, 2003, we paid a dividend of €0.55 per share in respect of the 2002 fiscal year. On May 6, 2002, we paid a dividend of €0.55 per share in respect of the 2001 fiscal year.  

Dividends paid to holders of our ADSs and non-French resident holders of our shares normally are subject to a 25% French withholding tax.  However, non-resident holders that are entitled to and comply with the procedures for claiming benefits under an applicable tax treaty may be subject to a reduced rate of withholding tax (15% for holders who are residents of the United States) and be entitled to certain benefits. See “Item 10. Additional Information—Taxation” for a summary of the material U.S. federal and French tax consequences to holders of shares and ADSs.  Holders of shares or ADSs should consult their own tax advisers with respect to the tax consequences of an investment in the shares or ADSs.  In addition, dividends paid to holders of ADSs will be subject to a charge by the depositary for any expenses incurred by the depositary of the ADSs in the conversion of eur o to dollars.

Exchange Rate Information

Share capital in our company is represented by ordinary shares with a nominal value of €5 per share (generally referred to as “our shares”). Our shares are denominated in euro. Because we intend to pay cash dividends denominated in euro, exchange rate fluctuations will affect the U.S. dollar amounts that shareholders will receive on conversion of dividends from euro to dollars.

The following table shows the euro/U.S. dollar exchange rate from 20012003 through May 2006April 2008 based on the noon buying rate expressed in U.S. dollars per euro. The information concerning the U.S. dollar exchange rate is based on the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”). We provide the exchange rates below solely for your convenience. We do not represent that euros were, could have been, or could be, converted into U.S. dollars at these rates or at any other rate. For information regarding the effect of currency fluctuations on our results of operations, see “Item 5. Operating and Financial Review and Prospects.”

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Solely for the convenience of the reader, this annual report contains translations of certain euro amounts into U.S. dollars. These translations should not be construed as representations that the converted amounts actually represent such U.S. dollar amounts or could have been or will be converted into U.S. dollars at the rate indicated or at all. The translations from euro to U.S. dollars in this annual report are based on $1.00 = €0.8477,€0.6793, the Noon Buying Rate on December 31, 2005.2007. On June 23, 2006,May 6, 2008, the Noon Buying Rate was U.S.$1.25 1.55 per euro.

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RISK FACTORS

You should carefully consider the risk factors described below in addition to the other information presented in this document.

Risks Relating to Our Operations

We may suffer reduced profits or losses as a result of intense competition.

Our business is highly competitive and requires substantial human and capital resources. Large international competitors and local niche companies serve each of the markets in which we compete.  Accordingly, we must make constant efforts to remain competitive and convince potential clients of the quality and cost value of our service offerings. Competitors may also introduce new technology or services that we would have to match in order to remain competitive, which could result in significant development costs for us.costs.  

In addition, we perform a substantial portion of our business under contracts, often of a long-term nature, with governmental authorities and clients from the industrial and commercial service sectors. These contracts are often awarded through competitive bidding, at the end of which we may not be retained even though we may have incurred significant expenses in order to prepare the bid.

Over the course of performing certain contracts, we may also be requested by our public or private clients to modify the terms of these contracts, whether called for under the contract or not. These modifications may alter the services provided under the contract, related expensesinvestments required or billing terms.

Finally, our contracts may not be renewed at the end of their term, which in the case of important contracts may oblige us to engage inundertake a costly reorganization or restructuring of assets and operations covered by the contract when the contract does not provide for the transfer of the related assets and employees to the succeeding operator and/or adequate indemnification to cover our costs of termination.

Our business operations in some countries may be subject to additional risks.

While our operations are concentrated mainly in Europe and North America (sales generated outside of these regions represented approximately 12% of our total revenue in 2007), we conduct business in markets around the world. Sales generated in countries outside of Europe and North America represented approximately 9.7% of our total revenue in 2005. The risks associated with conducting business in some countries outside of Europe, the United States and Canada can include slower payment of invoices, which is sometimes aggravated by the absence of legal recourse for non-payment, nationalization, social, political and economic instability, increased currency exchange risk and currency repatriation restrictions, among other risks. We may not be able to insure or hedge against these risks. Furthermore, we may not be able to obtain sufficient financing for our operations in these countries. The establishment of public utility fees and their structure can be highly political, slowing and impeding for several years any increase in feesfee s that no longer allow coverage of service costs and appropriate compensation for a private operator. The occurrence of unfavorable events or circumstances in certain countries may lead us to record exceptional provisions or depreciation charges in connection with our operations in these countries, which could have a material adverse effect on our results.

Changes in the prices of fuel and other commodities may reduce our profits.

The prices of our supplies of fuel and other commodities, which arerepresent significant operating expenses for our businesses, are subject to sudden increases. Although most of our contracts contain tariff adjustment provisions that are intended to reflect possible variations in prices of our supplies using certain pricing formulas, such as our price index formulas, there may be developments that could prevent us from being fully protected against such increases, such as delays between fuel price increases and the time we are allowed to raise our prices to cover the additional costs (including taxes), or our failure to update an outdated cost structure formula.  In addition, a sustained increase in supply costs and/or related taxes beyond the price levels provided for under our adjustment clauses could reduce our profitability to the extent that we are not able to increase our prices sufficiently to cover thesuch additional costs.

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We have conducted and may continue to conduct acquisitions, which could have a less favorable impact on our activities and results than anticipated, or which could affect our financial situation.

As part of our business strategy, we have conducted and continue to carry out acquisitions of varying sizes, some of which are significant at the Group level.  These acquisitions involve numerous risks, including the following: (i) the assumptions used in the underlying business plans may not prove to be accurate, in particular with respect to synergies and expected commercial demand; (ii) we may not integrate acquired businesses, technologies, products, personnel and operations effectively; (iii) we may fail to retain key employees, customers and suppliers of the companies acquired; (iv) we may be required or wish to terminate pre-existing contractual relationships, which could be costly and/or on unfavorable terms; and (v) we may increase our indebtedness to finance these acquisitions. As a result, it is possible that the expected benefits of completed or future acquisitions may not materialize wi thin the time periods or to the extent anticipated, or that such acquisitions may affect our financial condition.

Our business is affected by variations in weather conditions.

Certain of our businesses are subject to seasonal variations. Dalkia realizes the bulk of its operating results in the first and fourth quarters of the year, corresponding to periods in which heating is used in Europe.  In the water sector, household water consumption tends to be higher between May and September in the northern hemisphere.  Accordingly, these two businesses may be affected by significant deviations from seasonal weather norms. This risk is offset in certain cases, both by variable compensation terms in contracts, and by the geographical distribution of our businesses. The impact of weather conditions, together with the seasonal nature of our businesses, may affect our results.

Our business operations are subject to geopolitical, criminal and terrorist risks.

Water is a strategic resource in terms of public health. Accordingly, our activities must comply with laws and regulations that seek to safeguard water resources, production sites and treatment facilities against criminal or terrorist acts. Our activities in the areas of waste management, energy services and public transportation are also subject to similar risks.  We may also have employees who work or travel in areas where the risk of criminal acts, kidnapping or terrorism is either temporarily or permanently elevated. As a result, despite the safety measures that we have attempted to implement, any one of our activities may fall victim to criminal or terrorist acts in the future.

Our long-term contracts may limit our capacity to quickly and effectively react to general economic changes affecting our performance under those contracts.

The general circumstances or conditions under which we enter into a contract may change over the term of the contract, particularly in the case of long-term contracts.  For example, changes in the prices of our supplies may increase beyond levels that were foreseen or foreseeable at the time the contract was entered into or changes in end user behavior may significantly affect our financial performance under the contract.  Because our contracts generally do not allow us to unilaterally terminate them or interrupt or suspend the performance of our obligations under them, we attempt to foresee these possible changes at the time we negotiate our contracts and typically include adjustment mechanisms in our contracts (such as price index clauses or the right to initiate a review or modification process).  However, we may not always be able to foresee all potential changes or to negotiate adju stment clauses that cover all possible scenarios.  In addition, even if our contracts include these types of adjustment clauses, our ability to react to these changes is limited to the adjustments permitted by these clauses.  For example, our long-term contracts typically provide for pre-determined fees or payments for our services (either from the client or from the end user according to a set price list), and we cannot adjust these fees or prices to reflect anticipated shifts in costs or product demand other than in accordance with the terms of the adjustment clause.  Also, our right to initiate a review or modification process in respect of a contract may be subject to conditions, including the consent of the other parties to the contract or of a third party (such as a public authority).  As a result, we may be required to continue performing our obligations under our contracts even if the general conditions or circumstances of our performance are different from those that had been for eseen and provided for at the time the contract was signed, which in some cases may alter the financial equilibrium of the contract and adversely affect our financial performance under the contract.

The rights of governmental authorities to terminate or modify our contracts unilaterally could have a negative impact on our revenue and profits.

Contracts with governmental authorities make up a significant percentage of our revenue. In numerous countries, including France, governmental authorities may modify or terminate contracts under certain circumstances, unilaterally but generally with indemnification.  In other countries, however, we may not be entitled to or be able to obtain full indemnification in the event our contracts are terminated by governmental counterparties.  

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We may make significant investments in projects without being able to obtain the required approvals for the project.

To engage in business, we must in most cases obtain a contract and sometimes obtain, or renew, various permits and authorizations from regulatory authorities. The competition and/or negotiation process that must be followed in order to obtain such contracts is often long, costly, complex and hard to predict.  The same applies to the authorization process for activities that may harm the environment which are often preceded by increasingly complex studies and public investigations.  We may invest significant resources in a project or public tender without obtaining the right to engage in the desired business nor sufficient compensation or indemnities to cover the cost of our investments.  These situations increase the overall cost of our activities and, if we do not obtain the desired business or are forced to withdraw from a public tender, our business may not grow as much or as profitablyprofitab ly as we hope.

We must comply with various environmental, health and safety laws and regulations, which is costly and may, in the event of any failure to comply on our part, cause us to incur liability under these laws and regulations.

We incur significant costs of compliance with various environmental, health and safety laws and regulations.

We have made and will continue to make significant capital and other expenditures to comply with our environmental, health and safety obligations. We are continuously required to incur expenditures to ensure that the installations that we operate comply with applicable legal, regulatory and administrative requirements, including general precautionary or preventative measures, or to advise our clients so that they undertake the necessary actions for the compliance of their installations. The costs related to these preventative measures are recorded as either operating expenses or as industrial investments. Our industrial investments in all areas totaled €2.1€2.642 billion in 2005.

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2007.

Each of our operations, moreover, may become subject to stricter general or particularspecific laws and regulations, and correspondingly greater compliance expenditures, in the future. If we are unable to recover these expenditures through higher tariffs, this could adversely affect our operations and profitability. Moreover, the scope of application of environmental, health, safety and other laws and regulations is becoming increasingly broad.  These laws and regulations govern, among other things, any discharge in a natural environment, the collection, transport, treatment and disposal of all types of waste, and the rehabilitation of old sites.sites at the end of operations, as well as ongoing operations at new or old facilities.

Our failure to comply with any applicable environmental, healthoperations and safety laws and regulationsactivities may cause us to incur liability or other damages that we might be required to compensate.

TheseThe increasingly broad laws and regulations under which we operate expose us to thegreater risk of liability, in particular environmental liability, including in connection with assets that we no longer own and activities that have been discontinued. For example, a French law dated July 30, 2003, relating to the prevention of technological and environmental risks and the conduct of remediation activities, has strengthened the regulatory framework that applies to discontinued operations and closed sites and installations. In somecertain instances, it requires reserves mustto be established in respect of such discontinued operations. In addition, we may be required to pay fines, repair damage or undertake improvement works, even when we have conducted our activities with care and in total conformity with operating permits. Regulatory authorities may also require us to conduct investigations and undertake remedial activities,a ctivities, curtail operations or close facilities temporarily in connection w ithwith applicable laws and regulations, including to prevent imminent risksdamage or in light of expected changes in those laws and regulations.

In addition, we often operate installations that do not belong to us, and therefore do not always have the power to make the investment decisions required to bring these installations into compliance with new regulatory norms. In instances where the client on whose behalf these installations are operated refuses to make the required investments, we may be forced to terminate our operating contracts.

In the event of an accident or other incident, we could also become subject to claims for personal injury, property damage or damage to the environment (including natural resources). These potential liabilities may not always be covered by insurance, or may be only partially covered.  The obligation to compensate for such damages might have a material adverse effect on our activities or resources.

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Specific measures are required in connection with certain technological risks (article L. 225-102-2risks.

As part of our outsourcing contracts, our subsidiaries may be involved in the operation of top-tier “Seveso” sites (AS classification under ICPE (Installations Classified for the Protection of the French Commercial Code regardingEnvironment) nomenclature) or lower-tier “Seveso” facilities)sites (or their foreign equivalent) for industrial clients (particularly petroleum or chemical industry sites).

Among the facilities that we own and operate in France, one has been categorized a “Seveso” facility.  “Seveso” facilities are places where dangerous substances are present in quantities equal to or above thresholds specified in European Union Directive 96/82/EC (also known as the Seveso II Directive), relating to the control of major accident hazards involving dangerous substances.  As such, these facilities are the subject of special concern and heightened regulation. Our “Seveso” facility is a hazardous waste incineration factory at Limay (Yvelines). The manipulation of waste and hazardous products in this facility can, in the case of an accident, cause serious damage to the environment, neighbors or employees, exposing us to potentially substantial liabilities.

As part of our outsourcing contracts, our subsidiaries may also be involved in the operation of Seveso sites (or the foreign equivalent) by industrial clients (particularly petroleum or chemical industry sites).  In these instances, we must handle the provision of services with even greater care, given the more dangerous nature of the products, waste, effluents and emissions to be treated, as well as the close proximity of the installations we manage to client sites.

Finally, whileWhile the regulatory regime governing Seveso facilities applies only within the European Union, we operate several similar sites outside of this region. These sites are often subject to the same level of heightened regulation by foreign governments, exposing us to potentially substantial liabilities in the event of accident.

Among the facilities that we own and operate in France, one has been categorized a lower-tier “Seveso” facility (not classified as AS under ICPE nomenclature).  It is a hazardous waste incineration facility operated by SARP Industries (Veolia Propreté) at Limay (Yvelines). The manipulation of waste and hazardous products in this facility can, in the case of an accident, cause serious damage to the environment, neighbors or employees, exposing us to potentially substantial liabilities.

Currency exchange and interest rate fluctuations may negatively affect our financial results and the price of our shares.

We hold assets, earn income and incur expenses and liabilities directly and through our subsidiaries in a variety of currencies. Our financial statements are presented in euro. Therefore, when we prepare our financial statements, we must translate our assets, liabilities, income and expenses in other currencies into euro at then-applicable exchange rates. Consequently, increases and decreases in the value of the euro in respect of these other currencies will affect the value of these items in our financial statements, even if their value has not changed in their original currency. For example, an increase in the value of the euro may result in a decline in the reported value, in euro, of our interests held in foreign currencies.

At December 31, 2005,2007, our net financial debt excluding revaluation of hedging instruments amounted to €13.9€15.1 billion, of which 26.1%26% was subject to variable rates 8.7%and 74% to fixed interest rates, including 9% subject to variable rates with caps (euro-denominated debt capped at a 3.5% interest rate) and 65.2% to fixed interest rates. Because we have a significant amount of debt outstanding, ourcaps.  Our results of operations and financial condition may be affected by changes in prevailing market rates of interest.  Fluctuations in interest rates may also affect our future growth and investment strategy. Astrategy, since a rise in interest rates may force us to finance acquisitions or investments or refinance existing debt at a higher cost in the future, which may lead us to decide to curtail or delay our then current expansion plans.future.

Risks Relating to Our Shares and ADSs

Because preemptive rights may not be available for U.S. persons, the ownership percentages of our U.S. shareholders may be diluted in the event of a capital increase of our company.

Under French law, shareholders have preemptive rights (droits préférentiels de souscription) to subscribe, on a pro rata basis, for cash issuances of new shares or other securities giving rights to acquire additional shares. U.S.  holders of our shares may not be able to exercise preemptive rights for our shares unless a registration statement under the U.S. Securities Act of 1933, as amended (“Securities Act”), is effective with respect to those rights or an exemption from the registration requirements imposed by the Securities Act is available.  We are not required to file registration statements in connection with issues of new shares or other securities giving rights to acquire shares to our shareholders.  As a result, we may from time to time issue new shares or other securities giving rights to acquire additional shares at a time when no registration stat ement is in effect.  For example, in July 20022007 we effected a capital increase through the issuance of rights to acquire new shares to all of our shareholders, but those rights were generally exercisable only by persons located outside the United States.  Holders of our ADSs were not permitted to exercise the rights corresponding to the shares underlying the ADSs and received the net proceeds of the sale of these rights in the French market by the ADS depositary.

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We are permitted to file less information with the U.S. Securities and Exchange Commission (SEC) than a company incorporated in the United States.

As a “foreign private issuer,” we are exempt from rules under the U.S. Securities Exchange Act of 1934, as amended (“Exchange Act”), that impose some disclosure and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. Additionally, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our shares. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies with securities registered under the Exchange Act. Accordingly, there may be less information concerning our company publicly available from time to time than there is for U.S. companies at those times.

The ability of holders of our ADSs to influence the governance of our company may be limited.

Holders of our ADSs may not have the same ability to influence corporate governance with respect to our company as would shareholders in some U.S. companies. For example, the ADS depositary may not receive voting materials in time to ensure that holders of our ADSs can instruct the depositary to vote their shares. In addition, the depositary’s liability to holders of our ADSs for failing to carry out voting instructions or for the manner of carrying out voting instructions is limited by the deposit agreement. Finally, except under limited circumstances, our shareholders do not have the power to call shareholders’ meetings.

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ITEM 4: INFORMATION ON THE COMPANY

HISTORY AND DEVELOPMENT OF THE COMPANY

We are a leading global provider of environmental management services, which include water and wastewater services, waste management services, energy services (excluding the production, trading and sale of electricity, other than production through co-generation) and transportation services.  Our clients include a wide range of public authorities, industrial and commercial services customers and individuals around the world.

The legal and commercial name of our company is “Veolia Environnement.” Our company is asociété anonyme, a form of stock corporation, incorporated in 1995 pursuant to the French commercial code for a term of 99 years.  Our registered office is located at 36/38, avenue Kléber, 75116 Paris, France, and the phone number of that office is (+33 1) 71 75 00 00.  Our agent in the United States is T. Michael O’Brien.Brian Sullivan. He can be reached at Veolia Water North America Operating Services, 184 Schuman Boulevard, Naperville,Environnement, 700 East Butterfield Road, Suite 201, Lombard, IL 60563.60148.

Historical Background

Our company traces its roots back to the creation of Compagnie Générale des Eaux by Imperial decree on December 14, 1853.  During the same year, Compagnie Générale des Eaux won its first public service concession for the distribution of water in the city of Lyon, France. Early on, it commenced developingOur company developed its municipal water distribution activities in France by obtaining concessions in Nantes (1854), Nice (1864), a 50-year concession for water distribution services in Paris (1860) and its suburbs (1869).

In 1980, Compagnie Générale des Eaux reorganized its water activities by regrouping all of its design, engineering and execution activities relating to drinking water and wastewater treatment facilities under its subsidiary Omnium de Traitement et de Valorisation (OTV). At the same time, Compagnie Générale des Eaux expanded its business during the 1980s with the acquisition of Compagnie Générale d’Entreprises Automobiles (CGEA, which would become Connex and Onyx, and later Veolia TransportationTransport and Veolia Environmental Services)Propreté) and Compagnie Générale de Chauffe and Esys-Montenay (which would merge to become Dalkia).  It also began significant international expansion.

In 1998, Compagnie Générale des Eaux changed its name to “Vivendi” and renamed its main water subsidiary “Compagnie Générale des Eaux.”

In April 1999, in order to better distinguish the separate existence of its two main businesses, communications and environmental services, Vivendi created our company under the name “Vivendi Environnement” to conduct all of its environmental management activities, which were then conducted under the names Vivendi Water (water), Onyx (waste management), Dalkia (energy services) and Connex (transportation).

On July 20, 2000, our shares were listed on the Premier Marché of Euronext Paris, which became the Eurolist of Euronext Paris on February 21, 2005.2005 and Euronext Paris on November 21, 2007.

In August 2001, our shares were included in the CAC 40, the main equity index published by Euronext Paris, and in October 2001 were listed in the form of American Depositary Shares for trading on Thethe New York Stock Exchange.

From 2002 to 2004, Vivendi (formerly known as Vivendi Universal) progressively decreased its stake in our company, and has held only 5.3% of our shares sincefrom December 2004.  See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders.”  In April 2003, we changed2004 until July 6, 2006, when Vivendi completed the sale of its shares in our name to “Veolia Environnement.”company.   

In 2002, we began conductingundertook a significant restructuring in order to refocus on our core environmental services activities. This restructuring was completed in 2004 with the sale of various U.S. subsidiaries within our water division conducting certain non-core activities, and with the sale of our indirect interest in Fomento de Construcciones y Contratas (FCC), a Spanish company whose activities include construction and cement services, as well as other services related to the environment.

In April 2003, we changed our name to “Veolia Environnement.”  On November 3, 2005, we unveiled a new branding system for our group. Our water, waste management and transportation divisions currently operate under the same name: “Veolia.” See “—Major Developments in 2005”  below.

Our principal capital expenditures and divestitures are described under “Item 5. Operating and Financial Review and Prospects.”  Material capital expenditures currently in progress include those associated with the continued expansion of our existing businesses and replacement and maintenance spending related

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Major Developments in 20052007  

Below we discuss the main developments in our business during 2005.2007.  The discussion below and in the remainder of Item 4 includes the revenue amounts that we expect to earn from various contracts (most of which are long-term contracts), including total revenue expected to be generated from all services under combined contracts to build and operate facilities.  These revenue amounts take into account updates to our volume and price assumptions since the date these contracts were publicly announced.  In addition, revenue amounts expected under foreign contracts won during 20052007 have been converted into euro at the rate of exchange prevailing on December 31, 2005.2007.  As a result, publicly announced revenue amounts may differ from the amounts of expected revenue included in this document.  In addition, these expected revenue amounts constitute forward-looking statements that involve r isks and uncertainties, including, but not limited to, those described under “Item 3. Key Information–Risk Factors.”  Actual revenue amounts may differ materially from those anticipated in the forward-looking statements.  See “Forward-Looking Statements” at the beginning of this document for a more detailed discussion of the risks and uncertainties to which our forward-looking statements are subject.

Roll-outCash rights offering

On July 6, 2007, we announced the success of our cash rights offering for an amount of €2.6 billion.  The subscription period lasted from June 14 to June 27.  The gross amount of the “Veolia” Brandcapital increase was €2,581,469,688 (including issue premium), resulting in the creation of 51,941,040 new shares.  As a result of this capital increase, we reinforced our shareholders equity and increased our financial flexibility in order to maintain growth following the announcement of several significant acquisitions since June 2006 and our 2007-2009 investment program.

New projects and acquisitions

Since November 3, 2005,In 2007, we have been rolling out a new branding program. Our water, waste management and transportation divisions have been brought together under a single name: “Veolia.” The energy services division continues to be associatedreinforced our position in our business sectors with the brand name “Dalkia.”

The brand roll-out, which was initiated by the executive committee, illustrates our determination to unite our divisions and heighten our public profile. This change also aims to reinforce our corporate identity and culture, as well as to strengthen the commitment of our employees to our strong service-oriented values. Over time, the Veolia brand is expected to become a benchmark worldwide for trust, reliability and expertise in environmental solutions.

In connection with the roll-out, the holding companies of the water, waste management and transportation divisions, as well as most of our operating companies, have changed their corporate names to integrate the name “Veolia”.  The roll-out will not affect our ability to conserve specialty brand names, such as “SADE”, in respect of which the related division will always be specified.

A Strong Business Model

Since our initial public offering, we have gone through a series of stagesnew, targeted acquisitions which we hope will generate growth and cost synergies.

We invested more than €2.5 billion in establishingexternal growth opportunities in our business model and independence, whichpriority development areas during the 2007 fiscal year alone.  Following our acquisition of Cleanaway UK (third in 2004 culminatedwaste management in the saleUnited Kingdom in June 2006, our acquisitions of non-strategic assetsSulo (second in waste management in Germany) and TMT (the leading private provider of Italian thermal waste treatment) announced in April and May 2007, TNAI (which holds the largest private portfolio of heating and cooling networks in the U.S. as well asUnited States) in June 2007, and part of the salenon-regulated activities of Thames Water which was finalized in November 2007 were the most significant.

We intend to continue this strategy in 2008 and 2009 by making value-generating investments that either lead to operational cost synergies, or accelerate development based on technological or commercial leverage in its prioritized geographical areas and on growth markets, in compliance with our investment criteria.

Innovation and new areas of activity

We seek to offer its clients innovative solutions that meet all of their sustainable development concerns. This goal has led us to study the development of new areas of activity related to our traditional activities and expertise and which can further our sustainable development prospects.  In 2007, we created a department of new areas of activity, which utilizes and relies on the existing teams and skills of our interest in FCC.  Our refocusingoperational entities.

Several new areas of activity have already been identified and have been the object of initial projects or studies. The common feature of these new areas of activity is that they encourage growth and enhance the activities of our activities on services related todivisions. Examples include biofuels, wind generation or residential services. Other areas have been the environment should enable us to strengthen our positionfocus of initiatives and investigations, such as air quality, ecological transportation or sustainable development (ecological neighborhoods and buildings).

In the field of renewable energies, we have developed the production of biofuels, a leader instrong growth market.  We favor the production of biofuel from waste, such as used cooking oils.  Indeed, this market going forward, by relying on the same consistent strategy for growth.

New and Renewed Contracts

We are present in growing markets, and in 2005 won contracts with several public and industrial clients.

Reaffirming the Group’s Values

The length of our contracts, our partnerships with clients and supplierssolution presents a very positive environmental balance and the local naturerecycling of these oils is an integral part of the waste treatment process. This project, which utilizes the industrial skills of SARP Industries, creates significant synergies not only with our historical core activities place sustainable development at(particularly recycling and collection), but also with the centerprospects for our fleets of our business and values.vehicles. The first plant to produce biofuel from used cooking oils will open in 2008 in Limay. It will have a production capacity of 40,000 tons per year, which may grow to 80,000 tons per year.

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Regional Balance

We haveThe market for wind-generated energy also shows a strong positiongrowth potential sustained by continued support policies. It is an attractive proposition in differentcertain countries in Europe, and will pursue targetedabove all in the United States and balanced development in Asia, where there is considerable growth potential.  In 2007, we acquired 50% of the capital of Eolfi, which currently operates 26 MW in France and is building 12 sites that represent an additional 120 MW capacity.  By the end of 2008, Eolfi’s production capacity is expected to reach more than 150 MW. In addition, numerous projects are pending abroad, notably in Greece, Poland and Asia. With Eolfi, we can meet the expectations of customers, particularly local communities and industrial customers, who also wish to include a “wind-generated energy” aspect in their sustainable development projects.  Eolfi will allow us to optimize certain real estate asse ts that are ideal sites for wind turbines.

Finally, in the residential services sector, through our subsidiary Proxiserve, we have occupied a competitive position in the market for individual boiler maintenance.  More recently, Proxiserve has successfully developed a profitable and expanding domestic assistance activity (in plumbing). The millionth domestic assistance contract was carried out in November 2007.  Based on these activities, we intend to develop a whole range of services that will meet concerns relating to sustainable housing for individuals: energy diagnosis, installation of renewable energy equipment (such as heating pumps and flat plate collectors), maintenance of installations, and assistance and repair for heating, plumbing and electricity. Our activities relating to services for individuals are provided under a common brand, Veolia Habitat Services.

A significant presence on the desalination market

Resource scarcity stemming from land irrigation, drought, floods that degrade water quality, or the over-development of ground water tables, combined with growing needs for water (due to population density growth), are a major challenge to the production of drinkable water in certain arid regions, in particular regions where such phenomena are aggravated and reduce the availability of water.  The desalination of seawater is therefore expected to become one of the main alternative production methods for drinkable water in the coming decades.

Our division Veolia Eau, which has more than 100 years of desalination experience, is one of the few companies that can offer a complete range of services and innovative solutions, and is therefore in a strong position within this rapidly expanding market thanks to its subsidiaries specialized in construction and thanks to its operational experience. Its commercial successes in recent years speak for themselves.

In terms of design and construction, we are a leader in thermal and reverse osmosis desalination processes, and have at our disposal numerous standard-setters in all types of existing treatments within the various entities of Veolia Eau Solutions & Technologies (such as SIDEM and WESTGARTH).  In 2006 and 2007, Veolia Eau Solutions & Technologies won significant contracts in the Middle East, in Bahrain, Saudi Arabia and in the Fujairah Emirate of the United Arab Emirates.  We also benefit from established operational expertise and have a deep pool of experience, for instance in Ashkelon (Israel), which began operations in September 2005.  In 2006 and 2007, Veolia Eau won two contracts in Australia for the design, construction and operation of reverse osmosis desalination units to supply water to the cities of the Gold Coast and Sydney.

Market forecasts for the desalination of seawater, taking into account all techniques, estimate that production will increase significantly between now and 2015. Mediterranean countries (Algeria, Libya, Spain), China, Australia and the U.S.Middle East (Saudi Arabia and the United Arab Emirates) will multiply their desalinated water production capacity by a factor of 2 to 10, with the countries of the Persian Gulf adding reverse osmosis to thermal desalination techniques (such as distillation).

Forward-looking choicesSustained activity growth and relevance of the sustainable growth model

For many years,Since our listing, we have engagedachieved various milestones in growing researchour independence and development efforts that aimorganization, culminating in 2004 with our sale of non-strategic American assets and our interests in the Spanish company FCC. Our refocusing of activities on environmental services under long-term contracts placed us, as early as 2005, in a favorable position to integrate new technology intosustain our operations.rank as worldwide leader in environmental services, driven by a consistent strategy relying on proven capabilities.

Our 2007 fiscal year was another year of profitable growth, consistent with our objectives.  With revenue growth of 14% (14.9% on a constant exchange rate basis) in 2007, demonstrating continued commercial dynamism, and significant growth in operating income, we confirmed our capacity for profitable growth. We have also invested significantlyrecorded a significant increase in employee trainingour net income attributable to the equity holders of the parent and skills development.  improved our return on capital employed since 2002, reflecting increasing profitability for shareholders. The maturity of certain contracts makes it possible for us to continue to improve profitability and to emphasize the relevance of our profitable growth model.  As such, we continue to pay close attention to the quality of our portfolio of contracts and the selectivity of our investments.

“Veolia Skills” Program

In September 2005, we engaged12

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Our inclusion in a largethe Dow Jones Sustainability Index (DJSI) and innovative recruiting campaignFTSE4Good indexes

Created in France referred to as “Veolia Skills.” The objective under1999 and 2001, respectively, the campaign is to recruit 17,000 new employees between nowDow Jones Sustainability Index (DJSI) and FTSE4Good index select companies based on their performance in sustainable development.  We were included in the end of 2007.

All of these recruitments will involve professional skills training lasting between 9 and 24 months, which will lead to a diploma recognized by the French Education Ministry.  Once a diploma has been obtained, candidates will be offered indefinite-term employment.

This recruiting campaign is open not only to youths but also to persons over the age of 18, since we need employees of all ages within our organization. It is also open to existing employees, in order to afford them greater mobilityDow Jones Sustainability Index and in the spiritFTSE4Good index in September 2007.

Our selection demonstrates, in particular, our performance in relationships with stakeholders, especially in respect of ongoing skills development.

“Veolia Environnement 2005” Efficiency Plan

We announced an efficiency plan at the end of September 2003 called “Veolia Environnement 2005,” which we hoped would generate €300 million in annual savings beginning in 2006. This objective has been achieved one year in advance, with €304 million in savings recorded in 2005 compared to 2003 when the plan was announced (after deduction of one-time costs relating to implementation of the program). These savings were generated through improvements to our operational processes (35% contribution to savings), support functions (26%) and purchasing functions (21%),human resources management, as well as through an optimized use of assets (18%). All ofwith clients and local communities. In addition, our operating units contributed to this success.  During 2006, the efficiency enhancement tools and methods developedEnvironmental Management System was a significant factor in connection with the program will be reinforced and deployed by operating units as part of an ongoing effort to improve performance.  

Limiting Greenhouse Gases

An increase of greenhouse gasesour inclusion in the atmosphere has led certain countries, as well as the international community, to implement regulatory measures in order to limit their progression.  At the international level, the Kyoto Protocol, finalized in 1997, came into force in February 2005. At the European level, the European Union has decided to implement a quota exchange system for carbon gas emissions, through Directive 2003/87/EC of October 13, 2003.  This system has been in place since the beginning of 2005.these indices.

We are already activealso part of the ASPI Eurozone index (Advanced Sustainable Performance Indices). The ASPI Eurozone index, launched in this field atMarch 2002, is composed of the European Union level120 principal stocks of the Eurozone selected according to social, environmental and internationally, as well as at the national level (see Note 46 to our consolidated financial statements).

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At the European Union level, all large combustion installations with thermal output greater than 20 MW fall under the new quota exchange system. For our group, this primarily affects our energy services division, which manages almost 250 such installations in Europe (i.e., more than 2% of total installations). Quotas awarded to Veolia Energy Services represent approximately 1% of all European quotas awarded. Veolia Energy Services has worked with customers to help keep carbon dioxide emissions within quota limits, and has established an organization dedicated to this endeavor.  This has enabled us to intervene early within the quota exchange market, and through our participation we have assisted clients in financing new investments that help to reduce greenhouse gas emissions. Some of Veolia Water’s sites in Germany have also been affected, following its win of certain municipal contracts (Stadtwerke).corporate governance criteria.

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At the international level (Kyoto Protocol), we have begun trying to generate emission credits that would be tradable on the market, by participating in projects with other countries that help to reduce greenhouse gases. Veolia Environmental Services and Veolia Energy Services have already tested this in practice, through projects in Brazil, Egypt and Lithuania.  By using dedicated teams, they intend to pursue this activity in the future.  Regarding transportation services, the first challenge in reducing greenhouse gas emissions is to establish reliable measurement tools. Veolia Transportation is actively involved in developing an initial tool that would apply to business transport, in collaboration with the organization Enterprises for the Environment (EpE) and the French Agency for Environment and Energy Management (ADEME).13

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At the national level, a number of countries have designed mechanismsBack to reduce greenhouse gas emissions, either in the form of a set of targeted incentives (as France has done under itsPlan Climat) or in the form of “domestic projects” that allow selected projects to benefit from emission credits (as New Zealand, Canada, Australia, and some U.S. states have done). The latter method is currently being studied by France as well. Our teams are following all of these developments and attempting to integrate them into their planning.Contents

Direct greenhouse emissions on sites that we managed in 2005 reached 33.7 million tons of CO2 (carbon dioxide) equivalent (compared to 31.5 million tons in 2004).

We are generally contributing to a reduction in greenhouse gas emissions, both through the daily management of sites that we operate and through the use of renewable and alternative energies (in particular biomass, landfill gas, geothermal energy).  We are actively following regulatory developments that will undoubtedly become more onerous in the future, viewing them as new opportunities to develop our environmental management skills.

Responding to Natural Disasters

The year 2005 was marked by three natural disasters in different parts of the world: (i) the tsunami of December 26, 2004 that caused the deaths of more than 200,000 people in Indonesia, Sri Lanka and the Maldives, (ii) Hurricane Katrina, which hit the U.S. states of Louisiana, Mississippi and Alabama and devastated the city of New Orleans on August 29, 2005, and (iii) the earthquake that hit Kashmir on October 8, 2005, leaving 3 million people without shelter as winter approached.

In each case, Veolia Waterforce – our emergency humanitarian assistance organization – was present through its network of employee volunteers. Veolia Waterforce works in partnership with the Red Cross, Catholic Aid, UNICEF and the French Ministry of Foreign Affairs. Through the use of specialized materials made available by the Veolia Environnement Foundation, Veolia Waterforce produced more than 25 million liters of drinking water during the three months following the tsunami. In Louisiana, it installed a mobile water treatment line for the city of Kenner (75,000 inhabitants) near New Orleans. In Pakistan, Veolia Waterforce installed a facility to produce 200 cubic meters of water per day to serve the refugee camp of Thuri, near Muzaffarabab.  

In the majority of large-scale natural disasters, access to drinking water plays a major role in the survival of affected populations. Created in 1998, Veolia Waterforce mobilizes volunteer employees and uses our group’s know-how to satisfy this most basic need in crisis situations.

BUSINESS OVERVIEW

Our Market

Traditionally, environmental management services, which include water treatment and distribution, wastewater treatment and collection, waste treatment and management, energy services (excluding the production, trading and sale of electricity, other than production through co-generation) and transportation, were provided in an uncoordinated manner, each by a different entity. PublicMoreover, public authorities and industrial and commercial companies moreover, typically metwere able to meet many of their own environmental needs without lookingturning to private firms that specializespecializing in these areas. This situation has changed fundamentallydrastically in recent years, however, asyears. The need to take action to prevent further damage to the environment has become a global reality. There is a growing need for excellence and efficiency, which has led decision-makers to seek a global approach to the management of activities affecting the environment in order to devel op solutions that allow interaction and optimization among these environmental management services.  These measures, now widespread, have led to an increased demand for integrated environmental management services. This trend has been highlighted by the continued global expansion of industrial and commercial companies, have continued to expand onwhich has generated a global scale and increasingly requireneed for environmental management servicesservice providers with a global reach.

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respond to their clients on an international scale.

We believe that demand for external and integrated customized packages of environmental management services is likely to grow around the world for the following reasons:

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In a world that combines accelerated urbanization with demographic growth, major investments in environmental projects and services, as well as effective management, are needed in order to meet increasingly stringent environmental standards, provide growing urban populations with adequate environmental services and replace existing environmental infrastructure.  In addition, there is also an increase in public demand, which now widely reflects a concern for high-qualitysustainable development, must respect commitments made at the international level and reliablemust set exemplary standards. The qualitative criteria underlying environmental products and services.requirements are increasingly a decisive factor in the choice of providers, which is an advantage for us.

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Governments throughout the world face budgetary constraints and often lack the technical and operational skills of private sector firms to address environmental issues efficiently.  As a result, public authorities and private businesses are increasingly turning to the private sector to address their environmental needs.

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Public and private entities are increasingly attempting to simplify the administration of their complex operations by outsourcing a wide variety of responsibilities to a single partner.  This tendency createspartner, thereby creating a business opportunity for companies capable of offering a broad range of environmental management services in an integrated fashion.

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Large private firms and public authorities increasingly recognize that a “one size fits all” approach will not meet their unique and changing needs. As a result, demand for customized environmental management services has grown.increased.

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The increasingly multinational profile of many large industrial and commercial firms encourages them to outsource non-core activities to companies with similar geographic reach in order to simplify administration and ensure they receive consistent service at each of their facilities.

We think that each of these trends, taken individually, creates significant opportunities for companies with our expertise, and, taken as a whole, they allow our company, in particular, to provide high-quality innovative and (depending on customer needs) integrated environmental management services in markets around the world.

Our Clients

We provide environmental management services to a wide range of public authorities, industrial and commercial customersservices clients and individuals around the world.

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Public Authorities

Demand by public authorities (often small localities that are increasingly joining forces together)pooling resources) has been influenced and strengthened by trends relating to the search for quality, efficiency, innovation and reduced costs as well as a heightened sensitivity(by integrating operating concerns starting at the development stage), and by their commitment to environmental issues, including the management ofresponsibility, particularly with respect to  water resources, air pollution, mass transportation policies and energy consumption. These trends, combined with a movement towards greater urbanization, are increasing the need for essential environmental services.

As a result,While we have the know-how to adapt to our clients’ expectations and needs, we also believe that  our historical business model—most often takingglobal contract model, which permits us to provide services tied to performance obligations, as well as, depending on client requests, the formdevelopment, construction and even financing of “delegated management contracts” in Francenecessary investments, remains as relevant as ever. It enhances innovation and of “concessions” in most places outside of France—is more relevant than ever.efficiency through mutual research efforts and the periodic re-tender for contracts. Depending on the country the actual contractinvolved, this model may take several legal forms. Certain countries, including those subject to European Union law, distinguish public markets from concessions (or other forms but remains characterized byof Public Private Partnership, or PPP), based on whether the service is provided to a public authority delegatingentity or directly to end-users, and depending on whether the managementassignment is based on the service being provided or the completed work, or on the risk to revenues assumed by the compa ny.

In France, since the middle of variousthe 19^th century, public authorities have generally chosen to have public services (water, sanitation, transportation, waste collection and urban heating) managed by companies through contracts that were traditionally considered to be concessions (or leases, in the absence of investment completion assignments) and which are now legally qualified as public service delegations, but which remain concessions under the European Community’s definition.  They have frequently preferred, at least in the case of certain public services, to private operators,continue to manage the construction of installations, as well as their financing, before making them available to the provider or lessee during the term of the contract.

In the last few years, a new trend has emerged in which public authorities in all countries, including France, have asked companies to manage not only the rightsnecessary development and completion of work and installations or public facilities and equipment (as varied as, for example, administrative or educational buildings, hospitals, transportation infrastructure, prisons, water treatment facilities or waste treatment plants), but also their financing and long-term maintenance before recovering them at the end of the contract. These contracts, which together are often categorized as PPPs, fall into two main categories.  The first category includes contracts similar to those in the market category: the resources intended to cover the cost of work and their financing are similar to a contract price or guaranteed amount from the public authority, and the service is provided to the authority once work is completed.  The sec ond category includes contracts resembling concessions under the European Community’s definition:  resources must be sought from a commercial operation of the public service (the public or general-interest service whose operation has been delegated) which is the main focus of the contract, the completion of work being only a means to that end. Distinct accounting treatments according to the IFRS standard (reporting or non-reporting of a financial asset corresponding to debt of the public authority) apply in each case.  We prefer to distinguish these PPPs based on the nature of the assignments (“Build Operate Transfer” or “BOT”, “BFOT” if financing is added, or “DBFOT” if development is added).

In France, since the public market code (code des marchés publics) now prohibits entrusting companies with the construction and operation of a commissioned project, on one hand and all of its financing assignments, on the other, it became necessary, in order to do so.  This model leaves to public authoritiesencourage the roledevelopment of defining, organizing and overseeingthis type of global PPP contract (which does not fall under the services provided to inhabitants. At the same time, the private operator charged with the provision of these services uses its expertise to deliver them more efficiently, resulting in a mutually beneficial relationship between the private operator and public authority. Public authorities can assume a larger or less prominent role in the managementcategory of public services, depending on their needs. We believe that we can adaptservice delegations (délégations de service public), which is the French term for community concessions), to the different needs and expectationscreate a new category of public authorities around the world in order to assist them in (i) responding to the need for heightened efficiency and productivity in the provision of public services in order to control costs, (ii) accessing more sophisticated technical skills in order to resolve complex environmental problems, and (iii) responding to the demand for prompt and professional service expressed by end users.

In France in particular, we intend to take advantage ofpartnership contracts, created under a Frenchordonnancedated June 17, 2004 allowing for the creation of a new form of partnership contract.  The2004.  Thisordonnanceallows public authorities to entrust private operators (who may be associated with financial organizations) with the entire responsibility for building and/or financing an installation and operating the services related thereto, in exchange for compensation that is paid by the public authorityauth ority as a function of performance.

This contractual model of delegated management or concessionbetween a public entity and private companies, whatever their form, is widely used for the provision of collective services, but is not the only one.available model.  Public authorities may decide that they should not be directly involved in the provision of certain public services.  In these instances, they are oftenusually not the ownerowners of facilities or networks, and do not enter into contracts with a preferred private operator; instead, they leave the provision of the public service to market forces.the market. They may nonetheless occasionally verify the abilities of private operators by issuing operating licenses and regulating service conditions and prices.  This situation rarely arises with respect to water services, but is more common in the fields of energy services, waste management and transportation. Public authorities may also holdhave an ownership interest in the private operator in these instances; wew e may seek to acquire a stake in these operators as well.

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Services Sold Directly to Individuals

We also offer services directly to individuals through our specialized subsidiaries. These services include assistance and maintenance relating to water (including meter-reading), heating and gas services.

Industrial or Commercial Services Companies

We offer our industrial and commercial services clients a large range of services, which generally aim to achieve the following two main goals in relationrelating to the environment:environmental protection:

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furnishingprovide clients with the services necessary for their industrial processes (vapor, industrial heating and cooling, processed water, demineralized water, compressed air, etc.) and optimizing their consumption thereof, and

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reducingreduce the impact of their industrial processes on the environment, which may include treating effluents, recycling and recovering waste, and maintaining durable and efficient waste elimination channels.

We often partner with such clients over the long term, and offer innovative solutions adaptedtailored to the needs of each industrial site.

We believe that the further development of our industrial client base will bemake up a significant area of growth.growth area.  In particular, multiservice contracts entered into with industrial clients have assumed an increasingly important role and are expected to continue to do so.  See “—Development of Synergies: Multiservice Contracts to Benefit Industrial and Commercial Services Clients” below.

Our Overall Strategy

Our strategyaim is to strengthencontinue to reinforce our position as the leading provider of environmental services. Our strategy focuses on developing the most appropriate environmental services solutions for our local and industrial clients; maintaining a geographically diverse area of activity; developing a significant presence in growth markets with high potential and accelerating synergies between our different businesses.    

By strengthening our position as the leading provider of environmental services worldwide, leaderwe continue to implement our business model aimed at improving our economic and financial performance.  This performance is a result of economies of scale and technological expertise, combined with significant levels of research investment, long-term commitments to clients and managed risk.

By providing the most appropriate environmental services, we are able to optimize our client relationships.

While preserving our local character, we have become a major actor in both the services and the concessions businesses. We have achieved a unique position within these two client segments.  In 2007, we reinforced our core business in large European countries through targeted acquisitions in the United Kingdom, Germany and Italy.

With respect to our municipal activities, we have added to our impressive portfolio of existing French and European clients (Prague, Bucharest, Nottingham, Braunschweig), and have also achieved a number of commercial successes in the United States (Indianapolis, Chicago, Boston) and in the Asia Pacific region (Canton, Shanghai, Incheon, Melbourne).  Thus, we have illustrated our ability to participate in large privatizations and win bids for large projects.

We have also conducted a significant portion of our business with our industrial and commercial services clients, particularly for the provision of environmentalenergy and waste management services.  In particular,We have also created a new business portfolio made up of large industrial accounts (Peugeot, Novartis, Renault), with a significant contribution coming from multi-service contracts.

Successful geographic diversification

Our international business continues to increase along with our strategy consists of:volume of business in France, which has continued to grow at an average annual rate of over 5% per year since 2000.

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offering our clients – both municipal and industrial – environmental solutions that are effective from both a technological and cost standpoint;

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pursuing growth and improving margins, by continually seeking ways to enhance productivity;

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fostering more efficient use of natural resources around the world in pursuit of sustainable development.

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Beyond Europe, which has become our domestic market, we have also achieved strong positions in the United States and Asia. We relyhave taken on a significant role in energy services in the United States.  Our presence in developed countries presents relatively little risk of decreasing as it is largely unaffected by relocations and restructurings.

We have also developed a significant presence in emerging and developing countries. We regularly add new contracts and expand our energy services activities in China.  Our economic position in these areas of the world is much more significant than the proportion of our revenues earned in these areas suggests.

A strategy focused on growth and high-potential markets

Our strategy is to focus on growth markets.  An increasing awareness of the challenges relating to sustainable development and its impact on environmental policies has resulted in significant growth opportunities.  

Faced with increasingly restrictive regulations and in order to keep up with competition, more and more industrial companies outsource environmental services through long-term partnerships. Their partners generally work on all of their industrial sites worldwide and tend to provide a full range of services.

Expansion in municipal markets principally results from the combination of several demographic factors: an increase in population size on the one hand, and the urban development rate on the other. Growth is also a function of economic activity and living standards. The tightening of environmental restrictions and related regulations has fuelled our growth.  A recent example of this growth potential within these markets is the success of desalination projects in the Middle East.

Economic constraints affecting our industrial and municipal clients increase their need to reduce water and energy consumption and waste production. Our position as a service provider, as opposed to a utility provider, generally allows us to leverage this trend.  

Additional growth potential in related businesses

Because of our expertise, commercial relationships, and geographical distribution, we possess several important advantages allowing us to develop services that are directly related to our environmental services.  These opportunities result from new demand relating to changes in employee management, technical solutionsthe economic, ecological and complex contractual models in seekingpolitical landscapes, and which are all related to achieve these goals.  the promotion of sustainable development.  Examples of this trend include green fuels, wind energy and residential services.

One business:Synergies between our different businesses accelerate our growth

In our environmental services business with both public authorities and industrial clients, we enjoy important synergies between our water, waste management, transportation and energy services divisions.  Since we offer a complete range of services, our clients have broadened the scope of the services they seek from us.

This synergy is particularly evident within countries or municipalities where demographic changes, urbanization and economic development have accelerated significantly. In these cases, we have been called upon to find solutions to the growing environmental problems facing clients.  We offer a significant competitive advantage over funds or other financial investors, who have been weakened by the current market crisis.

Strong economic and financial resources

We focus exclusively on the provision of

Our solid position results from market growth trends, but also from our competitive assets, including our technological and technical expertise, our financial stability, our geographic presence, and our experience in providing environmental services in four main areas: water, waste management, energy services and transportation.  We have made a strategic choice to concentrate only in these areas.  For instance:

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since 2000, we have decided not to be present in the primary energy production market, in order to focus more fully on providing services to clients that help to optimize their energy consumption;

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in 2004, we finished disposingcompliance with regulatory requirements.  The success of our industrial assetscapital increase, completed in the water sector (mostly in the United States) relatingJuly 2007, also strengthened our financial capacity, thereby ensuring our development and reducing our exposure to equipment production and the short-term service activities they generate;market fluctuations.

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in 2004 as well, we sold our minority interest in FCC, a Spanish company whose activities include construction and cement services, as well as other services related to the environment.

Targeted international developmentSize advantages

The needs of our planet in matters relating to the environment are significant. Numerous countries suffer from poor water quality, uncontrolled pollution, inefficient energy consumption and poor traffic conditions; accordingly, the need for skills in these sectors is significant. The opportunities for long-term growth in our business are therefore extensive.

Within this context, our strategy is to actively, yet carefully, develop our activities internationally. We currently conduct more than half of our activity outside France. Considering the growing needs in the area of environmental services, we are in a position to pursue international growth selectively, by focusing on areas of strong economic development and countries where acceptance of our business model and the ability to fulfill long-term contractual commitments is most pronounced.

While pursuing growth in France and in Western Europe, we also seek to develop our business:

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in the countries of Central and Eastern Europe, which are new entrants into the European Union;

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in certain targeted Asian countries, in particular China, where there is a significant need for services related to urban growth and compliance with environmental standards; and

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in large markets still mostly closed to management by environmental services companies like ours, such as the United States, whose medium-term potential is still important.

In 2000, we also created Proactiva Medio Ambiente (Proactiva), a subsidiary held jointly with FCC, in order to coordinate the development of our and FCC’s water and waste management activities in Latin America and the Caribbean.

Our solid internationalsize alone provides us with significant synergies.  In addition, our presence accordingly allowsin all segments of the value chain means that our vertically integrated structures allow us to partner with numerous large cities and industrial clients aroundmaximize the world, while providing uniform quality service.benefits of added value.

Development in the industrial sector

Industrial companies currently face large challenges, including the need to continuously improve performance and competitiveness, ensure the safety of personnel and installations and develop internationally.  Faced with these challenges, the management of environmental services – which are complex by nature – has assumed increased importance, and plays a key role in these companies’ performance. Increases in the price of energy, more stringent environmental regulations, the opening of the rail freight market and the increased importance of recycling and waste-to-energy recovery present new challenges to companies, but opportunities at the same time.

Within this context, we seek to partner with industrial clients in their search for enhanced performance and competitiveness, in both France and abroad. We offer clients innovative and customized outsourcing solutions, while building partnerships that are respectful of both employees and the environment. By following this approach, we have become the preferred partner of numerous industrial companies and won several industrial contracts over the past five years in both France and abroad.

A long-term commitment alongside municipal and industrial clients

One of our strengths is our ability to establish effective, long-term relationships with clients. Public authorities seeking to improve the environment for citizens must be able to rely on a partner that can develop a long-term presence in an area, who can permanently improve the functioning, for example, of a water treatment or production facility, a waste incineration or landfill facility, or an urban heating network, or who can manage the public transport network of an area, with the utmost concern for issues of security, cleanliness and the rights of employees.

Industrial clients, who are increasingly outsourcing the management of non-core activities, also desire to form long-term relationships. They therefore seek partners who can manage environmental services at their industrial sites for an extended period. These services include treatment of industrial effluents, utility production (vapor, compressed air, etc.) for waste-to-energy recovery and management of rail freight transport. Proper management of these services can often have an impact on the public at large, particularly when it comes to management of municipal contracts – making the choice of long-term partner all the more important.

Long-term contracts adapted to the needs of each client

In response, we have developed a high level of contractual expertise across our four divisions that allows us to commit to clients over the long-term. One example is the 50-year contract we entered into with the municipality of Shanghai. Over the past several years, we have demonstrated the ability to adapt our contracts to a variety of constraints in countries around the world while providing a broad range of services.

Long-term contracts provide a measure of visibility both to clients and to our shareholders.  For clients, whether they be public authorities or commercial or industrial companies, long-term contracts can also provide efficiency gains by providing them with a real partner for the future. Long-term contracts can lead to improvements in performance and productivity as part of a strategy that integrates, in addition to local factors, technical, labor and management considerations and, if necessary, financing of required infrastructure or investments.

Strong financing capability

We partner with clients in order to help them finance required infrastructure, investments and other work, which is made possible through long-term contracts and optimized operating performance. Accordingly, we have the ability, in particular through forming new partnerships and obtaining third-party financing, to help our clients realize their more ambitious projects. Such projects typically involve the water, waste management and energy services sectors.  At the same time, we have been able over the past several years to successfully realize our strategy for reducing net debt, despite this willingness to partner with clients for all of their financing needs.

Continuous research efforts

Our activities require substantial technical knowledge and specialized teams whose skills are constantly expanding. We have implemented a research program for all of our activities pursuant to which researchers are currently preparing for our group’s future. These researchers are in direct contact with our operating teams so that clients can benefit from the latest technological developments.

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Strong presenceSupport of operating teams on the ground

In addition to tailoring our contract provisions to the specific needs of each client, we also tailor our services to each client. Through call centers, our operating teams are quickly informed of any required responses.

In crisis situations, our operating teams have consistently shown their professionalism, commitmenttechnological developments and solidarity, whether it be during the floods in Prague in 2003 or during the aftermath of the tsunami that struck southeast Asia on December 26, 2004.

In an original way then, we combine the advantages of being a large group with the ability to develop a local foothold for each of our operations.   

Rigorous management adapted to business needs so as to protect shareholder interests  improved know-how

A constant effort to improve the return on capital employed is a key factor in ensuring the sustainability of our development strategy, as well as the promotion of shareholder interests. In order to do so, our operating and financial teams undertake new projects selectively, after having analyzed all of the risks involved as well as their distribution among parties. Further, these teams attempt to use any debt leverage effectively.

The favoring of organic growth, the frequent search for financial partners to help finance new developments and our strong market position all help towards the realization of these objectives.

Focus on sustainable development

Sustainable development is part of the very nature of our activities. It is for this reason that we have made it a part of our development strategy.  We partner with clients on a long-term basis in order to satisfy fundamental population needs, through an offering that seeks balanced development.

We have also attemptedbeen expanding our Research and Development activities for a long period of time. Research and Development is essential to impose this culture of responsibilityaccomplishing our missions and solidarity on our corporate management structure, by favoring internal mobility, enrichment of skills and recognition of professional accomplishments.

The constant pursuit of these values means that we are currently well-positionedallows us to  respond to the needs and expectations engenderedof our clients. Since 2000, we have centralized our R&D business into one unique organization which is now supported by the strengtheningstrategic research, innovation and sustainable development committee created in 2006 by our board of directors.

We also benefit from the technical exchanges in areas such as prevention of the Legionnaires’ disease, treatment and recycling of sediment, bioenergy, and management of High Environmental Quality buildings.

Long-term contracts

We make long-term commitments to our clients. Our human resources policy, which emphasizes, among other things, employee training, allows us to focus on the long term, in particular through the considerable professional efforts of Veolia Expertise (Veolia Compétences), a program that was renewed in 2007.  In 2005 and 2006, this program allowed us to make extensive recruitments in France.

Moreover, aside from its social, environmental and health standards, as well asethical aspects, sustainable development directly influences the increased sensitivityexpectations of clients, thus forming a crucial element within the commercial dialogue. Sustainable development trends have led to changes in our economic model in order to move from a volume-maximizing model to a resource-optimizing model.

Managed risks

Given our growth objective, we have implemented a management and risk calculation policy, marked in 2007 by the mapping of the public, elected officialsmajor risks at the Group and industrial companiesdivision levels.  By putting in place a coordinated risk prevention and management plan, we are addressing this issue of fundamental concern to environmental issues.our future development.

These various strategic factors have allowed us to develop a profitable growth platform with room for future accelerated growth.

Our Strategy by Division

Water

Our water division, Veolia Water, will pursue further development ofEau, intends to continue to expand its water services throughoutaround the world.  While doing so, it will striveworld, while striving to ensure the quality and safety of drinking water, the conservation of natural resources and the protection of the environment.

The growth potential of the international market for water services has the potential to grow worldwide, supportedis driven by four factors in particular:

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population growth and higher urban density,

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the strengthening of environmental standards and sanitary norms andhealth regulations,

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the growing acceptance of the delegated public service management model and public-private partnerships as alternatives to public management, and

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the attemptrefocusing by industrial clients to refocus on their core businesses.

Given this growth potential, we will selectively pursuecontinue our selective development in the water sector in order to optimize our useallocation of resources, operating costs and profitability. AsIn order to take advantage of market opportunities, we do so, we will rely on our technical expertise, our experience in managing client relations and the mobilization of local teams on the ground in order to anticipate the future needs of public authorities. We will also continue to train our employees to meet the challenges of tomorrow.  Veolia Water’s increasedEau’s technical expertise in various desalination methods, and wastewater recycling in particular, represents a major effort to adapt to ongoing changes in market conditions.

Going forward therefore, Veolia WaterEau will seek to capitalize on the sustainedlong-term international development opportunities, for development worldwide, the maturing of its larger contracts and the productivity gains resulting from efficiency programs it launched in 2003 (relating to purchases,purchasing, information systems and sharing of best practices).

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Waste Management