As filed with the Securities and Exchange Commission on June 29, 2007April 19, 2010

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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, 20062009

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)

Olivier Orsini, Secretary General, 36/38 avenue Kléber, 75116 Paris France 011 33 1 71 75 01 26

(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:

410,795,840493,630,374 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):

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

U.S. GAAP    International Financial Reporting Standards as issued by the International Accounting Standards Board    Accelerated filer Non-accelerated filer Other

IndicateIf “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.

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 contractscontra cts 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—Risk Factors,” “Item 7;Item 5. Operating and Financial Review and Prospects,” “Item 8. Financial Information Consolidated Statements and Other Financial Information – Significant Changes” 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

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

1

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

1

ITEM 3.

KEY INFORMATION SELECTED FINANCIAL DATA

1

ITEM 4.

INFORMATION ON THE COMPANY

811

ITEM 4A.

UNRESOLVED STAFF COMMENTS

5369

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

5470

ITEM 6.6

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES DIRECTORS AND SENIOR MANAGEMENT

84121

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

111167

ITEM 8.

FINANCIAL INFORMATION CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

114170

ITEM 9.

THE OFFER AND LISTING TRADING MARKETS

120178

ITEM 10.

ADDITIONAL INFORMATION

123181

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

134197

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

140197

ITEM 12D.

AMERICAN DEPOSITARY SHARES

197

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

141199

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS

141199

ITEM 15.

CONTROLS AND PROCEDURES

141199

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

141200

ITEM 16B.

CODE OF ETHICS

142200

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

142200

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

142201

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

143201

ITEM 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

202

ITEM 16G.

CORPORATE GOVERNANCE

202

ITEM 17.

FINANCIAL STATEMENTS

144204

ITEM 18.

FINANCIAL STATEMENTS

144204

ITEM 19.

EXHIBITS

144204

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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, 2006 and with IFRS issued by the International Accounting Standards Board (“IASB”) and with IFRS as ofadopted by the same date. IFRS differ in certain significant respects from U.S. generally accepted accounting principles (“U.S. GAAP”).  For a description of the principal differences between IFRS and U.S. GAAP as they relate to us and to our consolidated subsidiaries, and for a reconciliation of our shareholders’ equity and net income to U.S. GAAP, see Note 51 to our consolidated financial statements included in Item 18 of this annual report.European Union. 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 comparability of the information provided below.

Concession contracts are accounted for in the 2006 consolidated financial statements in accordance with IFRIC Interpretation 12,Service Concession Arrangements (IFRIC 12), published in November 2006. This interpretation, which is pending adoption by the European Union following a favorable vote of the EFRAG in March 2007, is applicable to accounting periods commencing on or after January

1 2008. We have elected early adoption of this interpretation, and the change in accounting method has been applied retrospectively.  As such, our consolidated financial statements as of and for the year ended December 31, 2005, and 2004 financial information have been adjusted accordingly for the retrospective adoption of IFRIC 12.

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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 10, 2007,7, 2010, our shareholders approvedwill decide on a dividend payment proposed to be €1.21 per share in respect of our 2009 fiscal year, which will be paid beginning on June 9, 2010. The dividend will be payable in cash or in shares, and the period during which shareholders may choose the option of the payment of the dividend in cash or in shares, subject to applicable legal restrictions, will begin on May 14, 2010 and end on May 31, 2010. Subject to the approval of the general shareholders’ meeting, new shares will be issued with a discount of 10% off the average opening price on Euronext Paris of the shares over the twenty trading days prior to the day of the general shareholders’ meeting approving the dividend, less the amount of the dividend. We expect that Bank of New York Mellon as depositary will make this option availabl e to ADR holders. On June 8, 2009, we paid a dividend of €1.21 per share in respect of our 2008 fiscal year. On May 27, 2008, we paid a dividend of €1.21 per share in respect of our 2007 fiscal year. On May 15, 2007, we paid a dividend of €1.05 per share in respect of ourthe 2006 fiscal year, which was paid on May 15, 2007.year. On May 29, 2006, we paid a dividend of €0.85 per share in respect of the 2005 fiscal 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.  

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 euroe uro to dolla rs.dollars.

Exchange Rate Information

Share capital in our companyCompany 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 20022005 through May 2007April 2010 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 = € 0.7593,€0.69415, the Noon Buying Rate on December 31, 2006.2009. On June 28, 2007,April 9th, 2010, the Noon Buying Rateexchange rate as published by Bloomberg at approximately 1:00 p.m. (New York time) was U.S.$1.3466 1.3468 per one 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. resources and cutting-edge technical expertise in numerous areas.

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 clientscustomers of the quality and cost value of our service offerings. CompetitorsWe may also introduceneed to develop new technology ortechnologies and services that we would have to match in order to remainmaintain or increase our competitive position, which could result in significant development costs for us.  costs.

In addition, weWe perform a substantial portion of our business under contracts, often of a long-term nature, with governmentalpublic authorities and clients from the industrial and commercial sectors.service sector customers. 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.

OverIn connection with the courseperformance of performing certain contracts, we may also be requested by our public or private clientscustomers to modify the contractual terms and conditions, regardless of these contracts, whether called for undersuch modifications are contemplated in the contract or not.contract. These modifications may alter the services provided under the contract, related expensesrequired investments or billing terms.

Finally, our contracts may not be renewed at the end of their term, which in the case of importantmajor contracts may obligerequire us to engage in aimplement costly reorganization or restructuring of assets and operations covered by the contract whenmeasures. When the contract does not provide for the transfer of the related assets and employees to the succeeding operator and/or adequate indemnificationappropriate compensation to cover our costs of termination.termination, the impact on our results could be substantial.

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

While our operations are concentrated mainly in Europe and North America,the United States (sales generated outside of these regions represented approximately 16.2% of total Group revenue in 2009), we conduct business in markets around the world. Sales generated in countries outside of Europe and North America represented approximately 10.14% of our total revenue in 2006. The risks associated with conducting business in some countries, in particular outside of Europe, the United States and Canada, can include the non-payment or slower payment of invoices, which is sometimes aggravated by the absence of legal recourse for non-payment, nationalization, social,employee-related risks, political and economic instability, increased currencyforeign exchange risk and currency repatriation restrictions, among other risks.restrictions. 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 establishmentsetting of public utility fees and their structure canmay depend on political decisionsdecisi ons that maycan impede for several years any increase in fees, such that they no longer allow coverage ofcover service costs and appropriate compensation for a private operator. The occurrence of unfavorable

Unfavorable events or circumstances in certain countries may lead us to record exceptional provisions, write-downs and/or depreciation charges in connection with our operations in these countries,impairments, which could have a material adverse effect on our results.

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

The pricesSome of our suppliesactivities could cause damage to persons or property

Some of fuelour activities could cause damage to persons (including injury or death), business disruption, and other commodities,damage to real or personal property. It is our general policy to contractually limit our liability and to take out insurance policies that cover our main accidental and operational risks. However, these precautions may prove to be insufficient, and this could generate significant costs for us. For more information, please refer to the risk factors describing environmental, health and safety compliance, below.

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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 condition.

As part of our external growth strategy, we have conducted and continue to carry out acquisitions of varying sizes, some of which are significant operating expenses forat the Group level. These acquisitions involve numerous risks, including the following: (i) the assumptions underlying the business plans supporting the valuations may prove inaccurate, in particular with respect to synergies and expected commercial demand; (ii) we may fail to successfully integrate the companies acquired and their technologies, products and personnel; (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 prove costly and/or be performed at unfavorable terms and conditions; and (v) we may increase our indebtedness to finance these acquisitions. As a result, the expected benefits of comple ted or future acquisitions may not materialize within the time periods or to the extent anticipated, or may impact our financial condition.

Our business is affected by variations in weather conditions.

Certain of our businesses are subject to marked fluctuations. Although mostseasonal variations. For example, Dalkia generates 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, while in the water sector, household water consumption tends to be highest between May and September in the northern hemisphere. Accordingly, these two businesses may be affected by significant deviations from seasonal weather patterns. This risk is offset in certain cases, first by the variable compensation terms included in contracts, and second by the geographical coverage of our contracts contain tariff adjustment provisions that are intendedbusinesses. The impact of weather conditions, together with the seasonal nature of the Group’s businesses, may nonetheless affect our results of operations.

Our business is subject to reflect possible variations in pricesCO₂ market and emission allowance risks.

As an operator of energy installations and, to a lesser extent, as a result of our supplies usingtransportation and landfill site businesses, we are exposed to the inherent risks of the CO₂ allowance system introduced by the European Union and the Kyoto Protocol. The rise in greenhouse gases in the atmosphere led certain pricing formulas,States and the international community to introduce regulatory provisions to limit further increases. At the international level, the Kyoto Protocol came into force in February 2005. Directive 2003/87/EC of October 13, 2003 implementing the Kyoto Protocol, created an emission allowance trading system within the European Union, known as ETS (Emission Trading Scheme). The resulting system, which was set up in 2005, led to the creation of National Allowance Allocation Plans (NAAP).

In France, NAAP 1 was adopted for the period 2005-2007 and was followed by NAAP 2 covering the period 2008-2012. In 2006, the European Union launched a review of directive 2003/87/EC aimed at extending its application scope, strengthening controls and introducing an allowance trading scheme linked with the Kyoto protocol. At the beginning of 2008, the European Commission published a revised draft directive on the CO₂ emissions allowance scheme for the period 2013-2020. This led to the adoption by the European parliament, at the end of 2008, of a “climate-energy” package which seeks to ensure compliance within the European Union with climate objectives by 2020: 20% cut in greenhouse gas emissions, 20% improvement in energy efficiency and 20% energy consumption in the European Union produced from renewable sources. This “climate-energy package” includes six new texts: a directive on renewable energies, a directive on the emission trading scheme (ETS), an effort-sharing decision on greenhouse gas emissions (outside ETS), a directive on the capture and storage of CO₂, a directive on fuel quality and a directive on reducing CO₂ emissions by cars.

The risk we face firstly relates to our ability to achieve the emission reductions imposed by the system over a number of years. As such, as price index formulas, theremajor and costly investment may be developmentsnecessary in order to bring our installations into line with allocated allowances. Secondly, our ability to draw value from positions adopted in the management of the corresponding installations represents a separate risk, given the high volatility in allowance prices. While we have adopted an active approach to managing carbon emissions and allocated allowances by implementing appropriate structures and setting up an entity dedicated to the purchase, sale and pricing of the various types of greenhouse gas credits, the potential overrun by us of allocated emission allowances and the resulting purchase of additional allowances could generate significant additional costs compared with those we anticipate.

Finally, in 2009, the European Commission clarified the conditions governing the national grant of allowances for phase 3, commencing January 1, 2013. A portion of the allowances (based on the nature of the installation) required by the Group and its subsidiary Dalkia in particular, will have to be obtained through an auction system that could prevent us from being fully protected against such increases, such as delays between fuel price increaseslead to a substantial additional cost. Whether this cost can be passed on to customers and the time we are allowedin what amount, have not yet been determined.

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Back to raise our prices to cover the additional costs, or our failure to update an outdated cost structure formula.  In addition, a sustained increase in supply costs 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 the additional costs.Contents

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

Water is a strategic resource in terms ofthat contributes to 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 inIn the areas of waste management, energy services and public transportation are also subject to similar risks.  Weour installations and vehicles may also havebecome terrorist targets around the world. In addition, our employees who work orand travel in areascountries where the risk of criminal acts, kidnapping or terrorism is either temporarily or permanently elevated.high. As a result, despite the preventive and safety measures that we have attempted to implement, any one of our activities may fall victim toimplemented by us and the insurance policies subscribed, a criminal or terrorist acts in the future.  If an attack were to occur, it could negatively affect our image and have a material adverse effect on ourreputation or operating results.

We have pursued and may continue to pursue strategic acquisitions, which may have a less favorable impact than expected on our activities or affect our financial condition.

As part of our business strategy, we have conducted and continue to conduct 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 have or wish to terminate pre-existing contractual relationships, which could be costly and/or on unfavorable terms; and (v) we may raise additional debt to finance these acquisitions.

As a result, it is possible that the contemplated benefits of completed or future acquisitions may not materialize within the time periods or to the extent anticipated or that such acquisitions may affect our financial condition.

Our long-term contracts may limit our capacity to quickly and effectively react to unfavorable general economic changes.

The initial circumstances or conditions under which we enter into a contract may change over time, which may result in adverse economic consequences. Such changes vary in nature and foreseeability. Certain contractual mechanisms may help to address thein addressing such changes and restorerestoring the initial balance of the contract.  Theircontract, but they may not be fully effective. The implementation of such mechanisms may be triggered more or less automatically by the occurrence of a given event (price adjustment clauses for instance)(for instance, price indexing clauses), or they may requirecall for a procedure or revise or amend the contract revision or amendment procedure requiringwith the agreement of both parties or of a third party. Accordingly, we may not be free to adapt our compensation, whether this consists of a price paid by the customer or a fee levied on end users based on an agreed-upon scale, in line with changes in our costs and demand. These constraints on us are exacerbated by th e long-term nature of contracts. In any case, however,all cases and most particularly with regard to public service management contracts, our actions must remain within the scope of the contract and weensure continuity of service. We cannot terminate unilaterally and suddenly a business that we believe to beis unprofitable, or change its features.  Our compensation, whether it consistsfeatures, except, under certain circumstances, in the event of a price paidproven misconduct by the client customer.

Certain of our construction operations are performed under fixed-price contracts, containing performance cost and/or a fee levied from end users based on an agreed-up on schedule,completion date commitments.

Through Veolia Water Solutions & Technologies, we perform “turnkey” contracts for the design and construction of infrastructure in the water sector, compensated at non-revisable fixed prices. The risks to which we are exposed under this type of contract are generally technical (design and choice of tailored and tried-and-tested technology), operational (site management during the performance, acceptance and warranty phases) and economic (fluctuations in raw material prices or foreign exchange rates).

In accordance with standard contractual practice, to the extent possible we seek to place these risks contractually with the customer. We may, not be changed at any time in line withhowever, encounter difficulties over which we have no control, relating, for example, to the complexity of certain infrastructure or construction contingencies, the purchase and ordering of equipment and supplies, or changes in ourperformance schedules. These may lead to non-compliance with contract specifications or generate additional costs and demand.  These constraints have an impact onconstruction delays, triggering, in certain cases, reductions in our behaviorrevenue or contractual penalties.

In certain cases, we must take into consideration customer requests for additional work or integrate existing information or studies provided by the customer that may prove inaccurate or inconsistent, or we may be required to use existing infrastructure with poorly-defined operating characteristics.

While contracts generally include clauses providing for the payment of compensation, should events such as an economic agent, andthose detailed above occur, we are particularly meaningful because our contracts are often entered into for long periodsexposed to the risk of not obtaining amounts sufficient to cover the resulting additional costs, or of obtaining such amounts only after the passage of time.

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

Contracts with governmentalpublic authorities make up a significant percentage of our revenue. In numerous countries, including France, governmentalpublic authorities may modifyunilaterally amend or terminate contracts under certain circumstances, but generally with indemnification.  In some countries, however,circumstances. While we often are entitled to compensation, this may not be true in all cases, and even when compensation is due, we may not be entitled to or be able to obtain full indemnification in the event our contracts areor timely compensation should a contract be unilaterally terminated by governmental counterparties.  the relevant public authority.

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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 obtainwe must sign 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 or sufficient compensation or indemnities to cover the cost of our investments, for instance as a result of ainvestment. This could arise due to failure to obtain necessary permits or authorizations, or approvalsapproval from antitrust authorities, or because authorizations are subject to conditions that force us to abandongranted contingent on our abandoning certain of our developmen tdev elopment projects. These situations increaseThis result increases the overall cost of our activities and if we do not obtaincould potentially, were the desired business or are forcedcost of failure to withdraw from a public tender,become too high, force us to abandon certain projects. Should such situations become more frequent, the scope and profitability of our business may not grow as much or as profitably as we hope.could be affected.

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 madeincurred and will continue to makeincur significant capitalcosts and other expenditures to comply with our environmental, health and safety obligations as well as to ensure sanitary protectionmanage the sanitary-related aspects of the services we provide. We are continuously required to incur expenditures to ensure that the installations that we operate comply with applicable legal, regulatory and administrative requirements, including generalspecific precautionary orand preventative measures, or to advise our clientscustomers so that they undertake themselves 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 totaled €2.197 billion in 2006.

work.

Each of our operations,businesses, moreover, may become subject to stricter general or specific laws and regulations, and correspondingly incur greater compliance expenditures in the future. If we are unable to recover these expenditures through higher tariffs,prices, 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.increasing constantly. These laws and regulations now govern any dischargeall discharges in a natural environment, the collection, transport, treatmenttransportation and disposal of all types of waste, the rehabilitation of old sites at the end of operations, as well as ongoing operations at new or oldexisting facilities.

Our operations and activities may cause damages or lead us to incur liability or other damages that we might be required to compensate.compensate or repair.

The increasingly broad laws and regulations expose us to the riskgreater risks of liability, in particular environmental liability, including in connection with assets that we no longer own and activities that have been discontinued. For example, the European directive of April 21, 2004 on environmental liability introduces throughout the European Union a framework of environmental liability, for serious environmental damage or threat of damage. This directive was enacted into French law dated July 30, 2003, relatingon August 1, 2008 and extends the scope of strict liability for certain serious environmental damage. With regard to the prevention of technological and environmental risks and the conduct of remediation activities, has strengthened the regulatory framework that appliesFrench law of July 30, 2003 strengthens obligations to discontinued operations and closedrestore certain sites and installations.at the end of their operating life, making the accrual of provisions mandatory under certain conditions. In some instances, reserves must be established in respect of such discontinued operations. In addition,addit ion, we may be required to pay fines, repair damage or undertake improvement works,work, even when we have conducted our activities with all due care and in total conformityfull compliance with operating permits. Regulatory authorities may also require us to conduct specific investigations and undertake remedial activities, curtailsite restoration work for current or future operations or close facilities temporarilyto suspend activities as a result, in connection with applicab le laws and regulations, including to preventparticular, of an imminent risksthreat of damage or a change in light of expected changes in those laws and regulations.applicable standards.

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 wherecompliance. Where the clientcustomer on whose behalf these installations are operated refuses to make the required investments, we may be forced to terminate our operations.

In the event of an accidentDespite this restrictive trend towards increasing regulation and constant efforts to improve risk prevention, accidents or other incident,incidents may still occur and we could also becomebe the subject of legal action to claims for personal injury,compensate damage caused to individuals, property damage or damage to the environment (including natural resources)the ecosystem). TheseIn such instances, these potential liabilities may not always be covered by insurance programs, or may be only partially covered. The obligation to take certain measures or compensate for such damagesdamage might have a material adverse effect on our activities, our resources, or resources.our profitability. Accordingly, the Group focuses considerable attention on controlling health risks, whether relating to the operation of its installations or resulting from environmental pollution which conventional treatment methods cannot fully correct. In particular, this may concern the development of air- or water-borne bacteri a, which are increasingly well identified, or the exposure of individuals (Company employees or third parties) to chemical and/or dangerous products or substances.

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

Our subsidiaries in France or abroad may, under environmental services outsourcing contracts, perform activities at certain environmentally sensitive sites known as high threshold “Seveso” sites (classified “AS” under the French ICPE, “Installations Classified for the Protection of the French Commercial Code regarding “Seveso” facilities).

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 toEnvironment” system) 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 oflow threshold Seveso sites (or the foreign equivalent), operated by industrial clientscustomers (particularly petroleum or chemical industry sites). In these instances, we must handlemanage 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 managemanaged by us to clientcustomer sites.

Finally, while the The regulatory regime governing Seveso facilities applies only within the European Union, but we operate several similar sites outside of this region whicht hat are often subject to the same level of heightened regulationstringent regulation.

In France, the Group operates installations with characteristics similar to those covered by foreign governments.the Seveso regime (only certain of which are classified as “AS” under the ICPE system). We have decided to apply all or part of the Seveso regime at certain of these sites, such as at the hazardous waste incineration facility operated by SARP Industries (Veolia Environmental Services) in Limay in the Yvelines. As a result, we are subject to the same care standards and bear the associated costs as at sites that are covered by the Seveso regime.

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 in a variety of currencies. Our financial statements are presented in euro. Therefore,euros. Accordingly, when we prepare our financial statements, we must translate our foreign currency-denominated assets, liabilities, income and expenses in other currenciesexpense items into euroeuros at then-applicableapplicable exchange rates. Consequently, increases and decreasesfluctuations in the valueexchange rate of the euro in respect ofagainst these other currencies can affect the value of these items in ourthe financial statements, even if their intrinsic value has not changedis unchanged in theirthe original currency. For example, an increase in the value of the euro may result in a declinedecrease in the reported value, in euro,euros, of our interestsinvestments held in foreign currencies.

AtWe are also subject to risks related to fluctuations in interest rates. As of December 31, 2006,2009, approximately 48.7% of our netoutstanding financial debt excluding revaluation ofbore interest at floating rates, after taking into account hedging instruments amounted(see Note 29.1.1 to €14.7 billion, of which 25.7% was subject to variable rates and 74.3% to fixed interest rates, including 12.1% subject to variable rates with caps. Our results of operations andour consolidated financial condition may be affected by changes in prevailing market rates of interest.statements). Fluctuations in interest rates may also affect our future growth and investment strategy since a rise in interest rates may force usVeolia Environnement to finance acquisitions or investments or refinance existing debt at a higher cost in the future.

Changes in the prices of energy and other commodities or in the price of recycled materials may reduce our profits

The prices of our energy and other commodity supplies are subject to significant fluctuations and represent major operating expenses in our businesses. Although most of our contracts include tariff adjustment provisions that are intended to pass on any changes in the price of supplies, often using price indexing formulas, certain events may prevent us from being fully protected against such increases, such as time lags between fuel price increases and the date when we are authorized to increase prices to cover the additional costs, or a mismatch between the price-increase formula and the cost structure (including taxes). A sustained increase in supply costs and/or related taxes could undermine our operations by increasing costs and reducing profitability, to the extent that we are unable to increase our prices sufficiently to cover such additional costs.

In addition, a substantial portion of our Environmental Services Division’s revenue is generated by its sorting-recycling and trading businesses, which are particularly sensitive to fluctuations in the price of recycled raw materials (paper and ferrous and non-ferrous metal). A significant and long-term drop in the price of recycled raw materials, combined with the impact of the current economic crisis on volumes, has affected and could continue to affect our operating results.

Changes in certain cogeneration contracts may affect our business

We are exposed to risks associated with fluctuations in electricity prices, primarily through Dalkia, which is a power producer with approximately 7,151 MW of installed power capacity. While a majority of the production installations are operated under purchasing regimes that insulate us from electricity market risks, we have direct market exposure with respect to production in the United Kingdom and Italy (73 MW installed capacity), as well as exposure to local market fluctuations with respect to approximately 2,000 MW of installed capacity, principally in the United States and Central and Eastern Europe. In addition, purchase commitments in France with respect to a total of approximately 736 MW of installed capacity are scheduled to expire between January 2011 and November 2013, increasing our potential risk. While we intend to manage this risk through the use of contracts with co unterparties active in these markets, we cannot assure you that these methods will be effective to protect us from these risks.

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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.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 byof 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 statement is i nin effect. For example, in June 2007If we launched aundertake future unregistered 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.  Holdersincreases, holders of our ADSs wereand U.S. holders of our shares may be subject to dilution, which may not permitted to exercisebe fully compensated by the rights corresponding toproceeds from the shares underlying the ADSs.sale of rights.

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 companyCompany 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 companyCompany may be limited.

Holders of our ADSs may not have the same ability to influence corporate governance with respect to our companyCompany 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 managementenvironmental 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 companyCompany is “Veolia Environnement.” Our companyCompany 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 Brian Sullivan.J. Clarke. He can be reached at Veolia Environnement, 700 East Butterfield Road,Water America LLC, 200 E. Randolph St., Suite 201, Lombard,7900, Chicago, IL 60148.60601.

Our operations are conducted through four Divisions, each specializing in a single business sector: Water, Environmental Services, Energy Services and Transportation. Our principal operating subsidiaries in each Division are Veolia Eau – Compagnie Générale des Eaux (Water), Veolia Propreté (Environmental Services), Dalkia (Energy Services) and Veolia Transport (Transportation). When referring to the activities of our Divisions, we refer to the division names, and when referring to entities within the Group, we refer to their legal names.

Historical Background

Our companyCompany traces its roots back to the creation of Compagnie Générale des Eaux by Imperial decreeDecree 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), as well as a 50-year concession for Paris (1860) and its suburbs (1869).

In 1980, Compagnie Générale des Eaux reorganized its water activities by regroupingbringing together all of its design, engineering and executionoperating activities relating to drinking water and wastewater treatment facilities underwithin 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 Transport and Veolia 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.”Eaux”.

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

On July 20, 2000, ourVivendi Environnement 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 January 1, 2008.

In August 2001, ourVivendi Environnement 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 tradingReceipts on Thethe New York Stock Exchange.

From 2002 to 2004, Vivendi (formerly known as Vivendi Universal)Universal progressively decreased its stake in our company,Company through successive disposals and hasdilution and held only 5.3% of our shares sinceby December 2004. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders.”  Since July 26,6, 2006, Vivendi no longer holds any shares in our company.Company.

In April 2003, we changed our name to “Veolia Environnement.”

Between 2002 and 2004, we began conductingundertook a significantmajor restructuring in order to refocus on our core environmental servicesEnvironmental Services activities. This restructuringprocess was completed in 2004 with the sale of various U.S. subsidiaries within our water division conducting certain non-core activities,in the Water Division 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.activities.

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.”

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Major Developments in 2006  

Below we discuss the main developments in our business during 2006.  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 2006 have been converted into euro at the rate of exchange prevailing on December 31, 2006.  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 risks and u ncertainties, 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.

Deployment of the “Veolia” Brand

SinceNovember 2005, we have been rollingrolled out a new branding program. Todaybrand system aimed at increasing consistency between our water, waste managementDivisions and transportation divisions have been brought togetherour visibility by strengthening the identity and common culture of Veolia Environnement around our service values. Our Water, Environmental Services and Transportation Divisions are now united under a single name: “Veolia.” The energy services division continuesbrand, “Veolia”, which is linked to operatethe name of their activity. Our Energy Services Division primarily operates under the brand name “Dalkia.”

In connection with the roll-out of the “Veolia” brand, the holding companies of water, waste management and transportation divisions, as well as most of our operating companies, have changed their names to include “Veolia”“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.

At the same time, a publicity campaign was launched in June 2006 (written press, public displays, television). This campaign asserts Veolia’s industrial commitment to reconciling human activities and environmental preservation, a commitment that is expressed in the slogan “the environment is an industrial challenge.”

This campaign was launched in the written press in France, the United Kingdom, Germany, the Czech Republic and Romania, and through public displays in airports across the world (Paris, London, Shanghai, Hong Kong, New York, Chicago and Los Angeles) and in the Eurostar station in Brussels.

It was completed by an adverstising film focusing on the human and urban aspects of our activities, which was broadcast from October 2006 through various hertzian and cable channels in France and Europe.

Costs borne by us in 2006 for the development of the brand and the publicity campaign amounted to approximately €26 million.

Acquisition of Cleanaway UK

In 2006, we improved our market position by carrying out targeted acquisitions, designed to generate growth and costs synergies.

On June 30, 2006, one of our divisions, Veolia Propreté, a division of Veolia Environnement, announced the acquisition of Cleanaway Holdings Limited (Cleanaway UK) from the Brambles group for €744.7 million. This acquisition significantly reinforced our position in the British industrial and local waste management sector. With estimated annual consolidated revenues of €684 million, Cleanaway UK is a major operator in the United Kingdom within the industrial and municipal waste collection services sector, and the waste management sector. The transaction, which was submitted for approval by the European competition authorities, was finalized on September 28, 2006.  

Agreements Relating to the Société Nationale de Maritime Corse Méditerranée (SNCM)

On May 31, 2006, we signed agreements with Butler Capital Partners and the CGMF relating to the acquisition of the Société Nationale de Maritime Corse Méditerranée (SNCM).  These agreements were part of a transaction to open SNCM’s capital to outside investment, a decision made by the French government at the beginning of 2005, and the restructuring of the company.  The transaction is still subject to a cancellation clause relating to the European Commission’s agreement on state aid.  As a result of this acquisition, we hold 28.29% of SNCM’s share capital.

SNCM’s principal business is the operation of a public service concession for transportation to Corsica from the port of Marseille.  It has ten ships at its disposal and contributed approximately €200 million to Veolia Transport’s revenues in 2006.  As a result of this transaction, Veolia Transport has significantly reinforced its position as an operator of maritime lines in high growth markets, after many years as an operator in Northern Europe.

Validation of a Strong Business Model

Since our initial public offering, we have gone through a series of stages in establishing our business model and independence, which in 2004 culminated in the sale of non-strategic assets in the U.S. as well as the sale of our interest in FCC.  Our refocusing of our activities on services related to the environment should enable us to strengthen our position as a leader in this market going forward, by relying on the same consistent strategy for growth.

 “Veolia Skills” Program

In September 2005, we engaged in a large and innovative recruiting campaign in France referred to as “Veolia Skills.” This campaign allowed for the the recruitment of 4,879 new employees in 2006.  The objective for the third campaign is to recruit 8,000 new employees in 2007.

All of these recruitments will be professional skills-oriented.  Training will last between 9 and 24 months, leading 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 to persons of all ages. It is also open to existing employees, in order to afford them greater mobility in the spirit of ongoing skills development. Through this campaign, we hope to encourage the hiring of members of certain sectors of the public, including handicapped persons, seniors and the long term unemployed.

In the long term, the goal is to make mobility our preferred means of recruitment.  Internally, the expected increase in staff must be accompanied by the strengthening of mobility, focusing on the professionalism of partners, the true actors in our development.

“Veolia Environnement 2006” Efficiency Plan

We announced in September 2003 the plan called “Veolia Environnement 2005,” which we hoped would generate €300 million in annual savings beginning in 2006. This objective was achieved one year in advance, with €304 million in savings recorded in 2005.  This plan continued in 2006 and generated €406 million in savings excluding exceptional and non-recurring costs relating to its implementation. This program which ended at the end of this fiscal year will have mobilized all of our operational units and more than 1,000 contributors. More than 700 projects were carried out across all themes (operational, optimization of structures, purchasing and staff). In 2007 and for the following years, our objective is to capitalize on the gains from the plan to achieve continuous improvement of an ongoing transversal performance program.  

Greenhouse Gases

An increase of greenhouse gases 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, which came into force in February 2005, as well as the European directive of October 13, 2003 has created a European Union for gas emissions, the “Emission Trading Scheme”.

The system was put in place on a European level in parallel to that of the Kyoto Protocol, which was started in 2005 and which led to the creation of the national allocation quota plan (PNAQ). In 2006, a revision of the October 13, 2003 directive was launched in order to increase its jurisdiction, to reinforce the controls and to establish a commercial quota system linked to the Kyoto Protocol.

We are already active in this field on a national, European, and global level.

·

At the European Union level, Dalkia, which operates close to 250 combustion installations in Europe that are affected by the new quota system, has been awarded quotas representing approximately 1% of all European quotas awarded, and has taken an active role in working with clients to manage carbon emissions and quotas.

·

At the international level, we have begun trying to generate emissions credits that are tradable on the market, by participating in projects with other countries that help to reduce greenhouse gases. Veolia Propreté and Dalkia completed two projects, which were registered as clean development facilities (“mécanisme de développement propre", or MDP) by the MDP Executive Council, while six others are in the process of being completed. Dalkia completed a project of joint development (“Mise en Oeuvre Conjointe”, or MOC). Veolia Transport is actively involved in developing an initial tool that would apply to business transportation, in collaboration with EpE and ADEME.

BUSINESS OVERVIEW

Our Market

The market for environmentalEnvironmental management services, has emerged only recently, includingcomprising drinking 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)electricity) and transportation. Traditionally,transportation are now recognized as a separate business sector. Private customers view these services were,as similar and seek the expertise of a service provider able to supply a comprehensive service. Public sector customers are also aware of the benefits of grouping together these services, however, such customers are often remain, considered as independentconstrained to contract separately for these services outsourceddue to individual providers.  Public authoritiesadministrative and industrialbudgetary structures or regulatory restrictions regarding contract awards. The need to take action to prevent further damage to the environment has, nonetheless, become a global reality. There is a growing need for excellence and commercial companies, moreover, typically met many of their own environmental needs without lookingefficiency, which has led decision-m akers to private firms that specialize in these areas. This situation has changed fundamentally in recent years.  Recent awareness regarding environmental demands and the necessity ofseek a global approach to the management of activities having an environmental impact as well ason the updating ofenvironment with a view to developing solutions allowingthat allow interaction between and optimization betweenof these services, has prompted aenvironmental management services. These measures, now widely accepted, have led to an increased demand for integrated environmental management services. This phenomenontrend has been emphasized byincreased with the continued global expansion of industrial and commercial companies, that havewhich has generated a need for environmental management servicesservice providers with a global reach.who are able to respond to their customers’ needs on an international scale.

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

·•

Faced with increasingly strict environmental standards, public and private parties do not always have the necessary technical or operational resources that specialist private operators can mobilize to deal with environmental problems effectively and on a lower cost basis; they therefore seek the legal security offered by an operator that accepts responsibility for the management of these activities. Expertise in environmental regulations is a determining factor in the choice of operators and an asset that sets us apart from the competition.

•

In addition, public demand, which now widely reflects a concern for sustainable development, must respect commitments made at the international level and set exemplary standards. In a world that combines accelerated urbanization with demographic growth, major investments in environmental projects and services, as well as effectivesustainable management, are needed in order to meet increasingly stringent environmental standards, provide growing urban populations with adequatetailored environmental services and to replace existingobsolete environmental infrastructure.  In addition, there is also an increase in public demand for high-quality and reliable environmental products and services.infrastructures.

·

Governments throughoutNonetheless, 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,financial difficulties that plague all parties, whether they are public authorities are increasinglyor private companies, could lead to certain decisions being postponed, especially when they involve new investment.

However, these financial constraints could also encourage public authorities and private companies to seek the most cost efficient solutions and lead them to consider outsourcing part of their activities, or turning to the private sectora specialist service provider able to address their environmental needs.

·

Public and private entities are increasingly attemptingset up a structure satisfying these requirements. They often seek to simplify the administrationcontractual process by entrusting the performance of their complex operations by outsourcing a wide variety of responsibilitieshighly varied services to a single partner.partner, who is able to provide performance commitments. This tendency createsoffers numerous opportunities to companies who are able to propose a business opportunity for companies capable of offering a broadwide range of integrated environmental management services in an integrated fashion.

·

Large private firmsservices. Increasingly, they expect service offers that reflect their specific requirements, are adaptable, and public authorities increasingly recognize that a “one size fits all” approach will not meethave been tailored to closely match their unique and changing needs. As a result, demand for customized environmental management services has grown.

·

The increasingly multinational profile of many large industrial and commercial firms encourages themexpectations. Finally, they expect the organizational structure to outsource non-core activitiesgenerate productivity gains, to companies with similar geographic reach in order to simplify administration and ensure they receive consistent service at each of their facilities.

be shared by both parties.

We thinkbelieve that each of these trends, taken individually, createsoffers significant opportunities for companies with our expertise, and, taken as a whole, they allow our company, in particular,enable us to provide high quality, innovative, and, depending on customer needs, integrated environmental management services in markets around the world. In order to seize these opportunities, we must, more than ever, strive to offer high-quality services at competitive prices.

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Our Clients

Customers

We provide environmental management services to a wide range of public authorities, industrial and commercialservice-sector customers and private individuals around the world.

Public Authorities

Demand byfrom public authorities (often small localitieslocal authorities that are increasingly joining forces together) has beenpooling resources) is influenced and strengthened by trends relating to the search for quality, efficiency, innovation, the rationalization of public procurement and reduced costs, as well ascost reduction (by integrating operating concerns from the design stage), and by a heightened sensitivitycommitment to environmental issues, includingassuming their responsibility for the environment and particularly the management of 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,We have the know-how to adapt to customer expectations and needs, but we believe that our historical business model—most often takingglobal contract model, which gives us the formability to provide services tied to performance obligations, as well as, depending on customer needs, to design, build and even finance necessary investments, remains as relevant as ever. It contributes to innovation and efficiency through mutual research efforts, stimulated by the periodic competitive tendering of “delegated management contracts” in France and of “concessions” in most places outside of France—is more relevant than ever. Dependingcontracts. This model takes on different legal forms depending on the country,traditions in each country. Certain countries, including those governed by European Union law, distinguish public markets from concessions (or other forms of Public Private Partnership, or PPP) based on whether operating rights are transferred and the actualextent to which we assume operating risks, and depending on whether the contract may take several legal forms, but remains characterized byfocuses on a public authority delegatingservice to private operatorsbe provided or the exclusive right, with or without an investment obligation, to operate services or support facilities, or to manage an activity, for whichconstruction of infrastructure.

In France, since the authority is responsible.  Themiddle of the 19th century, public authorities retain the role of defining, organizing and overseeing the services providedhave generally chosen to inhabitants or other users. 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. Publi c authorities can assume a larger or less prominent role inentrust the management of public services depending on(water, sanitation, transportation, waste collection, urban heating) to companies under contracts that were traditionally considered to be concessions (or operating contracts in the absence of an investment component) and which are now classified by law as public service delegation contracts, but which remain concessions under the European Union definition. They have frequently preferred, at least for certain public services, to retain control over the construction of installations, as well as their needs. We believe that we can adaptfinancing, before making them available to the different needsservice provider for the term of the contract.

In the last few years, a new trend has emerged whereby public authorities in all countries, including France, have asked companies to manage not only the design and expectationsconstruction of the necessary public infrastructure, installations and equipment (as varied as administrative and educational buildings, hospitals, transportation infrastructure, prisons, wastewater treatment facilities or household waste processing plants), but also their financing and long-term maintenance, before recovering them at the end of the contract. Two main categories of these contracts have emerged, although, together, they are often referred to as PPPs. In the first category, which includes contracts belonging to the market category, the resources intended to cover the cost of infrastructure and financing are similar to a price paid or guaranteed by the public authority, and the service is provided to the pu blic authority using the completed infrastructure. In the second category, which includes contracts equivalent to concessions under European Union law, the resources must be obtained through the commercial operation of the public service (i.e. the public or general-interest service whose operation has been delegated), which is the main purpose of the contract, with the construction of infrastructure only providing the necessary means. Different IFRS accounting treatments apply in each case (depending on whether a financial asset corresponding to a receivable from the public authority is recognized or not). It is also possible to distinguish these PPPs based on the nature of the services entrusted, such as “Build Operate Transfer” (BOT) with financing, or “Design, Build, Operate” (DBO), with design but excluding financing.

In France, the public authorities decided to encourage a type of global PPP contract whereby public authorities contract with a private enterprise that undertakes the financing, construction, maintenance and/or operation (or provision of services directly to the end-user) in exchange for periodic installment payments from the public authorities. To this end, the Order of June 17, 2004 created a new category of public authorities aroundworks contract, classified as a “partnership contract” (contrat de partenariat). This reform was introduced to address restrictions arising under prior regulations. In particular, public bodies had previously not been authorized to enter into contracts governed by private law when those contracts delegated both the world in orderconstruction and operating responsibilites to assist them in (i) respondingthe private entitiy; similarly, under the prior French regulations, private law could not gove rn contracts that included project financing, whenever there was no accompanying operating concession or delegation of public interest services paid by users.

At EU level, on November 19, 2009, the European Commission published a major communication recommending the development of Public Private Partnerships (PPP). According to the Commission, this term encompasses all long-term contracts where a private enterprise is charged with construction, operation and financing, irrespective of whether the contract takes the legal form of a concession or a procurement contract. It highlights the economic benefits of PPPs which should respond to the need for heightened efficiencycurrent and productivityfuture investments 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 of a Frenchordonnance dated June 17, 2004 allowing for the creation of a new form of partnership contract.  Theordonnance allows public authorities to entrust private operators (who may be associated withservices.

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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 authority as a function of performance.

This model, of delegated management or concessioncharacterized by a contract between the public entity responsible for a service and the company operating this service, whatever its legal form, is widelyfrequently used, for the provision of collective services, but is not the only one.  Publicmodel available. The expansion of its use is often slowed by preconceived ideas entrenched in a country’s history, which require the management of certain services to inhabitants, such as water distribution, to be provided by public entities. We therefore offer our services to these entities. Conversely, public authorities may decide that they should not be directly involved in the provision of certainsome public services, even general interest services. In these instances,such cases, they are oftenusually do not own the owner of facilities or networks, and do not enter into contracts with a preferred private operator;operators; instead, they leave the provision of the public service to market forces. They may nonetheless occasionallythe market. Sometimes, however, they verify the abilitiesc ompetence of private operators by issuing operating licenses and regulating service conditions and prices.prices, although they may limit their intervention to ensuring compliance with general regulations. This situation rarely arises with respect to water services, which are considered essential, but is more common in the fields offor energy services, waste management and transportation. Public authorities may also holddemonstrate their interest in the services rendered by taking an ownership interest in the private operator in these instances; weoperator. We may seek to acquire a stake as well.

in such operators.

Services Sold Directly to Individuals

We also offer household services directly to private individuals through our specialized subsidiaries. These services include assistance with and maintenance relating toof privately-owned water (including meter-reading),installations (located on private property after the water meter) and heating and gas services.

installations.

Industrial or Commercialand Service Sector Companies

We offer our industrial and commercial clientsservice sector customers a largewide range of services, which generally aim to achievecovering two major environmental goals: on the following two main goals in relation toone hand, providing customers with and optimizing consumption of the environment:

·

furnishing clients with the servicesutilities necessary for their industrial processes (steam, industrial heating and cooling, processedprocess water, demineralized water, compressed air, etc.) and, optimizing their consumption thereof, and

·

on the other hand, reducing 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 customers innovative solutions adaptedtailored to the needs of each industrial site.

We adopt a long-term partnership approach, entering into long-term contracts which allow for variation in services to account for changes in the customer’s needs and business.

We believe that the further development of our industrial clientcustomer base will be a significant area of growth.offers considerable growth potential. In particular, multiservicethe importance of multi-service 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 Clients” below.

customers is constantly increasing.

Our Overall Strategy

Our aim is to continue to reinforceSince our position as world leader in environmental services. Ourcreation, our strategy focuses on developing the most appropriate environmental service solutions for our local and industrial clients; the maintenance of a geographically diverse area of activity; the development of a significant presence in growth markets with high potential and an acceleration of synergies between our different businesses.    

Whilehas been aimed at strengthening our position as a worldwide leaderglobal reference in the provision ofexpanding environmental services market. Going forward, our ambition is to set the corporate standard in sustainable development.

We are the sole international company focused entirely on the environmental services business, operating through four Divisions: Water, Environmental Services, Transportation and Energy Services. We operate both in France and abroad, serving a customer base primarily composed of public authorities, but also including industrial and service sector customers.

We provide most of our services under secured long-term contracts that generate recurring income. The services rendered must be tailored to the specific requirements of each customer. Achieving both economic efficiency and environmental performance is time-consuming and the length of the contract term allows performance gains to be generated over time as part of an overall strategy encompassing technical, management and social considerations.

Over the past fifteen years, we have demonstrated our ability to develop management models adapted to different countries and, as a result we now carry on over half of our business outside of France. Given the scale of requirements in the environmental services sector, we have the opportunity to continue our international expansion in a selective manner, favoring high economic development regions and countries with the best track record for accepting our corporate model and complying with long-term contractual commitments.

While continuing to implementexpand in France and Europe, the historical home of our businesses, we are also focusing on the countries of North Asia, particularly China, where there is an important need for service requirements linked to urban growth business model aimed atthat meet environmental standards. We are also focused on North America and the Middle East and the Persian Gulf.

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Over-and-above improving our solid economic and financial condition.  This solidity isperformance, essential to a resultsolid balance sheet and creating shareholder value, we aim to maintain and strengthen our performance with innovation, helping us to stay substantially ahead of economies of scale, constantly evolving technologythe competition and know-how (supported by ever-growing research investment), long-term commitments to clients and risk management.

The most appropriate solutions in environmental services ensure that we developanchor our client relationships.

While preserving the local character of our business, we have become a major actor in each of our main businesses, whethercorporate performance in the services business orlong-term, thanks to which the employability and professional satisfaction of employees can be maintained in a spirit of solidarity as technology evolves. We also aim to improve our contribution to society, by supporting the common good on behalf of customers in territories where we operate. Veolia Environnement aims to be an exemplary company, adopting a balanced and responsible approach in all areas.

Adapting our strategy to the economic climate

In order to maintain this potential over the long-term, we must continually adapt. We are therefore strengthening our efficiency and cost reduction program, maintaining our efforts in the concessions business. We have forgedEnvironmental Services sector, primarily with a unique position within these two client segments.view to turning around activities in Germany and Italy and continuing to rotate our asset portfolio through a structured arbitrage policy.

Until 2007, Group growth was mainly organic and profitable. External growth transactions in 2007 and 2008 were financed by a share capital increase in 2007 and internally generated profits. As such, we currently enjoy a healthy financial structure. No major debt repayments are due before 2012 and the average maturity of debt is ten years, with 64% of net debt in the form of bonds.

WithinOur profitability suffered a mechanical dilution due to strategic acquisitions focused on providing high quality platforms, notably in Germany, to strengthen the municipal area, we have completedGroup’s positions and assets with a longer pay-back, which represent an inherent part of the Group’s long-term contracts, but which enable us to continue our portfolio of existing French and European clients (Prague, Bucarest, Nottingham, Braunschweig), but have also had a number of commercial successesdevelopment in growth sectors, particularly in the United States (Indianapolis, Chicago, Boston …) and China. We hope to achieve an increase in Group profitability from the improved profitability of recent acquisitions and a more balanced split between assets with a longer pay-back and other Group assets. In addition, measures already implemented in 2009 and which will be continued in 2010 (reduction in the cost base and rotation of the asset portfolio) will help accelerate a return to higher profitability in the short-term. (see “Item 5 – Operating and Financial Review and Prospect s”).

Investment activity will be subject to increased vigilance, with the application of more stringent selection criteria. This explains our decision to encourage profitable organic growth offering high added value, which mobilizes our discriminating expertise in complex, global challenges. We are also continuing our asset disposal plan. The disposal of assets with a value of some €3 billion is now scheduled for the period 2009-2011 (after generating €1.3 billion in 2009), in order to internally generate the resources necessary for long-term growth. Finally, we plan to accelerate the cost reduction program launched pursuant to strategic objectives set in 2007, in order to adapt the Company to the global economic crisis. Cost savings are targeted to reach €250 million in 2010. This program to reduce the cost base will become a permanent program that will be overseen by the newly created Operations Department.

We believe that the decentralized structure of the Group allows us to be highly reactive. The success of the measures described above will require substantial efforts at all levels of Veolia Environnement, which will be placed under greater pressure. This decentralized structure, organized along geographical lines, was reinforced in 2008. It is based on the appointment of Company managers in charge of one or several countries in each geographical region where we are present (Central and Eastern Europe, France, Asia, PacificMiddle East/Africa, North America and Australia, Northern Europe, South America and Southern Europe). The role of these managers is transversal and primarily involves, at a local level, the coordination and implementation of the strategy and commercial policy of the Company and its subsidiaries, the representation of the Group and its businesses and the implementation of shared and mutualized resources. Coordination within each region (Canton, Shanghai, Incheon, Melbourne).  Thus,will be the responsibility of persons chosen notably among Division Chief Executive Officers that are members of the Group’s Executive Committee. The aim is to satisfy the demands of our customers for a single contact able to provide a comprehensive response to major transversal challenges, such as climate change and taking account of the rarity of essential resources such as water, air and energy.

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By adapting to the current economic downturn, we will be ready to capitalize, when the time comes, on our position as a global reference in complementary diversified activities, as well as on the benefits of our size, wide geographical presence and synergies between our businesses. Our businesses offer strong growth potential in the medium to long term as a result of demographical growth, particularly in urban areas, and increasingly strict environmental standards. Some examples of growth opportunities include:

•

According to a report by an independent third party, by 2015, the potential market for seawater desalination, a market in which we have illustrateda leadership position due to our ability to win large privatizations and bids for large projects.

Historically we have conducted an important part of our business through our industrial and commercial clients, particularly in energy and waste management services.  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 totechnological expertise, could represent €5 billion per year, while used water recycling capacity could increase alongside the volume of business in France, which has continued to grow atby an average annual rate of over 5%10%.

•

According to the OECD, household waste production, which has been increasing steadily in OECD countries over the last two decades, is expected to continue to increase through 2020 from 500 to 650 kg per year since 2000.inhabitant. 30% of current energy consumption could be optimized without the need for any major technological change.

•

The European market has become our domestic market, but we have forged strong positions inIn the United States and Asia. Our presence in developed countries presents relatively little risk of decreasing as it is largely unaffected by relocations and restructurings.

We have developed a significant business presence in emerging and developing countries. Our economic position within these areas of the world is much more significant than appears fromurban transportation sector, the proportion of the population living in urban areas over the next 30 years is projected to increase by a possible 30%, according to the United Nations Population Information Network. This, combined with the necessarily increasing commitments to reduce greenhouse gas emissions, opens up significant development opportunities.

The Group has taken a proactive approach to these challenges and offers ways of accelerating or facilitating the necessary or foreseeable changes that may be decided by its partners and, more generally, by our revenues earned in these areas.

A strategycompanies and all other players. This approach is primarily reflected by a research and development policy and the practical development of technological innovations. We are also focused on the growth and high-potential markets

Our strategy focuses on growth markets.  Our markets are divided into categories by business and client type.

The industrial markets are currently growing rapidly: as a resultsystematic development of increasingly restrictive regulations and with the objective of improving their competitiveness, industrial companies are increasingly outsourcing environmental services through long-term partnerships. These partners, who generally work on all of the industrial sites of the client, tend to provide global services.

The growth in the 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 tied to economic activity and living standards. The tightening of environmental constraints and related regulations have proven to be key factors in our growth.

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

Synergies between our different businesses accelerate our growth

Within our environmental services business to public authorities and industrial clients, we enjoy important synergies between water, waste management, transportationcurrent and energy services. By offering a complete range of services, we have become an environmental partner with our clients who resort to allfuture components of our business services.activities and businesses and pay constant attention to optimizing our teams. We concentrate on best practices and professional skills of team members and contractual engineering that progressively integrates a “thriftier” management of natural resources (water, energy, raw materials, public spaces, etc.)

This synergy is particularly evident within countries or municipalities where demographic changes, urbanization and economic development have significantly accelerated; in these cases, we have been called upon to find solutions to growing environmental problems.

Strong economic and financial capabilities

Our strong position results from market growth trends, but also fromWe must build on our competitive assets, for example our technological and technical expertise, our financial situation, our geographic presence, and our experience and know-how in providing environmental services, all in compliance with regulatory requirements.

Size advantages

Our size alone provides us with significant synergies.  In addition,strengths, which include our presence in all segments of the value chain meansmarkets that are structurally buoyant, our vertically integrated structures allow uslarge asset base, our major competitive advantages, our reactivity and proximity to retain the benefits of added value.

Support of technological developments and improved know-how

We have long been developing our Research and Development. Research and Development are essential to accomplishing our missions, while allowing us to address the needs of our clients. Since 2000, we have unified our R&D business under one unique organization which is backed up by the strategic research, innovation and sustainable development committee created in 2006 by our Board of Directors.

We also benefit from the sharing of techniques in areas such as prevention of the risk of legionella, treatment and valorization of sediment, bioenergy, and management of high environmental quality buildings.

Long-term contracts

We commit to our clients for the long term. Our human resources policy centered on training allows us to focus on long term contracts, in particular through the considerable efforts of Veolia Expertise, an initiative that was renewed in 2007, after having led to significant hirings in 2005 and 2006.  

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

Managed risks

become the corporate benchmark for sustainable development. Within this growth context, we have enacted a management and risk measurement policy, which was marked in 2006 by the roll out of a mapping of major risks atframework, the Group aims to restore profitability, in order to achieve profitable organic growth, without increasing debt, thereby achieving a balance between growth and division levels.  By putting in place a coordinated risk prevention and management plan, we are addressing this issue of fundamental concern to our future development.profitability.

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 divisionWater Division intends to further pursuecontinue expanding its services around the development of its water services throughout the world.  In doing so, it will striveworld, while striving to ensure the health, securityquality and safety of the water it provides, 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 enhanced by four factors in particular:main factors:

·•

population growth and higher urban density,density;

·•

the strengtheningtightening of environmental standards and sanitary norms and regulations,health regulations;

·•

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

·•

the attempt byon-going refocusing of industrial clients to refocuscustomers on their core businesses.

business.

Given this growth potential, we will selectively pursue our development in the water sector in ordercontinue to adopt a selective approach to optimize the allocation of our use of resources, our operating costs and our profitability. As we do so, we will relyTo take advantage of market opportunities, the Water Division capitalizes on ourits technical expertise, ourits experience in managing clientcustomer relations and the mobilization of local teams on the ground in order to anticipateforesee the future needs of public authorities. We will also continuefocus, in particular, on developing employee skills to train our employeesenable us to meet future challenges. Veolia Eau’s increasedThe development of technical expertise in variousareas such as desalination methods and wastewater recycling in particularsolutions represents a major effort to adapt to ongoing changes in market conditions.

the market. Going forward, Veolia Eau will seek to capitalize onbusiness trends in the Water Division are characterized by the continued sustained pace of long-term international development opportunities for development worldwide,(despite the maturingcurrent economic climate), the maturity of its largerlar ger contracts and the productivity gains resulting from efficiency programs that have been in place since 2003 (relating toimplemented (encompassing purchases, information systems and sharing of best practices).

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Environmental Services

Through our environmental services division,Environmental Services Division, we seekintend to pursue our developmentcontinue expanding as one of the world leadersglobal benchmark in the waste managementthis sector.  As is the case with our other businesses, the waste management

Demand in this sector is showing signs of consistentrising, driven by growing environmental awareness resulting in increased regulation and lasting demand, which has been reinforced by the tightening of environmental rules and regulations coupled with increasedhigher public demandexpectations in a number of countries.countries and the dawn of a new age where raw materials and energy are rare, accelerating the transformation of waste treatment and recovery methods. As a result, experts who can provide long-term services under cost-effective conditions and in accordancecompliance with environmental regulations are becoming more highly sought after.

WithinIn this favorable market environment in Europe, the United States and the Asia-Pacific region, we haveVeolia Propreté will focus its efforts to:

•

increase the following priorities for ourprofitability of its activities by renegotiating fees, maximizing the use of its production tools and reducing structural costs, while seeking, wherever possible, to generate economies of scale with the Group’s other businesses.

•

enhance its waste management division:processing capabilities, by accompanying the transformation of waste processing methods and developing its recovery technologies;

·•

strengthen its competitive advantages and the added value offered by its services, while developing our waste treatment capabilitiesthe technical content of its businesses and widening our technological lead in waste treatment and recovery;

·

strengthening the offering to industrial clients by capitalizing on our masteryits command of the entire waste management chain, while seekingin order to generate synergies with our other operating divisions;offer industrial and

·

increasing the profitability of our activities by renegotiating tariffs, maximizing productivity and reducing structural costs and ensuring that all of our activities contribute to the development of high value-added services.

municipal customers comprehensive waste management solutions.

Energy Services

Through our energy services division (Dalkia),Energy Services Division, we are the Europeana world leader in the management of energy services. The Energy Services Division specializes in the provision of energy services sector. In 2000, we entered into a strategic partnershipand is present in forty-one countries around the energy services sector with EDF, a European leader in the production, distribution and sale of electricity, in order to offer clients comprehensive energy services at the best possible price.

world. The opportunities in thethis sector are significant, due to increases inthe increase over a long period of energy prices and greater public awareness of environmental problems, whichproblems. These are linked, in particular, to the risk of climate change and have led to researchthe search for solutions such as Dalkia’s initiatives to reduce the effectsproduction of greenhouse gases and encourage energy conservation. Political and regulatory developments in 2009 (European Union energy-climate package, global negotiations in preparation of the Copenhagen conference), further strengthened this favorable context.

OurDalkia’s development strategy for this division includesis focused primarily on heating and cooling networks, energy management in service sector buildings and retail centers, handling of industrial utilities, as well as energy provision and services in the health sector. Dalkia has fully embraced the objectives of reducing energy consumption and promoting renewable energy sources discussed internationally as part of the fight against climate change and we make the pursuit of these two objectives a priority, while providing expertise and service.

Dalkia’s development strategy focuses on the following geographical priorities:

·•

pursuingcontinued growth in Southern Europe (Italy, Spain etc.) by participatingacross all its business sectors;

•

the development of large cooling networks in the trend towardMiddle East, as well as entering the Russian market consolidation and by developing our multiservices offers to for heating networks;

•

the private sector;

·

pursuing development in the areastrengthening of large heating networks, particularly in France and in Central and Eastern Europe; and

·

pursuing growthits presence in North America, particularly the United States, by developing our presence in theoffering management ofservices for networks, industrial utilities, shopping malls and shopping malls.health centers;

•

Thesethe business development priorities will depend on our ability, in China (networks and industrial utilities).

In the context of deregulated energy markets in Europe, these priorities are based on our ability to offer innovative technical solutions focused on energy efficiency, that often combine our expertise in several areas. We will also attemptaim to promote our integrated outsourcing services to public clientscustomers as well as commercialto service sector and industrial clients,customers, by combining optimized services for facilities management (heating, air-conditioning, utilities, electricity, lighting).

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Transportation

Through our transport division,specialized subsidiary, Veolia Transport, we seekaim to bebecome a major transportation service provider on a worldwide scale.

Between 2000 and 2020,2030, the proportion of the world population living in urban areas is expected to increase from 50% to 60%, and urban transporttransportation needs are expected to increase by 50% by 2020 (source: International Association of Public Transport). These demographic changes will likely increaseraise concerns relating toregarding the environment and urban congestion withand help make public transportation services constituting a foremostmajor concern for the local authorities and inhabitantscity dwellers. In addition, the Transportation business is linked to the environmental performance of large cities.  Accordingly,transportation always has some impact ontowns and regions, regional competitiveness, development and growth, the imageidentity and identitysolidarity of a large city, its economic development, urban renovation projects,citizens and local solidarity.quality of life.

We aim to establish ourselves, withinThe major challenges in this sector asare related to the force behind localever-increasing need for new transport alongsideinfrastructure and the community, throughgrowing demand to customize mass transport, create attractive public transport networks, address environmental concerns and deal with the establishmentdirect and indirect costs of subcontracts that will later evolve into partnerships.

automobile congestion.

Veolia Transport’s strategy for beingfocuses on improving performance in our core business of passenger transportation, with the leading private operatorfollowing priorities:

•

continuing efforts in marketing, innovation and sustainable development to constantly improve customer satisfaction;

•

constantly improving business expertise in all local land transportation methods;

•

giving geographical priority to a small number of public transportation servicescountries based on the attractiveness of markets and improving its performancethe intensity of local competition;

•

innovating both in new mobility sectors (e.g. bikes, car-sharing, collective taxis) and growth is the following:in information and energy technologies.

·

Innovation and marketing so as to offer more services of higher quality: integrated computer ticketing, traveler information;

·

The implementation of new contracts within the community, tailored to previous methods and their needs, with performance guarantees and including, if the need arises, direct investment;  

·

The continuationFurthermore, we are currently discussing a combination of our geographic growth in Europe, North AmericaTransportation business with Transdev, owned by the Caisse des Dépôts et Consignations and Australia,the RATP (see Item 8: “Financial Information Consolidated Statements and our opening up to China and India as well as certain large cities in Latin America;

·

The diversification in the transportation business, often during the early stages of the opening of markets to competition: railway freight, maritime links, transport on demand and taxis.

Other Financial Information – Significant Changes”, below).

Our Services

Our company is a unique actor in the field of services related to the environment, offering a comprehensive array of services.  We have the expertise, for example, to supply treated water and to recycle wastewater at a customer’s facility, to collect, treat and recover waste generated in the facility, and to supply heating and cooling services and optimize industrial processes used in such facility, all in an integrated service package designed to address the customer’s unique circumstances.

Our operations are conducted primarily through four divisions, each of which specializes in a single business: water, environmental services, energy services and transportation. Through these divisions, we currently provide water to more than 67 million people and 49 million people in the world with clean water, treat nearly 58 million tons of waste, satisfy the energy requirements of hundreds of thousands of buildings for our industrial, municipal and individual customers and transport approximately 2.5 billion passengers per year.  We strive to offer services to clients that span our four divisions, which are either packaged in the form of a single multiservices contract, or negotiated separately in the form of several contracts.

The following table breaks down our consolidated revenue for 2006 by geographic market and division, after elimination of all inter-company transactions.

The dates set forth below relating to new contracts we have won or renewed correspond to the date of announcement or signing of such contracts, or to the date of our commencement of operations under such contracts, depending on the circumstances.

Water

Through our water division, the lead company of which is Veolia Eau – CompagnieEau-Compagnie Générale des Eaux, we are the world’s leading provider of water and wastewater services for public authorities and industrial companies. Further,¹ In addition, Veolia Eau, through its subsidiary Veolia Water Solutions & Technologies, (formerly known as Veolia Water Systems) is thea world leader in the designconception of technological solutions and the construction of structures necessary to performfor the performance of such services.

With approximately 77,840 employees around the world¹, Veolia Water Eau provides drinking water to more than 6795 million people, around the world and 49supplies 66 million people in the world with clean water, and operates more than 4,400 contracts.wastewater services.

As of December 31, 2009, Veolia Eau has a permanent presence95,789 employees around the world.² The Water Division is present in 59more than sixty-six countries, principally in France for historical reasons, but also in the United Kingdom, Germany, Italy, Belgium, the Netherlands, the Czech Republic, Slovakia and Romania. It is pursuing targeted growth in Russia, Armenia,The Asia-Pacific region (mainly China, Korea, Japan and Hungary. Asia (mainly in China, South Korea and Japan)Australia) also remains an important target for development followingobjective, with the awardsigning of a number of significant contracts with municipal and industrial clients duringcustomers over the past several years. Veolia Eau also has a presence in the United States through its contracts for the operation and maintenance of water and wastewater treatment plants, including its contract with the c itycities of Indianapolis.Indianapolis and Milwaukee. Finally, Veolia Water haswe have established a presence in the Middle East and Africa, primarily in Morocco and Gabon.

With Thanks to our coordination of a network of research centers in France and abroad, Veolia Eau has mastered numerous major technologies and tools within the water sector. As a result, Veolia Eau is therefore able to offer highly skilled services in the areas of sanitary protection, spillage reduction, productivity enhancement of water networks and plants and resource preservation.  preservation of resources.

¹

Source: Global Water Intelligence (GWI), November 2009 and Pinsent Masons Water Yearbook 2009-2010.

²

Employees managed as of December 31, 2009, including 3,633 Proactiva employees allocated to its Water business.

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Combined with aour strong local presence on the ground and more than 150 years of experience in the provision ofproviding services to public authorities and industrial clients,customers, Veolia Eau’s technical aptitude provides it with an importantexpertise is a significant advantage in the extremely competitive water services market, which is extremely competitive.

market. Increased demand within the water services market has been substantially driven substantially by clientscustomers seeking to optimize the management of their existing resources, whether they be public authorities seeking to respond to the trend towards urbanization, or industrial clients.customers. New solutions, such as desalination (demonstrated byof seawater, a key new supply contractsector where Veolia Eau recently excelled in 2006 with a sea water desalination plant in Bahrain)the Middle East, or the re-use of treated water, may also be called for depending onrepresent an individual client’s circumstances.appropriate response to specific situations.

The following table shows the consolidated revenue (revenue from ordinary activities under IFRS) and operating income of our water operations in each of the last two fiscal years,Water Division, after elimination of all inter-company transactions.

Water *

Overview of Water Division

Our water divisionVeolia Eau manages municipal drinking water and/or wastewater services on five continents thanks tothrough a geographical organization withfeaturing a strong local presence. Contracts with public authorities are typically long-term and range from 10 to 20 years in length but may extendand potentially up to 50 years inunder certain circumstances. These contracts take various forms, all adaptedtailored to the needs and goals of the public authority, and may include outsourcing contracts, public-private partnerships, concessions, BOT (Build, Operate & Transfer) contracts, DBO (Design, Build & Operate) contracts and others (discussed further under “—Contracts” below).others. They are generally contracts that involve the operation, design or construction of installations, with the public authority usually remaining the owner of the assets (except in the United Kingdom) and the head ofretaining authority over water policy. Further, recentRecent legislative changes will allow ushave enabled Veolia Environnemen t oto integrate more elaborate mechanisms into ourits contracts to address increases inallowing it a share of the added value produced under the contract and the division thereof (e.g., productivity(productivity gains, improvement in the level of services, efficiency criteria, etc.). Public authorities often call uponrely on Veolia Eau to manage customer relations; it has implemented specificrelations and we are constantly improving the efficiency of our services and specific information systems in response, which it continuously strives to improve.  

systems. In certain countries where public authorities wishhave sought to either to implement new water and wastewater treatment systems or to improve the functioning of existing ones, Veolia Eau also offers feasibility studies and technical assistance, which may include research plans, coordination and acceptance, network modeling and financial analysis.

Veolia Eau’s outsourcing Outsourcing contracts with industrial and commercial customers generally last from 3have a term of three to 10ten years, although certain contracts have terms of up to 20twenty years.

¹

As of December 31, 2006, including Proactiva’s 1,975 employees who are active in water activities.

Service Contracts forwith Public AuthorityAuthorities and Industrial Clients

Customers

The main focus of our water business is onthe management of water and wastewater management services for public authorities and industrial clients.  Our water divisioncustomers. Veolia Eau provides integrated services that cover the entire water cycle. Its activities include the management and operation of large-scale, customized drinking water plants, wastewater decontamination and recycling plants, drinking water distribution networks and wastewater collection networks. Veolia Eau also manages customer relations, providing billing services and call centers.

Veolia Eau and its subsidiaries have provided outsourced water services to public authorities in France and in the rest of the world for more than 150 years under long-term contracts adaptedtailored to local environments. Currently, Veolia Eau and its subsidiaries are attempting to capitalize on the worldwide trend towards delegated management of municipal drinking water and wastewater treatment services.

Veolia Eau continues to develop its service offeringsoffering for industrial clients usingcustomers, capitalizing on its local presence in variousmany areas and itsan adapted service organization. It has accordingly becomeorganization al structure. As a result, we are active withinin this market in France, the United Kingdom, Germany and the Czech Republic, as well as in Asia (South Korea and China in particular) and the United States. Through VE Industries, Veolia Eau also contributes within VE Industries (as discussed further below) to the development of our common service offerings, of our group, in particular in Europe.

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Engineering and Technological Solutions for the Treatment of Water

Through Veolia Water Solutions & Technologies, Veolia Eau is one of the world’s leading designers of technologicaldevelops technical solutions and ofdesigns/builds the construction of facilitiesinfrastructure necessary to provide water services on behalf of public authorities and industrial and commercial clients.service sector customers. In addition, Veolia EauWater Solutions & Technologies designs, assembles, manufactures, installs and operates modular standardized and semi-standardized water and wastewater equipment and systems designed to treat water for municipal and industrial uses.uses, which is both reliable and high-performing. A local technical assistance network is available at all times for the upkeep, maintenance and after-salecustomer service of these installations.

Veolia Eau treats groundwater, surface water, brackish or seawater, wastewater and refined sludge. Thanks to the combination of physical, chemical orand biological treatments, Veolia Eau developshas developed a completecomprehensive range of specific solutions for the purification of water or the reduction or elimination of impurities in effluents. Veolia Eau’s recycle/The recycling/re-use systems installed by Veolia Eau provide customers with the ability to circulate part or all of their treated water back into plant processes, thereby reducing their water usage,consumption, operating costs and environmental damage.

Through Sade,SADE, Veolia Eau also designs, builds, renovatesrenews and recovers urban and industrial drinking water and wastewater networks and conducts related workinfrastructure, in France and around the world. Sade’sSADE’s services cover each stage of the water cycle, from its collection to its release, and its public and industrial customers benefit from Sade’sSADE’s experience in this domain.area.

Key factors

The key factors that may influence Veolia Eau’s business are of a technical, contractual and economic nature. The key factors potentially impacting the “service contracts with public authorities and industrial customers” business are the following. From an economic point of view, we will be affected by trends in volumes billed and the ability to obtain price increases, within the planned time-period in line with our objectives. From a technical point of view, our ability to satisfy service commitments negotiated with the customer or regulator will have an impact. From a commercial point of view, we will be affected by our ability to renew existing contracts under satisfactory terms and conditions in a highly competitive environment.

In contrast, the Engineering and Technological Solutions business is potentially affected, at an economic level, by the rate of projects launched by public authorities and certain major industrial companies, as trends in demand levels have a direct impact on the order book. Continued technological leadership in tender bids and the ability to manage constraints and master technical solutions in the performance of contracts are also determining factors. Finally, at a contractual level, rigor in the negotiation and performance of contracts are also key in this sector (particularly the ability to meet deadlines and cost budgets).

Description of Activities in 20062009

Our water division’s revenues increased by 10.4%Veolia Eau activity levels remained relatively stable overall in 20062009, compared to 2005, thanks to a high level of contract renewal in France, sustained organic growth outside of France, in particular in Asia and2008, but were marked by strong growth in China and the engineering andweakness of the construction businesssector, both in France and internationally.abroad. Veolia Eau revenue was not affected by the loss of any major contracts in 2009.

In 2008, the city of Paris announced its decision not to renew the delegated management contracts expiring at the end of 2009. The Paris contract represented €143 million in revenue in 2009 for Veolia Eau.

In France, Veolia Eau provides approximately 24.125 million inhabitants with drinking water supply and 16.216 million with wastewater services. ContractsPublic service delegated management contracts renewed in 20062009 represent expectedestimated total cumulative revenuesrevenue of more than €955almost €614 million. Among the contracts renewed, the more important are the drinking water and wastewater contracts agreed forIn France, despite a duration of 18 years with the city of Narbonne, which has implemented measures regarding sustainable development for the Community, and also the drinking water contracts with the city of Saint Omer and the wastewater contracts with Menton.highly competitive environment, Veolia Eau continues its development efforts in order to further increase its service offering to reachenjoyed several commercial successes. These included a new clients in areas such as:  the management of wastewater treatment plants, the management and maintenance of rainwater networks, the maintenance of non-collective wastewater installations, the wholesale sale of wa ter, and the monitoring of swimming water.

In the rest of Europe, growth was especially strong, in particular in the Czech Republic, where Veolia Eau began providing water distribution and wastewater management services to the cities of Prostejov (25-year contract) and Slany (15-year contract);  in Slovakia, where Veolia Eau signed two 30-year contracts with the municipality of Banska Bystrica on the one hand and Poprad on the other, for drinking water production and distribution, management of customer relations, and wastewater collection and treatment. In Denmark, Veolia Eau signed an eight-year contract for the management of wastewater installations for the city of Alleröd. In 2006 Veolia Eau began operating water services in the capital of Armenia, Erevan. Moreover, in 2006 Veolia Eau signed partnership agreements, including with the Russian companies Evraziysky and Eurasian Water Partnership for the development of water and wastewater pro jects in Russia. In Bucharest, Romania, Veolia Eau began operating a new water treatment plant for drinkable water in Crivina.  

In the United States, Veolia Eau, following a call for tenders, signed a contract for the design, construction and management of a wastewater treatment plant in Rockland County (State of New York). At the same time, Veolia Eau signed a contract in 2006 extending its agreement in Vancouver (Washington) for 5 years, for the management of a used water treatment plant. At the end of 2005, Veolia Eau actively participated in the repair of wastewater treatment plants in New Orleans following the damage caused by Hurricane Katrina. In July 2006, the city of Atlanta terminated its 10-year contract, signed in 2002, for the management of a sediment and discharge treatment plant for the city, following differing interpretations of each party’s contractual obligations.

In the Middle East, Veolia Eau signed several important contracts in 2006 in the Gulf states, in particular with the Emirates of Ajman for the management of wastewater services for the citytown of AjmanChaumont and concession arrangements for 27 years, including the constructionCity of a water purificationChartres wastewater treatment plant and access for inhabitants.  A five-year performance contract was signed, with an extension optionthe Roquebrune Cap Martin wastewater treatment plant. Other than the return of three years,Paris water services to local public authority control, Veolia Eau renewed all major contracts that expired during the year. In the drinking water sector, the Roche-sur-Yon, Garrigues Campagne, Bergerac and La Vallette public authorities renewed their confi dence in Veolia. In the wastewater treatment sector, the contracts with the public company Oman Wastewater Services Company, operating all wastewater services forVal Maubuée Authority in the capital, Muscat.  Paris region and the City of Nantes were successfully renewed.

satisfy customer wishes and enable them to meet their sustainable development objectives (biodiversity, carbon footprint, etc.). Finally, as in 2008, the fall in unit consumption continued (0.6% fall in billed volume on 2008), despite relatively favorable weather conditions.

Activity contracted slightly in Europe, due mainly to a decrease in activity on completion of construction work at sites in The Hague and Belfast.

In Asia, Veolia Eau pursued its development with several major new contracts. In2009 was marked by the municipal domain, Veolia Eau signed contractsramp-up of the Tianjin Shibei contract, further organic growth in Shenzhen and robust construction activity in Shanghai in the run-up to manage water services for the cities of LuizhouWorld Expo2010 in China, (the second largest city in the Guangxi province); a contract to manage two used water treatment plants in Japan, situated in the Saitama district (close to Tokyo) and in Hiroshima. In Australia, a contract was signed to be consultant to the State of Queensland to recycle water produced by treatment installations in the region of Brisbane in an effort to combat drought, and another contract was signed for the design, construction and management of a desalination by reverse osmosis unit designed to sustain, in particular,while the Gold Coast. In the industrial sectorCoast and Sydney Desalination construction contracts came to an end in China, Veolia Eau signed an important partnership agreement with a subsidiary of Sinopec, the leading Chinese refining group, for the operating of collection, tre atment and recycling of industrial waste water from the Yanshan site. In South Korea, Veolia Eau signed two 15-year contracts for the operation of industrial water treatment works with the group Kumho. In Singapore, Veolia Eau signed a six-year contract for the construction and operation with Showa Denko, a subsidiary of the Japanese group Showa, of an industrial water treatment unit. In Australia, Veolia Eau signed a contract for the modernization of the water treatment plants for Bayswater, one of the most important electrical centers in Australia, which belongs to the leader in local electricity production, Macquarie Generation.  Australia.

In 2006, Veolia Water Solutions & Technologies recorded significant growth, due to the consolidation for one full year of a portion of the British group Weir’s activities linked to water desalination (mainly the company Westgarth based in Scotland), which were purchased in the second half of 2005.  There were also some important commercial successes during 2006. In France, Veolia Eau signed a contract to repair and enlarge a drinking water treatment plant from Lucien Grand to Saint Hippolyte and signed a contract with the city of Angers Loire-Métropole for the design and construction of a new water treatment plant for the city of Angers. In the Middle East, the technical solutions business, excluding design-construction, benefited from very favorable developments, with the supply contract for a new thermal desalination plant in Al Hidd in Bahrain and a contract for the design and construction of a discharge treatment plant for the complex Pearl GTL of Shell Qatar, in partnership with Saïpem.  Activity relating to technology solutions (aside from conception-construction) also performed well.

Finally, Veolia Eau recorded solid earnings in 2006 due to the good performance of existing contracts across all geographical areas and in all business segments.  This success was also due to the continued pursuit of measures to enhance productivity (sharing of best practices, better use of information technology, etc.) and to the progress generated by the implementation of new technology during past years.

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Principal Contracts 2006

The following table shows the principal contracts signed or renewed in 20062009 with either public authorities or industrial or commercial companies.¹

¹

Revenues expected under foreign contracts won during 2006 have been converted into euros at the rate of exchange prevailing on December 31, 2006 and represent the portion due to Veolia Eau under such contracts. Accordingly, these amounts may differ from the amounts announced in earlier press releases.

¹

Estimated cumulative revenue represents Veolia Eau’s share in these contracts, converted into euros at the closing exchange rate as of December 31, 2009. As such, amounts indicated may differ from those reported in our press releases.

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Principal Acquisitions and Divestitures in 20062009

OnThe main acquisition and divestitures during the year include:

•

in France, the acquisition of Homerider, a specialist in radio meter reading;

•

in Europe, the buyout in Italy of the minority interest held by EMIT in SIBA, and the buyout (in April 10, 2006,and July 2009) of a 51% stake in Stirling Water Seafield Holding (Edinburgh), increasing our holding in this project to 100%. In addition, the EBRD acquired an additional interest (6.88%) in the share capital of Veolia Voda, the holding company for water activities in Central and Eastern Europe, increasing its 10% stake in this company held since 2007 to 16.88%;

•

in Asia, the acquisition in China by Shenzhen Water Group (in which the Group holds a total direct and indirect interest of 25%) of five companies which manage drinking water services for a Shenzhen administrative district (Baoan);

•

on December 22, 2009, Veolia Eau sold its interest in the English company Southern Water to Southern Water Capital Limited, the current major shareholder of Southern Water. In December 2006, Veolia Eau signed an agreement to sell its interest in the company Bonifacio Water Corporation, which, since 1998, has managed the constructionreviewed certain economic aspects (financial restructuring) and the operationsgovernance rules of its partnership with Mubadala Development Company in our operating activities in North Africa and the drinking water facilities forMiddle East. The joint venture, which was formerly fully consolidated, is now under proportionate consolidation due to these changes. This operation resulted in a residential and business center€189 million reduction in Fort Bonaifacio (Phillipines). This sale was finalized on January 2, 2007.

The sale of the company Berliner Wasser International (BWI) was not realized in 2006Group debt as had been projected, as a result of the conditions precedent in the agreement signed at the end of 2005 not having been fulfilled.

Veolia Eau created, acquired or integrated 68 companies during 2006, and liquidated or sold 23 companies. As of December 31, 2006,2009;

•

in Morocco, sale of an additional 5% stake in Veolia Eau’s groupEnvironmental Services Morocco to AAIF;

•

in the United States, sale of three Enerserve entities operating in the Caribbean by Veolia Water North America.

Following the creation, acquisition or consolidation of 36 companies in 2009 and the liquidation, divestiture or transfer of 19 companies, the Water Division (excluding Proactiva) included 636was composed of 728 companies as of December 31, 2009 compared to 591711 in 2005.2008. The principal changes includedmain movements in the purchasescope of consolidation include the acquisition or creation of new companies with contracts which were effective as of the beginning of 2006.carrying operating contacts that came into effect in 2009.

Environmental Services

Through our environmental services division,Veolia Propreté subsidiary, we are the second largest operatornumber one reference in the world (in terms of revenue)environmental services sector,¹ where we are involved in the area of waste collection, recycling and treatment. Veolia Propreté is the only company that handlesprocessing and handling of waste in all its forms and at all stages of activity.  For example,the waste cycle. Veolia Propreté manages liquid and solid waste and non-hazardous and hazardous waste (with the exception of nuclear waste) from collection to energy recovery, on behalf of both public authorityauthorities and industrial clients.  customers.

At the endAs of September 2006,December 31, 2009, Veolia Propreté once again reinforced its position by acquiring Cleanaway Holdings Limited (Cleanaway UK) from the Brambles group for €744.7 million (after adjustment).  With annual revenues estimated at €684 million, Cleanaway UK is a principal operator in the United Kingdom of municipal and industrial waste collection and management services.

With approximately 89,500 employeesemployed 85,600 people² around the world,¹ Veolia Propreté operates in 36approximately thirty-three countries. Veolia Propreté has partneredpartners with more than 552,000over 750,000 industrial and commercial clientssector customers²³ and serves nearly 53.4more than 73 million inhabitants on behalf of public authorities.

¹

As of December 31, 2006, including Proactiva’s 6,107 employees who are active in waste management activities.   

²

The commercial figures provided in this section (in terms of number of clients, number of inhabitants served, tons of waste collected, etc.) do not take into account Proactiva’s activities, unless otherwise indicated, but do take into account Cleanaway for the fourth quarter of 2006.

During 2006,In 2009, Veolia Propreté estimates that it collected nearly 34.943 million tons of waste and treatedprocessed nearly 5862 million tons of waste (of which 54.4 million tons were non-hazardous household and industrial waste and 3.6 million tons were hazardous waste).waste. As of December 31, 2006,2009, Veolia Propreté managed approximately 698861 waste treatmentprocessing units.

The durationterm of Veolia Propreté’s waste management contracts usually depends uponon the nature of the services provided, applicable local regulations and the level of capital expenditure required under the contract.required. Collection contracts usually lastrange from 1one to 5five years, while treatmentwaste processing contracts can range from 1one year (for services provided on sites belonging to Veolia Propreté) to 30 years (for services involving the financing, construction, installation and operation of new waste processing infrastructure).

¹

Sources: Internal studies and Eurostat.

²

Employees managed as of December 31, 2009, including 7,023 Proactiva employees allocated to its environmental services business.

³

The commercial figures appearing in this section (in terms of number of customers, number of inhabitants served, tonnages collected, etc. ) do not include Proactiva, unless otherwise indicated.

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The following table shows the consolidated revenue (revenue from ordinary activities under IFRS) and operating income of our environmental services operations in each of the last two fiscal years,Environmental Services Division, after elimination of all inter-company transactions.

Environmental Services*

Overview of Environmental Services

Our environmental services divisionEnvironmental Services Division, Veolia Propreté, furnishes waste management and logistical services, which include waste collection, waste treatment,processing, cleaning of public spaces, offices and factories, maintenance of production equipment, treatment of polluted soil, and management of waste discharge at industrial sites.

In addition, Veolia Propreté Downstream, our Environmental Services Division conducts basic or more complex waste treatmentprocessing operations in order to reduce pollution and transform waste for the following uses:

·

into a resource. Thus, Veolia Propreté:

•

sorts and treatsprocesses waste in order to create new primaryraw materials, otherwise referredwhich we refer to as recycling or material recovery;

•

·

Veolia Propreté transforms organic material into compost to be returned to the soil, otherwise referredwhich we refer to as composting or agronomic recovery;

•

·

Veolia Propreté returnsprocesses waste to the natural environment in the least damaging way possible, through landfillinglandfill sites or incineration;

•

·

Veolia Propreté produces electricity or heat through landfilledusing waste in landfill sites or incinerated waste, otherwise referredincineration, which we refer to as waste-to-energy recovery.

The services referred to above fall into one of three large categories of activity conducted by Veolia Propreté:  waste managementmajor business sectors: environmental services and logistics for local authorities and industrial companies, sorting and recycling of materials and waste recovery and treatmentprocessing through composting, incineration and landfilling.

The key factors that may influence the activities of Veolia Propreté are of a technical, contractual and economic nature. They mainly concern the following success factors:

•

a presence at all points of the waste value chain, from pre-collection through to processing and recovery, in an appropriate range of geographical areas at different stages of maturity, enabling the identification and control of innovative, tailored solutions for proposal to customers and setting us apart from the competition in the market;

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the management of risks relating to the protection of the environment and the safety of individuals and installations (see the “Risk Factors” above and the section on “Environmental Regulations, Policies and Compliance,” below);

•

the quality of employee management in sectors which are often labor-intensive (limiting absenteeism and industrial action, developing skills and training);

•

the ability to innovate using new technologies (processing, rolling stock) and processes (sorting-recycling), founded on an effective technology, regulatory and competition watch system;

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operating efficiency (purchases, sales, logistics, maintenance management) enabling the optimization of unit costs and the utilization rate of equipment, while ensuring the high level of quality required for products and services delivered.

•

investment management in certain capital-intensive activities (selectivity, risk analysis, installation size).

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•

the quality of contractual management for long-term contracts (major clauses, price review formulae, guarantees and deposits, etc.). (see the Risk Factors above)

•

management of economic and financial risks: volatility of raw material prices (fuel, materials sold such as paper and metals), customer risk, foreign exchange and interest rate risk. (see the Risk Factors above)

Environmental Services and Logistics for Local Authorities and Industrial Companies

Maintenance of Public Spaces and Urban Cleaning

Each day, Veolia Propreté provides urban cleaning services in a large number ofmany cities throughout the world, including London, (U.K.), Paris, (France), Alexandria, (Egypt), Rabat (Morocco), Singapore and Chennai (India).Dresden. Veolia Propreté’s services include also provides mechanized street cleaning and building facade treatment of building facades.

services.

Cleaning and Maintenance of Industrial Sites

Veolia Propreté provides cleaning services toat the sites of its industrial and commercial clients’ installations,service sector customers, including cleaning of offices and maintenance of production lines. In the commercial sector, it provides these services in train stations, subway networks, airports, museums and commercial centers.

In the industrial sector, cleaning services extendare extended to food-processing plants, and heavy industry and high-tech sites, where Veolia Propreté offers specialized cleaning services (high pressure or extreme high pressure cleaning). Veolia Propreté also offers cryogenic cleaning, and reservoir cleaning services at refineries and petro-chemical sites in particular.sites. Finally, Veolia Propreté has developed emergency services to treat site contamination uponin the occurrenceevent of an accident or other incident.

Liquid Waste Management

Through its specialized subsidiary SARP, Veolia Propreté provides liquid waste management services that consist primarily of pumping and transporting sewer network liquids and oil residues to treatment centers. Veolia Propreté can also provide services following accidents and other incidents involving liquid waste.

Veolia Propreté has developed liquid waste management procedures that emphasize environmental protection, such as the on-site collection and the recycling and reuse of water during the provisionprocessing of its liquid waste management services.waste. Used chemicals,oil, which areis hazardous tofor the environment, areis collected before treatmentprocessing and transferred to one ofre-refining by a Veolia Propreté’s subsidiaries that is specialized subsidiary specializing in the management of hazardous waste.

Treatment of Polluted Soil

Decontamination

Land redevelopment and the expansion of residential or commercialand business areas may occur in areaslead to the use of sites where the soil has been polluted through prior use. Veolia Propreté has specific techniques for treating each site,difficult sites, which include treating polluted soil and rehabilitating temporarily inactive industrial areas, cleaning up accidental spills and restoringbringing active industrial sites to be ininto compliance with applicable environmental regulations.

Collection

In 2006,2009, Veolia Propreté collected approximately 34.943 million tons of waste on behalf offrom private individuals, local authorities and commercial and industrial sites. More than 53.473 million people around the world benefited from Veolia Propreté’s waste collection services.

Veolia Propreté collects household waste through door-to-door pickup or through pickup at designated drop-off sites, and collects commercial and non-hazardous industrial waste. It maintains the cleanliness of green spaces and carries away “green” waste such as dead leaves and grasses.

Veolia Propreté also collects hazardous waste on behalf of its commercialservice sector and industrial clients, including hospital waste, laboratory waste and oil residue (ships, gas stations and drilling platforms).  In 2006, and diffused hazardous waste. Veolia Propreté collected approximately 1.85 million tons of hazardous waste.

Veolia Propretéalso offers related services to its commercialservice sector and industrial clients,customers, such as preliminary studies of future waste collection needs and waste tracking after collection.

Transfer and Grouping of Waste

When waste isWaste of the same type it is transported either to transfer stations in order to be carried in large capacity trucks, or to grouping centers where it is separated by type and then sorted before being sent to an adapted treatmentthe appropriate processing center. Hazardous waste is usually transported to specialized physico-chemical treatmentprocessing centers, recycling units, special industrial waste incineration units or landfillslandfill sites designed to receive inert hazardous waste.

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Sorting and Recycling of Materials

Veolia Propreté treatsprocesses waste with a view towardsto reintroducing such waste into the industrial production cycle. Veolia Propreté's’s recycling activities generally involve the selective collection of paper, cardboard, glass, plastic, wood and metal that customers either separate into different containers or minglemix with other recyclable materials. As the use of separate containers has become more widespread, selective collection services have become well developed.

Veolia Propreté received approximately 7.410.3 million tons of solid waste at its 243352 sorting and recycling units in 2006,2009, of which 4.67.7 million tons were recovered, including 2.2 million tons of paper.recovered. Veolia Propreté also provides decomposition services for complex waste products at specialized treatment centers, such as electric and electronic products and fluorescent lamps. Veolia Propreté works upstream in partnership with upstream industrial customers and with Veolia Environnement’sour CREED research center in order to develop new recycling activities. Veolia Propreté sellsRecycled material is sold or distributes recycled materialdistributed to intermediaries or directly to industrial and commercial clients.customers.

Veolia Propreté designs and develops recycling systems that enable its industrial and commercial customers to optimize their production chains by reusing certain waste by-products generated in the manufacturing process, thereby reducing waste management costs.

Waste Recovery and Treatment through Composting, Incineration and Landfilling

In 2006,2009, Veolia Propreté treatedprocessed nearly 5862 million tons of waste in its sorting and recycling centers, composting units, hazardous waste treatment centers, incineration units and landfills.landfill sites.

Composting and Recovery of Organic Material from Fermentable Waste

Veolia Propreté and Veolia Eau work together to recover sludge from wastewater treatment plants. In 2006,At its 122 composting units, Veolia Propreté recovered almost 2 million tons of waste at its 102 composting units. 224,000 tons ofprocesses urban and industrial sludge, were reintegrated by Veolia Propretépart of which is then re-introduced into the agricultural cycle through manure spreading.land spreading, with a related tracking service offered.

Veolia Propreté’s “Biodiv” service includes an adapted container offer for the frequent collectionIncineration and nearby composting treatment of organic waste produced by industrial companies, while guaranteeing the complete traceability of waste from its collection to its recovery in the form of high quality compost.

Waste-to-Energy and Incineration

Recovery

Veolia Propreté treats approximately 10.3 million tons of non-hazardous solid waste (consisting mainly of urban waste) per year at its 72operates seventy-nine waste-to-energy recovery and incineration plants.plants, which process non-hazardous solid waste (mainly urban waste). Energy is generated from the heat created by incinerating waste at these plants. Veolia Propreté uses this energy to supply district thermalurban heating networks or for salessells it to electricity providers. Waste-to-energy recovery is often the favored treatment solution in areas of high population density where there is insufficient space to construct landfills.

Landfilling and EnergyWaste-to-Energy Recovery from Waste

In 2006,2009, Veolia Propreté treated approximately 34.4 million tons ofhad 147 non-hazardous waste in 146 landfills.landfill sites. Veolia Propreté has developed the expertise to treatprocess waste through methods that reduce emissions of liquid and gas pollutants. Veolia Propreté currently has 142 landfills that accept or have accepted biodegradable waste and that are equipped to retrieve and treat biogas emissions from the anaerobic fermentation of waste, of which 64 landfills85 landfill sites have recovery systems to transform biogas emissions into alternative energies.

TreatmentProcessing of Hazardous Waste

In 2006,2009, Veolia Propreté treated 3.6 million tons of hazardous waste, of which 1,006,000 tons were incinerated in 22had 24 incineration units for specialized industrial waste,679,000 tons were landfilled in 13waste, 70 processing units using physico-chemical and stabilization methods, 14 class 1 landfillslandfill sites and 1.55 million tons were treated in 57 units by physico-chemical or stabilization methods.  The remaining 361,000 tons were treated in 3236 specialized recycling centers.

The principal methods used for treatingprocessing industrial hazardous waste are incineration (for organic liquid waste, salt-water and sludge), solvent recycling, waste stabilization followed by treatment inprocessing at specially-designed landfills,landfill sites, and physico-chemical treatmentprocessing of inorganic liquid waste.

Through its specialized subsidiaries, SARP Industries and VES Technical Solutions (in the United States), and thanks to its acquisition at the end of 2005 of the hazardous waste management activities of the Shanks group in the United Kingdom, as well as the reinforcement of its position in Europe and Asia with recent interest acquisitions and the repurchase of business in Switzerland, India and Singapore, Veolia Propreté has a worldwide network of experts, enablingwhich has helped it to become one of today’sa world leadersleader in treating,processing, recycling and recovering hazardous waste.

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Description of Activities in 2006

2009

In 2006,2009, the Environmental Services Division reported a fall in revenue, about half of which was attributable to a fall in the volume and price of materials sold (mainly paper, cardboard and metals). Prices had reached an all-time high in the second quarter of 2008, before collapsing at the end of 2008, after which they commenced a partial and progressive recovery (except ferrous metal). In addition, the economic crisis hit industry-related activities hard (collection and processing of industrial waste, industrial services), with activity levels stabilizing but not recovering in the final months of 2009. In this context, Veolia Propreté’s revenues increased by 10.6% compared rapidly implemented a tailored plan to 2005. French revenues increased by 4.1% (of which 3.7% was internal) as a result of the increased power of new incineration plantsadjust costs to activity levels and the growth in quantity of solid waste collected and treated. Internationally, excluding Proactiva, organic growth was 10.8%. It was particularly marked in the United States in all business sectors, with a growth rate of 13.2%. In the United Kingdom, total growth was 34.2% (of which 6.9% was internal). This growth resulted from the acquisition of Cleanway UK and from the general development of business in a robust market. In Asia, the initiation of the

Foshan (storage) and Guangzou-Likeng (incineration) contracts largely contributed to the 14% growth in business. Veolia Propreté did not lose any major contracts in 2006. Among the significant developments during the year were the following:

introduce efficiency measures.

In France, Veolia Propreté continuedin addition to develop its treatment capacities.the negative impact of the fall in the price of materials sold (paper, cardboard and metal), the drop in revenue was mainly due to the decrease in non-hazardous and hazardous waste volumes collected and processed. In January, with the SNPE (Société Nationale des Poudres et Explosifs), Veolia Propreté createdincineration business, the company Pyrotechnis, which is specializedkiln void-filling policy and the good performance of incinerators enabled revenue growth, further driven by the recent Cenon contract signed at the end of 2008. Moderate price increases were achieved in demilitarization and cleaninga low-inflation context, marked by a fall in fuel prices. In the sorting-recycling business, the Ludres high-performance materials recovery facility inaugurated in June 2009, gradually ramped-up activity. Finally, at the end of floors polluted by pyrotechnic substances, as well as2009, the destruction of expired pyrotechnic substances. Veolia Propreté was chosenfirst French pilot unit for the constructionproduction of a biodiesel production unitbiofuel from biogas produced by non-hazardous waste in Limay (78). This project is part of a program put in place by the French government for the development of biofuels, designed to promote renewable energy and counter the greenhouse effect. The plant will be able to produce 60,000 tons of biodiesel per year. Furthermore, Veolia Propreté has taken over management of the incineration plant in Antibes for a 20 year term, launched its new waste treatment industrylandfill sites, commenced activity in the Marne (Auréade), opened a new industrial waste s orting center in Villeneuve Tolosanne (Haute Garonne) and put into service the first mechanized D3E (Déchets d’Equipments Electriques et Electroniques) dismantlement and sorting unit in France on its Gonesse site (95), thus reinforcing its new generation sorting center installations.

Greater Paris region.

In the United Kingdom, Veolia Propreté, while managingrevenue fell due to a decrease in industrial and commercial waste collection and landfill volumes, a downturn in industrial services and the acquisition and integrationloss of Cleanaway UK, has won or renewed severallocal authority waste collection contracts and initiated,(such as the Liverpool contract at the end of June, a 26-year2008). Price increases in the collection and landfill sector helped limit the decrease in revenue. Internal growth also benefited from the new 20-year PFI (“Private Finance Initiative”)contract signed in May 2009 with the Merseyside Waste Disposal Authority and the full year impact of the recently signed Southwark and West Berkshire contracts.

Revenue fell more significantly in Germany, mainly due to the fall in paper and cardboard prices and the decrease in non-hazardous industrial waste volumes collected.

North American revenue fell due to the decrease in industrial and commercial waste collection and landfill volumes, partially offset by the efficiency of price increase measures. Revenue was also affected by the impact of the economic crisis on the industrial services and hazardous waste sectors. Major contracts lost in 2009 include the waste collection and processing contracts for the New York City boroughs of Manhattan and Queens, the contract for the integrated managementmaintenance of household wastegreen areas in Birmingham, Alabama, and the Airbus industrial services contract in the County of Nottinghamshire (estimatedUnited Kingdom. These contracts represented total cumulativeestimated annual revenue of €1.2 billion).€26 million.

In Europe, Veolia Propreté continued to reinforce its commercial positions and its treatment capabilities in all countries, particularly Norway, Germany, Belgium, Switzerland, Italy, Denmark, Poland and Romania.

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In North America, Veolia Propreté won or renewed large municipal contracts and reinforced its position in industrial services, winning, in particular, several contracts for the maintenance and industrial underwater cleaning of oilrigs in the Gulf of Mexico.

In Australia, Veolia Propreté continued its growth in industrial services and managed the development of the waste storage center at Woodlawn. Furthermore, Veolia was chosenBack to undertake the planning and implementation of the management and recycling of all waste for the Commonwealth Games 2006, which began in March in Melbourne.

In Asia, Veolia Propreté strengthened its position in the treatment and recovery of ordinary and hazardous waste in several countries.

In Brazil and in Egypt, Veolia Propreté won two “MDP” (Mécanisme de Développement Propre) projects, representing a total of 4.4 million equivalent tons of CO2, in terms of credit generated. Veolia Propreté thus participates in worldwide efforts to limit greenhouse gases and combats global warming.Contents

Principal Contracts

in 2009

The following table shows the principal contracts signed or renewed in 20062009 with either public authorities or industrial or commercialservice sector companies.¹

¹

Revenues expected under foreignthe contracts won during 2006in 2009 have been converted into euros at the closing exchange rate as of exchange prevailing on December 31, 20062009 and represent the portion due to Veolia Propreté under such contracts. Accordingly, these amounts may differ from the amounts announced in earlier Group press releases.

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Main Acquisitions and Divestitures in 20062009

On September 28, 2006,In July 2009, an agreement was signed with Covanta Holding Corporation for the sale of Montenay International, the portfolio of North American waste-to-energy contracts. This divestiture encompasses the management and maintenance contracts for seven sites. The transaction was finalized in 2009, with the exception of one site, the sale of which was completed in February 2010. In August 2009, Veolia Propreté finalized the acquisition of Cleanaway Holdings Limited (Cleanaway UK) from the Australian group Brambles, significantly reinforcing its position in the waste management sector in the United Kingdom (for industrial markets, as well as local municipality markets).  In addition, on June 30, 2006, Veolia Propreté acquired Biffa Belgique, number 4 in the Belgian waste market.  Other acquisitions, of a less significant size, occurred at the end of 2006. They will contributeNettoyage et Multiservices (VPNM) was sold to the growthTFN Group. VPNM provides site cleaning services and waste sorting and collection services at sites mainly located in France. These transactions form part of Veolia Propreté’s treatment and recovery capacities in various European countries.the multi-year divestiture program announced by the Group on March 6, 2009.

Taking into account all foundings, acquisitions and integrations of companies (a total of 58) and liquidations, sales, and mergers (a total of 42),Following the scope ofcreation, acquisition or consolidation of Veolia Propreté20 companies in 2009 and the liquidation, divestiture or transfer of 94 companies, the Environmental Services Division (excluding Proactiva) included 625comprised 692 companies atas of December 31, 2006,2009, compared to 609766 in 2005.  The acquisitions of Cleanaway and Biffa Belgique accounted for the principal changes in scope of consolidation.2008.

Energy Services

Our energy services division conducts itsWe conduct our Energy Services activities through Dalkia, thea leading European provider of energy servicesEnergy Services to companies and municipalities.public authorities. Dalkia provides services relating to heating and cooling networks, decentralized energy production, thermal and multi-technical systems, industrial utilities, installation and maintenance of production equipment, integrated facilities management and street lighting. It seeks to profit fromelectrical services on public streets and roads. We seize opportunities presentedoffered by the development of the energy and greenhouse gas emission reduction markets. Dalkia becomes a partner tojoins forces with its clients,customers, helping them to optimize their energy purchases and improve the energy efficiency of their installations (both in terms of cost and atmospheric emissions).

With approximately 48,800As of December 31, 2009, Dalkia had 52,557 employees in 42 countries around the world (as of December 31, 2006), Dalkia has a permanent presenceand particularly in 35 countries, located principally in France and the rest of Europe.

The following table shows the consolidated revenue (revenue from ordinary activities under IFRS) and operating income of our energy services operations in each of the last two fiscal years,Energy Services Division, after elimination of all inter-company transactions.

Energy Services

Overview of Energy Services

Dalkia’s business is currently facing three major challenges: global warming and the need to reduce carbon dioxide emissions; the increase in the price of fossil fuels and their eventual scarcity; and growing urban expansion and related industrial development.

Dalkia’s activity focusesThis business is focused on optimal energy management.management, and Dalkia has progressively establishedset up a range of activities linked to energy management, including heating and cooling systems,networks, decentralized energy production, thermal and multi-technical services, industrial utilities, installation and maintenance of production equipment, integrated facilities management and electrical services on public streets and roads.

The health sector is also of strategic importance to Dalkia.

Dalkia provides energy management services to public and private clientscustomers with whom it has formedwhich we form long-term partnerships. Dalkia’sManagement contracts to operatefor the operation of urban heating systemsor cooling networks are typically long-term, lasting up to 25 or 30 years, while its contracts to operatefor the operation of thermal and multi-technical installations for public or private clientscustomer may lasthave terms of up to 16 years. Contracts to provide industrial utilities services generally have shorter terms (6(six to 7seven years on average), while contracts in the facilities management sector generally last 3have terms of three to 5five years.

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Whenever possible, Dalkia offers solutions to its clients solutions utilizingcustomers using renewable or alternative energy sources such as geothermal energy, biomass (organic material), solar energy (thermal, photovoltaic, solar concentration), heat recovered from household waste incineration, “process” heat (heat produced by industrial processes) and thermal energy produced by co-generation projects. A combination of energyEnergy sources may also be selected so asare combined, wherever possible, to take advantage of the complementaritycomplementary nature of each source.

For instance, In the biomass sector, Dalkia considerably stepped-up its development in 2006, Dalkia put into service a biomass plant in2009 by virtue of the Lithuanian capital.  This allows Vilniaus Energijainnovative services we propose to reduce its dependence on fossil fuels and favors local development.  Vilniaus Energija’s boiler is the largest biomass installation ever built by Dalkia.

authorities.

Heating and Cooling Networks

Dalkia is one of Europe’s leading operators of large “district”urban heating and cooling networks. Dalkia currently manages 682 district810 urban heating and cooling networks worldwide, particularly in the world, particularly inUnited States, France, the United Kingdom, Italy, Germany, Eastern and Central Europe and the Baltic states.  Dalkia does not ordinarily own the networks it operates.  Rather, in most cases, public authorities own the networks and delegate to Dalkia the responsibility of managing, maintaining and repairing them. The networks operated by Dalkia provide heating, sanitary hot water and air conditioning to a wide varietyrange of public and private facilities, including schools, health centers, office buildings and residences.

Thermal and Multi-Technical Services

Thermal services consist of operating heating, sanitary hot water and air conditioning systems to provide comfortable living and working environments, as well as improving the operation of existing systems to optimize their efficiency. Dalkia provides public, industrial and commercialservice sector customers with integrated energy services which include installationincluding plant design, construction and improvement, energy supply, installationand plant management and maintenance. Dalkia provides customers with a largewide range of technical services and implements new service offerings to satisfy demands for improved energy efficiency. It manages approximately 110,000more than 115,000 energy installationsplants throughout the world.

Industrial Utilities, Installation and Maintenance of Production Equipment

Dalkia has become a leading provider of industrial utilities services in FranceEurope and the United Kingdom. It has thereby developed expertise regardingin the analysis of industrial processes, the enhancement of productivity and the operation, maintenance and servicingrepair of equipment.

Dalkia provides services at approximately 4,100 industrial sites.

Integrated Facilities Management

Facilities management contracts integratecombine a range of services, in a single comprehensive service relationship, from the maintenance of thermal, electrical and mechanical equipment maintenance to logistics, into one global service.  Aslogistics. Accordingly, the various needs of customers are satisfied by a result, the client can meet its need for different services through onesingle company. Dalkia provides facilities management services for its industrial or commercialand service sector customers such as business(business premises, corporate offices, or health establishment sites.

institutions, etc.), covering a total surface area of over 100 million square meters.

Street Lighting Services

Citélum,a subsidiary of Dalkia, has acquiredearned a worldwide reputation for the management of urban street lighting, the regulation of urban traffic and the lighting of monuments and other structures. In France, Citélum operates and maintains the lighting forin a number

of cities in France and abroad, and provides artistic lighting services forat important architectural works and sites. 2006 saw the opening of an establishment in Chile and the signing of a contract in Asia with Ho Chi Minh City.  Citélum also renewed and won several contracts in France (with the city of Paris, for example) in Spain with the city of Almeria and in Latin America (Brazil, Mexico and Chile).

Services to Individuals

Together with Veolia Eau, Dalkia provides residential services to private individuals and cooperative housing customers through Proxiserve, a joint subsidiary of Dalkia and Veolia Eau,(energy/water services), including the maintenance of heating air conditioningsystems, plumbing and plumbing systemsrenewable energy services and meter-reading services. The activities of the Energy Services Division may be influenced by the following key factors, which are primarily of a technical, contractual or economic origin:

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contract management, enabling the identification of risks borne by the Company and those borne by our customers. Contract management takes account of necessary regulatory developments, which are monitored by the Division, and the implementation of a research and development program, enabling further improvements to our performance and competitive advantage (see Risk Factors above);

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procurement management: primarily purchases of raw materials, to optimize costs and secure fuel supplies for the installations we manage (see Risk Factors above).

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environmental protection: optimization of energy efficiency, control of atmospheric emissions and a renewable energies-based offering (see Risk Factors, above, and Environmental Regulations, Policies and Compliance below)

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Description of Activities in 20062009

Veolia Énergie Services’ (Dalkia) revenues increased by 12%In 2009, the Energy Services Division reported a slight fall in 2006 compared to 2005,revenue. This decrease was mainly due to a fall in energy prices.

2009 was marked by the combinationongoing refocusing of solid growth, risingdivision activities on its core business, which is the production and distribution of energy prices, and a renewalthe management of interestenergy services. This led to the divestiture of the facilities management business in the heating industryUnited Kingdom (see “Main acquisitions and divestitures in France (Cergy-Pointoise, Sarcelles), as well as international developments.