As filed with the Securities and Exchange Commission on May 7, 2008April 19, 2010

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

Commission File Number: 001-15248

VEOLIA ENVIRONNEMENT

(Exact name of Registrant as specified in its charter)

(Address of principal executive offices)

Alain Tchernonog,

Olivier Orsini, Secretary General, Secretary, 36/38 avenue Kléber, 75116 Paris France 011 33 1 71 75 00 5401 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:

470,719,806493,630,374 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):

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    Other

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

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

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

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FORWARD-LOOKING STATEMENTS

We make some forward-looking statements in this document. When we use the words “aim(s),” “expect(s),” “feel(s),” “will,” “may,” “believe(s),” “anticipate(s)” and similar expressions in this document, we are intending to identify those statements as forward-looking. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this document. In particular, from time to time in this document we state our expectations in terms of revenue to be generated under new contracts recently won or awarded or from new investments made and new assets or operations acquired, though we may have not yet commenced operations under these new 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 — Information—Risk Factors,” “Item 7;Item 5. Op eratingOperating 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

11

ITEM 4A.

UNRESOLVED STAFF COMMENTS

69

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

70

ITEM 6

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES DIRECTORS AND SENIOR MANAGEMENT

121

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

167

ITEM 8.

FINANCIAL INFORMATION CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

170

ITEM 9.

THE OFFER AND LISTING TRADING MARKETS

178

ITEM 10.

ADDITIONAL INFORMATION

181

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

197

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

197

ITEM 12D.

AMERICAN DEPOSITARY SHARES

197

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

199

ITEM 14.

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

199

ITEM 15.

CONTROLS AND PROCEDURES

199

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

200

ITEM 16B.

CODE OF ETHICS

200

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

200

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

201

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

201

ITEM 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

202

ITEM 16G.

CORPORATE GOVERNANCE

202

ITEM 17.

FINANCIAL STATEMENTS

204

ITEM 18.

FINANCIAL STATEMENTS

204

ITEM 19.

EXHIBITS

204

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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”) as issued by the International Accounting Standards Board (“IASB”) and with IFRS as adopted by the European Union.  We did not publish financial data in accordance with IFRS in 2003, because at the time our financial statements were required to be presented in conformity with French Generally Accepted Accounting Principles. For this reason, we have not provided selected financial data for 2003. See “Item 5. Operating and Financial Review and Prospects” for a discussion of accounting changes, business combinations and dispositions of business operations that affect the comp arabilitycomparability of the information provided below.

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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 7, 2008,2010, our shareholders will decide on a dividend payment proposed to be €1.21 per share in respect of our 20072009 fiscal year, which shallwill 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, 2008.2008, 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 the 2006 fiscal 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 eur oe uro to 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 20032005 through April 20082010 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 $1.00 = €0.6793,€0.69415, the Noon Buying Rate on December 31, 2007.2009. On May 6, 2008,April 9th, 2010, the Noon Buying Rateexchange rate as published by Bloomberg at approximately 1:00 p.m. (New York time) was U.S.$ 1.551.3468 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.

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 service sectors.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, relatedrequired investments required 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 undertake 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 Americathe United States (sales generated outside of these regions represented approximately 12%16.2% of our total Group revenue in 2007)2009), we conduct business in markets around the world. 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 may depend on political decisi ons that can be highly political, slowing and impedingimpede for several years any increase in fee sfees, 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 supplies of fuel and other commodities, which represent significant operating expenses for our businesses, are subjectactivities could cause damage to sudden increases. Although mostpersons or property

Some of our contracts contain tariff adjustment provisionsactivities could cause damage to persons (including injury or death), business disruption, and damage to real or personal property. It is our general policy to contractually limit our liability and to take out insurance policies that are intendedcover our main accidental and operational risks. However, these precautions may prove to reflect possible variations in prices of our supplies using certain pricing formulas, such as our price index formulas, there may be developments thatinsufficient, and this could prevent us from being fully protected against such increases, such as delays between fuel price increases and the time we are allowed to raise our prices to cover the additionalgenerate significant costs (including taxes), or our failure to update an outdated cost structure formula.  In addition, a sustained increase in supply costs and/or related taxes beyond the price levels provided for under our adjustment clauses could reduce our profitabilityus. For more information, please refer to the extent that we are not able to increase our prices sufficiently to cover such additional costs.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 situation.condition.

As part of our businessexternal growth strategy, we have conducted and continue to carry out acquisitions of varying sizes, some of which are significant at the Group level. These acquisitions involve numerous risks, including the following: (i) the assumptions used inunderlying the underlying business plans supporting the valuations may not prove to be accurate,inaccurate, in particular with respect to synergies and expected commercial demand; (ii) we may notfail to successfully integrate the companies acquired businesses,and their technologies, products personnel and operations effectively;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 beprove costly and/or onbe performed at unfavorable terms;terms and conditions; and (v) we may increase our indebtedness to finance these acquisitions. As a result, it is possible that the expected benefits of completedcomple ted or future acquisitions may not materialize wi thinwithin the time periods or to the extent anticipated, or that such acquisitions may affectimpact our financial condition.

Our business is affected by variations in weather conditions.

Certain of our businesses are subject to seasonal variations. For example, Dalkia realizesgenerates 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.  InEurope, while in the water sector, household water consumption tends to be higherhighest between May and September in the northern hemisphere. Accordingly, these two businesses may be affected by significant deviations from seasonal weather norms.patterns. This risk is offset in certain cases, bothfirst by the variable compensation terms included in contracts, and second by the geographical distributioncoverage of our businesses. The impact of weather conditions, together with the seasonal nature of ourthe Group’s businesses, may nonetheless affect our results.results of operations.

Our business is subject to CO₂ market and emission allowance risks.

As an operator of energy installations and, to a lesser extent, as a result of our transportation 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 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, major and costly investment may be necessary 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 lead to a substantial additional cost. Whether this cost can be passed on to customers and in what amount, have not yet been determined.

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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.attack could negatively affect our reputation or operating results.

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

The generalinitial 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 in addressing such changes and restoring the terminitial balance of the contract, particularly inbut they may not be fully effective. The implementation of such mechanisms may be triggered more or less automatically by the caseoccurrence of long-term contracts.  For example, changes in the prices of our suppliesa given event (for instance, price indexing clauses), or they may increase beyond levels that were foreseencall for a procedure or foreseeable at the timerevise or amend the contract was entered into or changes in end user behavior may significantly affect our financial performance under the contract.  Because our contracts generally do not allow us to unilaterally terminate them or interrupt or suspend the performance of our obligations under them, we attempt to foresee these possible changes at the time we negotiate our contracts and typically include adjustment mechanisms in our contracts (such as price index clauses or the right to initiate a review or modification process).  However, we may not always be able to foresee all potential changes or to negotiate adju stment clauses that cover all possible scenarios.  In addition, even if our contracts include these types of adjustment clauses, our ability to react to these changes is limited to the adjustments permitted by these clauses.  For example, our long-term contracts typically provide for pre-determined fees or payments for our services (either from the client or from the end user according to a set price list), and we cannot adjust these fees or prices to reflect anticipated shifts in costs or product demand other than in accordance with the termsagreement of the adjustment clause.  Also, our right to initiate a review or modification process in respect of a contract may be subject to conditions, including the consent of the otherboth parties to the contract or of a third party (such asparty. 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 all cases and most particularly with regard to public authority).  Asservice management contracts, our actions must remain within the scope of the contract and ensure continuity of service. We cannot terminate unilaterally and suddenly a result,business that we believe is unprofitable, or change its features, except, under certain circumstances, in the event of proven misconduct by the customer.

Certain of our construction operations are performed under fixed-price contracts, containing performance cost and/or 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, however, 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 performance schedules. These may lead to non-compliance with contract specifications or generate additional costs and construction delays, triggering, in certain cases, reductions in our revenue 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 continue performing our obligations under ouruse existing infrastructure with poorly-defined operating characteristics.

While contracts even ifgenerally include clauses providing for the general conditionspayment of compensation, should events such as those detailed above occur, we are exposed to the risk of not obtaining amounts sufficient to cover the resulting additional costs, or circumstances of our performance are different from those that had been for eseen and provided for atobtaining such amounts only after the time the contract was signed, which in some cases may alter the financial equilibriumpassage of the contract and adversely affect our financial performance under the contract.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, unilaterally but generally with indemnification.  In other 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 noror sufficient compensation or indemnities to cover the cost of our investments.  These situations increaseinvestment. This could arise due to failure to obtain necessary permits or authorizations, or approval from antitrust authorities, or because authorizations are granted contingent on our abandoning certain of our dev elopment projects. This 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 profitab ly 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.obligations as well as to manage 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 in all areas totaled €2.642 billion in 2007.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 among other things, any dischargeall discharges in a natural environment, the collection, transport, treatmenttransportation and disposal of all types of waste, and 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 under which we operate expose us to greater riskrisks 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 certain instances, it requires reserves to 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 a ctivities, curtailsite restoration work for current or future operations or close facilities temporarilyto suspend activities as a result, in connection with applicable laws and regulations, including to preventparticular, of an imminent threat 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 operating contracts.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.

As part of ourOur subsidiaries in France or abroad may, under environmental services outsourcing contracts, our subsidiaries may be involved in the operation of top-tierperform activities at certain environmentally sensitive sites known as high threshold “Seveso” sites (AS classification(classified “AS” under the French ICPE, (Installations“Installations Classified for the Protection of the Environment) nomenclature)Environment” system) or lower-tier “Seveso”low threshold Seveso sites (or theirthe foreign equivalent) for, operated by industrial clientscustomers (particularly petroleum or chemical industry sites). “Seveso” facilities are places where dangerous substances are present in quantities equal to or above thresholds specified in European Union Directive 96/82/EC (also known as the Seveso II Directive), relating to the control of major accident hazards involving dangerous substances.  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.

While the The regulatory regime governing Seveso facilities applies only within the European Union, but we operate several similar sites outside of this region. These sitesregion t 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, exposing us to potentially substantial liabilities in the eventSeveso regime (only certain of accident.

Among the facilities that we own and operate in France, one has been categorized a lower-tier “Seveso” facility (notwhich are classified as AS“AS” under the ICPE nomenclature)system). It is aWe 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 Propreté) atEnvironmental Services) in Limay (Yvelines). The manipulation of waste and hazardous products in this facility can, in the case of an accident, cause serious damageYvelines. As a result, we are subject to the environment, neighbors or employees, exposing us to potentially substantial liabilities.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 directly and through our subsidiaries 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 willcan 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, 2007,2009, 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 €15.1 billion, of which 26% was subject to variable rates and 74% to fixed interest rates, including 9% 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 stat ementstatement is in effect. For example, in 2007If we effected 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 to the shares underlying the ADSs and received the net proceeds offrom the sale of these rights in the French market by the ADS depositary.

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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: 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. Our companyCompany developed its municipal water distribution activities in France by obtaining concessions in Nantes (1854), Nice (1864), as well as a 50-year concession for water distribution services in Paris (1860) and its suburbs (1869).

In 1980, Compagnie Générale des Eaux reorganized its water activities by 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 and Euronext Paris on November 21, 2007.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 the 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 dilution and held only 5.3% of our shares fromby December 2004 until2004. Since July 6, 2006, when Vivendi completed the sale of itsno longer holds any shares in our company.   Company.

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

Between 2002 and 2004, we undertook 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.

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 2007  

Below we discuss the main developments in our business during 2007.  The discussion below and in the remainder of Item 4 includes the revenue amounts that we expect to earn from various contracts (most of which are long-term contracts), including total revenue expected to be generated from all services under combined contracts to build and operate facilities.  These revenue amounts take into account updates to our volume and price assumptions since the date these contracts were publicly announced.  In addition, revenue amounts expected under foreign contracts won during 2007 have been converted into euro at the rate of exchange prevailing on December 31, 2007.  As a result, publicly announced revenue amounts may differ from the amounts of expected revenue included in this document.  In addition, these expected revenue amounts constitute forward-looking statements that involve r isks and uncertainties, including, but not limited to, those described under “Item 3. Key Information–Risk Factors.”  Actual revenue amounts may differ materially from those anticipated in the forward-looking statements.  See “Forward-Looking Statements” at the beginning of this document for a more detailed discussion of the risks and uncertainties to which our forward-looking statements are subject.

Cash rights offering

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

New projects and acquisitions

In 2007, we reinforced our position in our business sectors with a series of new, targeted acquisitions which we hope will generate growth and cost synergies.

We invested more than €2.5 billion in external growth opportunities in our priority development areas during the 2007 fiscal year alone.  Following our acquisition of Cleanaway UK (third in waste management in the United Kingdom in June 2006, our acquisitions of Sulo (second in waste management in Germany) and TMT (the leading private provider of Italian thermal waste treatment) announced in April and May 2007, TNAI (which holds the largest private portfolio of heating and cooling networks in the United States) in June 2007, and part of the non-regulated activities of Thames Water which was finalized in November 2007 were the most significant.

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

Innovation and new areas of activity

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

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

In the field of renewable energies, we have developed the production of biofuels, a strong growth market.  We favor the production of biofuel from waste, such as used cooking oils.  Indeed, this solution presents a very positive environmental balance and the recycling of these oils is an integral part of the waste treatment process. This project, which utilizes the industrial skills of SARP Industries, creates significant synergies not only with our historical core activities (particularly recycling and collection), but also with the prospects for our fleets of vehicles. The first plant to produce biofuel from used cooking oils will open in 2008 in Limay. It will have a production capacity of 40,000 tons per year, which may grow to 80,000 tons per year.activities.

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The market for wind-generated energy also showsIn November 2005, we rolled out a strong growth potential sustainednew brand system aimed at increasing consistency between our Divisions and our visibility by continued support policies. It is an attractive proposition in certain countries in Europe,strengthening the identity and above all in the United Statescommon culture of Veolia Environnement around our service values. Our Water, Environmental Services and in Asia, where there is considerable growth potential.  In 2007, we acquired 50% of the capital of Eolfi, which currently operates 26 MW in France and is building 12 sites that represent an additional 120 MW capacity.  By the end of 2008, Eolfi’s production capacity is expected to reach more than 150 MW. In addition, numerous projectsTransportation Divisions are pending abroad, notably in Greece, Poland and Asia. With Eolfi, we can meet the expectations of customers, particularly local communities and industrial customers, who also wish to include a “wind-generated energy” aspect in their sustainable development projects.  Eolfi will allow us to optimize certain real estate asse ts that are ideal sites for wind turbines.

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

A significant presence on the desalination market

Resource scarcity stemming from land irrigation, drought, floods that degrade water quality, or the over-development of ground water tables, combined with growing needs for water (due to population density growth)“Veolia”, are a major challengewhich is linked to the productionname of drinkable water in certain arid regions, in particular regions where such phenomena are aggravated and reducetheir activity. Our Energy Services Division primarily operates under the availability of water.  The desalination of seawater is therefore expected to become one of the main alternative production methods for drinkable water in the coming decades.

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

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

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

Sustained activity growth and relevance of the sustainable growth model

Since our listing, we have achieved various milestones in our independence and organization, culminating in 2004 with our sale of non-strategic American assets and our interests in the Spanish company FCC. Our refocusing of activities on environmental services under long-term contracts placed us, as early as 2005, in a favorable position to sustain our rank as worldwide leader in environmental services, driven by a consistent strategy relying on proven capabilities.

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

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Our inclusion in the Dow Jones Sustainability Index (DJSI) and FTSE4Good indexes

Created in 1999 and 2001, respectively, the Dow Jones Sustainability Index (DJSI) and FTSE4Good index select companies based on their performance in sustainable development.  We were included in the Dow Jones Sustainability Index and in the FTSE4Good index in September 2007.

Our selection demonstrates, in particular, our performance in relationships with stakeholders, especially in respect of human resources management, as well as with clients and local communities. In addition, our Environmental Management System was a significant factor in our inclusion in these indices.

We are also part of the ASPI Eurozone index (Advanced Sustainable Performance Indices). The ASPI Eurozone index, launched in March 2002, is composed of the 120 principal stocks of the Eurozone selected according to social, environmental and corporate governance criteria.

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BUSINESS OVERVIEW

Our Market

Traditionally, environmentalEnvironmental management services, which includecomprising 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 were provided in an uncoordinated manner, each byare now recognized as a different entity. Moreover, public authoritiesseparate business sector. Private customers view these services as similar and industrial and commercial companies typically wereseek the expertise of a service provider able to meet manysupply a comprehensive service. Public sector customers are also aware of their own environmental needs without turningthe benefits of grouping together these services, however, such customers are often constrained to private firms specializing incontract separately for these areas. This situation has changed drastically in recent years.services due to administrative and budgetary 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 efficiency, which has led decision-makersdecision-m akers to seek a global approach to the management of activities affectinghaving an impact on the environment in orderwith a view to devel opdeveloping solutions that allow interaction between and optimization amongof these environmental management services. These measures, now widespread,widely accepted, have led to an increased demand for integrated environmental management services. This trend has been highlighted byincreased with the continued global expansion of industrial and commercial companies, which has generated a need for environmental management service providers who are able to respond to their clientscustomers’ needs on an international scale.

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

•

InFaced 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 worldlower cost basis; they therefore seek the legal security offered by an operator that combines accelerated urbanization with demographic growth, major investmentsaccepts responsibility for the management of these activities. Expertise in environmental projectsregulations is a determining factor in the choice of operators and services, as well as effective management, are needed in order to meet increasingly stringent environmental standards, provide growing urban populations with adequate environmental services and replace existing environmental infrastructure.  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 must set exemplary standards. The qualitative criteria underlyingIn a world that combines accelerated urbanization with demographic growth, major investments in environmental requirementsprojects and services, as well as sustainable management, are increasingly a decisive factorneeded in order to provide growing urban populations with tailored environmental services and to replace obsolete environmental infrastructures.

Nonetheless, the choice of providers, which is an advantage for us.financial difficulties that plague all parties, whether they are public authorities or private companies, could lead to certain decisions being postponed, especially when they involve new investment.

•

Governments throughout the world face budgetaryHowever, these financial constraints and often lack the technical and operational skills of private sector firms to address environmental issues efficiently.  As a result,could also encourage public authorities and private businesses are increasinglycompanies 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, thereby creatingwho is able to provide performance commitments. This offers 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 increased.

•

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-qualityhigh quality, innovative, and, (dependingdepending on customer needs)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 commercial services clientsservice-sector customers and private individuals around the world.

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Public Authorities

Demand byfrom public authorities (often small localitieslocal authorities that are increasingly pooling resources) has beenis influenced and strengthened by trends relating to the search for quality, efficiency, innovation, the rationalization of public procurement and reduced costscost reduction (by integrating operating concerns starting atfrom the developmentdesign stage), and by theira commitment to environmentalassuming their responsibility for the environment and particularly with respect tothe 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.

While weWe have the know-how to adapt to our clients’customer expectations and needs, but we also believe that our global contract model, which permitsgives us the ability to provide services tied to performance obligations, as well as, depending on client requests, the development, constructioncustomer needs, to design, build and even financing offinance necessary investments, remains as relevant as ever. It enhancescontributes to innovation and efficiency through mutual research efforts, andstimulated by the periodic re-tender forcompetitive tendering of contracts. DependingThis model takes on different legal forms depending on the country involved, this model may take several legal forms.traditions in each country. Certain countries, including those subject togoverned 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 service is providedextent to a public entity or directly to end-users,which we assume operating risks, and depending on whether the assignment is basedcontract focuses on thea service beingto be provided or the completed work, or on the risk to revenues assumed by the compa ny.

construction of infrastructure.

In France, since the middle of the 19^th19th century, public authorities have generally chosen to haveentrust the management of public services (water, sanitation, transportation, waste collection, and urban heating) managed byto companies throughunder contracts that were traditionally considered to be concessions (or leases,operating contracts in the absence of an investment completion assignments)component) and which are now legally qualifiedclassified by law as public service delegations,delegation contracts, but which remain concessions under the European Community’sUnion definition. They have frequently preferred, at least in the case offor certain public services, to continue to manageretain control over the construction of installations, as well as their financing, before making them available to the service provider or lessee duringfor the term of the contract.

In the last few years, a new trend has emerged in whichwhereby public authorities in all countries, including France, have asked companies to manage not only the design and construction of the necessary development and completion of work andpublic infrastructure, installations or public facilities and equipment (as varied as for example, administrative orand educational buildings, hospitals, transportation infrastructure, prisons, waterwastewater treatment facilities or household waste treatmentprocessing plants), but also their financing and long-term maintenance, before recovering them at the end of the contract. TheseTwo main categories of these contracts whichhave emerged, although, together, they are often categorizedreferred to as PPPs, fall into two main categories.  ThePPPs. In the first category, which includes contracts similarbelonging to those in the market category:category, the resources intended to cover the cost of workinfrastructure and their financing are similar to a contract price paid or guaranteed amount fromby the public authority, and the service is provided to the pu blic authority once work is completed.  The sec ondusing the completed infrastructure. In the second category, which includes contracts resemblingequivalent to concessions under the European Community’s definition:Union law, the resources must be sought from aobtained through the commercial operation of the public service (the(i.e. the public or general-interest service whose operation has been delegated), which is the main focuspurpose of the contract, with the completionconstruction of work beinginfrastructure only a means to that end. Distinctproviding the necessary means. Different IFRS accounting treatments according to the IFRS standard (reporting or non-reporting ofapply in each case (depending on whether a financial asset corresponding to debt ofa receivable from the public authority) apply in each case.  We preferauthority is recognized or not). It is also possible to distinguish these PPPs based on the nature of the assignments (“Buildservices entrusted, such as “Build Operate Transfer” (BOT) with financing, or “BOT”“Design, Build, Operate” (DBO), “BFOT” if financing is added, or “DBFOT” if development is added).

with design but excluding financing.

In France, since the public market code (code des marchés publics) now prohibits entrusting companies with the construction and operation of a commissioned project, on one hand and all of its financing assignments, on the other, it became necessary, in orderauthorities decided to encourage the development of thisa type of global PPP contract (which does not fall underwhereby public authorities contract with a private enterprise that undertakes the categoryfinancing, construction, maintenance and/or operation (or provision of services directly to the end-user) in exchange for periodic installment payments from the public service delegations (délégations de service public), which isauthorities. To this end, the French term for community concessions), to createOrder of June 17, 2004 created a new category of partnershippublic works 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 created under a Frenchordonnancedated June 17, 2004.  Thisordonnanceallows public authorities to entrustgoverned by private operators (who may be associated with financial organizations) withlaw when those contracts delegated both the entire responsibility for building and/or financing an installationconstruction and operating responsibilites to the services related thereto, in exchange for compensationprivate entitiy; similarly, under the prior French regulations, private law could not gove rn contracts that isincluded 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 current and future investments in public auth ority as a function of performance.services.

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This contractual model, characterized by a contract between athe public entity responsible for a service and private companies,the company operating this service, whatever theirits legal form, is widelyfrequently used, for the provision of collective services, but is not the only available model.  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 usually do not own the owners 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 the market. They may nonetheless occasionallySometimes, 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 havedemonstrate their interest in the services rendered by taking an ownership interest in the private operator in these instances; w eoperator. We may seek to acquire a stake in these operators as well.

such operators.

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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 Commercial Servicesand Service Sector Companies

We offer our industrial and commercial services clientsservice sector customers a largewide range of services, which generally aim to achievecovering two major environmental goals: on the following two main goals relating to environmental protection:

•

provide clientsone hand, providing customers with and optimizing consumption of the servicesutilities necessary for their industrial processes (vapor,(steam, industrial heating and cooling, processedprocess water, demineralized water, compressed air, etc.) and, optimizing their consumption thereof, and

•

reduceon 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 tailored 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 make up a significantoffers considerable growth area.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 Services Clients” below.

customers is constantly increasing.

Our Overall Strategy

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

Byhas been aimed at strengthening our position as a global reference in the leading provider ofexpanding environmental services worldwide, we continuemarket. Going forward, our ambition is to implementset 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 business model aimed at improving ourservices 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 financial performance.  Thisenvironmental performance is a resulttime-consuming and the length of economiesthe contract term allows performance gains to be generated over time as part of scalean overall strategy encompassing technical, management and technological expertise, combined with significant levels of research investment, long-term commitments to clients and managed risk.social considerations.

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

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

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

We have also conductedas a significant portionresult 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 industrialcorporate model and commercial services clients, particularly for the provision of energy and waste management services.  We have also created a new business portfolio made up of large industrial accounts (Peugeot, Novartis, Renault),complying with a significant contribution coming from multi-service contracts.long-term contractual commitments.

Successful geographic diversification

Our international business continuesWhile continuing to increase along with our volume of businessexpand in France which has continuedand 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 grow at an average annual rate of over 5% per year since 2000.

urban growth that meet environmental standards. We are also focused on North America and the Middle East and the Persian Gulf.

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Beyond Europe,Over-and-above improving economic and financial performance, essential to a solid balance sheet and creating shareholder value, we aim to maintain and strengthen our performance with innovation, helping us to stay substantially ahead of the competition and anchor our corporate performance in the long-term, thanks to which has becomethe employability and professional satisfaction of employees can be maintained in a spirit of solidarity as technology evolves. We also aim to improve our domestic market,contribution to society, by supporting the common good on behalf of customers in territories where we have also achieved strongoperate. 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 Environmental Services sector, primarily with a 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.

Our profitability suffered a mechanical dilution due to strategic acquisitions focused on providing high quality platforms, notably in Germany, to strengthen the Group’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 development in growth sectors, particularly in the United States and Asia.China. We have taken onhope to achieve an increase in Group profitability from the improved profitability of recent acquisitions and a significant rolemore balanced split between assets with a longer pay-back and other Group assets. In addition, measures already implemented in energy services2009 and which will be continued in 2010 (reduction in the United States.  Our presence in developed countries presents relatively little risk of decreasing as it is largely unaffected by relocationscost base and restructurings.

We have also developed a significant presence in emerging and developing countries. We regularly add new contracts and expand our energy services activities in China.  Our economic position in these areasrotation of the worldasset 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 much more significant thannow scheduled for the proportion of our revenues earnedperiod 2009-2011 (after generating €1.3 billion in these areas suggests.

A strategy focused on growth and high-potential markets

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

Faced with increasingly restrictive regulations and2009), in order to keep up with competition, moreinternally 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 more industrial companies outsource environmental services through long-term partnerships. Their partners generally work on allEastern Europe, France, Asia, Middle East/Africa, North America and Australia, Northern Europe, South America and Southern Europe). The role of their industrial sites worldwidethese managers is transversal and tendprimarily 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 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 full range of services.

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

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

Additional growth potential in related businesses

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

Synergies between our different businesses accelerate our growth

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

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

Strong economic and financial resources

Our solid position results from market growth trends, but also from our competitive assets, including our technological and technical expertise, our financial stability, our geographic presence, and our experience in providing environmental services in compliance with regulatory requirements.  The success of our capital increase, completed in July 2007, also strengthened our financial capacity, thereby ensuring our development and reducing our exposure to market fluctuations.

Size advantages

Our size alone provides us with significant synergies.  In addition, our presence in all segments of the value chain means that our vertically integrated structures allow us to maximize the benefits of added value.

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SupportBy 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 a leadership position due to our technological expertise, could represent €5 billion per year, while used water recycling capacity could increase by an average annual rate of over 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 inhabitant. 30% of current energy consumption could be optimized without the need for any major technological change.

•

In the urban 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 companies and all other players. This approach is primarily reflected by a research and development policy and the practical development of technological developmentsinnovations. We are also focused on the systematic development of synergies between current and improved know-how

future components of our 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.)

We have been expandingmust build on our Researchstrengths, which include our presence in markets that are structurally buoyant, our large asset base, our major competitive advantages, our reactivity and Development activities for a long period of time. Research and Development is essentialproximity to accomplishing our missions and allows us to  respond to the needs of our clients. Since 2000, we have centralized our R&D business into one unique organization which is now supported by the strategic research, innovation and sustainable development committee created in 2006 by our board of directors.

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

Long-term contracts

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

Moreover, aside from its social, environmental and ethical aspects, sustainable development directly influences the expectations 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

Given our growth objective, we have implemented a management and risk calculation policy, marked in 2007 bybecome the mapping of the major risks atcorporate benchmark for sustainable development. Within this framework, 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 division, Veolia Eau,Water Division intends to continue to expandexpanding its services around the world, while striving to ensure the quality and safety of drinkingthe water it provides, the conservation of natural resources and the protection of the environment.

The growth potential of the international market for water services is drivenenhanced by four factors in particular:main factors:

•

population growth and higher urban density,density;

•

strengtheningthe tightening of environmental standards and health regulations,regulations;

•

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

•

the on-going refocusing byof industrial clientscustomers on their core businesses.business.

Given this growth potential, we will continue ourto adopt a selective development in orderapproach to optimize ourthe allocation of our resources, our operating costs and our profitability. In order toTo take advantage of market opportunities, we relythe 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 the challengesfuture challenges. The development of tomorrow.  Veolia Eau’s technical expertise in variousareas such as desalination methods, and wastewater recycling in particular,solutions represents a major effort to adapt to ongoing changes in market conditions.

the market. Going forward, therefore, 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 (despite the maturingcurrent economic climate), the maturity of its largerlar ger contracts and the productivity gains resulting from efficiency programs (relating to purchasing,that have been implemented (encompassing purchases, information systems and sharing of best practices).

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Waste ManagementEnvironmental Services

Through Veolia Propreté,our Environmental Services Division, we intend to become one ofcontinue expanding as 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, capable experts who can provide long-term services under cost-effective conditions and in compliance 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 have the following priorities for our waste management division:Veolia Propreté will focus its efforts to:

•

enhancing ourincrease the profitability 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 treatmentprocessing capabilities, by accompanying the transformation of waste processing methods and developing our technological expertise in waste treatment and recovery;its recovery technologies;

•

strengthening our service offering to industrial clientsstrengthen its competitive advantages and the added value offered by its services, while developing the technical content of its businesses and capitalizing on our masteryits command of the entire waste management chain, while seekingin order to generate synergies with our other operating divisions;

•

increasing the profitability of our activities by renegotiating fees, maximizing productivityoffer industrial and reducing structural costs; while ensuring that all of our activities contribute to the development of high value-added services.municipal customers comprehensive waste management solutions.

Energy Services

Through Veoliaour Energy Services (Dalkia),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.

and is present in forty-one countries around the 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 undeniably encouraged searchesled to the 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.

Dalkia’s development strategy is focused primarily on heating and cooling networks, theenergy management ofin service sector buildings and retail centers, the handling of industrial utilities, andas 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.

It includesDalkia’s development strategy focuses on the following geographical priorities:

•

pursuingcontinued growth in Southern Europe (including Italy and Spain)by participating in the trend toward market consolidation and by developing our offers to the private sector;across all its business sectors;

•

pursuing growth in the areadevelopment of large heating networks, particularly in France and in Central and Eastern Europe, and in large cooling networks in the Middle East;East, as well as entering the Russian market for heating networks;

•

pursuing growththe strengthening of its presence in North America, particularly the United States, by offering management services for management of networks, industrial utilities, shopping malls and shopping malls; andhealth centers;

•

pursuing growththe business development in China (networks and industrial utilities) and in Australia..

These priorities will depend on our ability, inIn 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 also aim to promote our integrated outsourcing services to public clientscustomers as well as to service sector and industrial clients,customers, by combining optimized services for facilities management (heating, air-conditioning, utilities, electricity, lighting).

Transportation

Through Veolia Transport, we seek to be a leading European and worldwide private operator of public transportation services.

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Transportation

Through our specialized subsidiary, Veolia Transport, we aim to become a major transportation service provider on a worldwide scale.

Between 2000 and 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 major concern for the local authorities and inhabitantscity dwellers. In addition, the Transportation business is linked to the environmental performance of large cities.  Transportation always has an impact ontowns and regions, regional competitiveness, development and growth, the imageidentity and identitysolidarity of a large city, its economic development, urban renewal projects,citizens and local solidarity.quality of life.

The major challenges in this sector are related to the ever-increasing need for new transport infrastructures,infrastructure and the growing demand to customize mass transport, create attractive public transport networks, address environmental concerns and todeal with the growing demand for the customizationdirect and indirect costs of mass transportation.automobile congestion.

Veolia Transport’s strategy is to improve itsfocuses on improving performance in its basicour core business of passenger transportation, activity with the following priorities:

•

Continuedcontinuing efforts to addressin marketing, innovation and environmental concerns in ordersustainable development to continue to better satisfy clients;constantly improve customer satisfaction;

•

A focus onconstantly improving business expertise in all local or regional passenger transportation;  land transportation methods;

•

Selective growthgiving geographical priority to a small number of countries based on the attractiveness of markets and the intensity of local competition;

•

Continued growthinnovating both in related activities such as railway freight givennew mobility sectors (e.g. bikes, car-sharing, collective taxis) and in information and energy technologies.

Furthermore, we are currently discussing a combination of our Transportation business with Transdev, owned by the synergiesCaisse des Dépôts et Consignations and importance for the environment.RATP (see Item 8: “Financial Information Consolidated Statements and Other Financial Information – Significant Changes”, below).

Our Services

Our company is an environmental services provider, and is the only major provider to offer a complete range of services.  We are able to provide clients with a full-service package tailored to fit their individual needs, which may include, for example, supplying water, recycling wastewater, collecting, treating and recycling waste, supplying heating and cooling services, and generally optimizing the industrial processes used in their facilities.

Our operations are conducted primarily through four divisions, each of which specializes in a single business sector: Veolia Eau (Water), Veolia Énergie (Dalkia) (Energy Services), Veolia Propreté (Environmental Services) and Veolia Transport (Transportation). Through these divisions, we currently provide drinking water to more than 78 million people and treats sewer water for 53 million people in the world, treat nearly 66 million tons of waste, satisfy the energy requirements of hundreds of thousands of buildings for industrial, municipal and individual clients and transport approximately 2.7 billion passengers per year.  We strive to offer our clients the combined services of each of our four divisions, which are packaged either in the form of a single multi-service contract, or several individual contracts.

The following table breaks down our consolidated revenue for 2007 by geographic market and division, after elimination of all inter-company transactions.

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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.   

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.¹ In addition, Veolia Eau, through its subsidiary Veolia Water Solutions & Technologies, is thea world leader in the designconception of technological solutions and the construction of structures necessary for the performance of such services.

With 82,867 employees around the world¹, Veolia Eau provides drinking water to more than 7895 million people, around the world,and supplies 5366 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 60more 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 and Hungary. The Asia-Pacific region (China, South(mainly China, Korea, Japan and Australia) also remains an important development objective, followingwith the awardsigning of a number of significant contracts with municipal and industrial clients incustomers 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 ci tycities of Indianapolis.Indianapolis and Milwaukee. Finally, Veolia Eau has alsowe have established a presence in the Middle East and Africa, primarily in Morocco and Gabon.

Thanks to itsour 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 preservation of resources.

Given

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 combination of aWater business.

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Combined with our strong local presence and more than 150 years of experience in providing 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.

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 (an example of which is the turnkey contract signed in 2007 to provide one of the largest sea water desalination plantsseawater, a sector where Veolia Eau recently excelled in the world in Saudi Arabia)Middle East, or the re-use of treated water, may also be needed 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 division,the Water Division, after elimination of all inter-company transactions.

Water*Water *

¹  As of December 31, 2007, including Proactiva’s 1,939 employees who are active in water activities.

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Overview of Veolia Eau

Water Division

Veolia 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. 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. Recent legislative changes have enabled usVeolia Environnemen t to integrate more elaborate mechanisms into ourits contracts toallowing it a llowing us to share inof the added value produced under the contract  (e.g., productivity(productivity gains, improvement in the level of services, efficiency criteria, etc.). Public authorities often rely 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 have 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 services customers generally last from 3have a term of three to 10ten years, although certain contracts have terms of up to 20twenty years.

Service Contracts with Public Authorities and Industrial ClientsCustomers

The main focus of our water business is onthe management of water and wastewater management services for public authorities and industrial clients.customers. 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 to the development of our common service offerings, of our group, in particular in Europe, with VE Industries (as discussed further below).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 services clients.service sector customers. In addition, Veolia Water 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 has 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, renews 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 area.

Key factors

22The 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.

BackIn 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 Contents

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 20072009

In 2007, Veolia Eau enjoyed several commercial successes, and its revenues increased by 8.3%activity levels remained relatively stable overall in 20072009, compared to 2006, 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 didrevenue was not loseaffected by the loss of any significantmajor contracts in 2007 relative2009.

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

In France, Veolia Eau provides approximately 2425 million inhabitants with drinking water and 16 million with wastewater services. ContractsPublic service delegated management contracts renewed in 20072009 represent expectedestimated total cumulative revenuesrevenue of almost €920€614 million. AmongIn France, despite a highly competitive environment, Veolia Eau enjoyed several commercial successes. These included a new contract for the management of water and wastewater services for the town of Chaumont and concession arrangements for the City of Chartres wastewater treatment plant and the Roquebrune Cap Martin wastewater treatment plant. Other than the return of 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 renewed, the most important were with the Nice Côte d’Azur area,Val Maubuée Authority in the city of Beauvais, the city of MaconParis region and the Intercommunal SyndicateCity of Nantes were successfully renewed.

We also continued our sustainable development policy launched in recent years, refining our contractual model with the Mâconnaise Area, which bring together the latest technical innovations in environmental protection.

Veolia Eau continues its development effortshelp of specific offerings, in order to further increase its service offeringsatisfy customer wishes and enable them to reach new clientsmeet their sustainable development objectives (biodiversity, carbon footprint, etc.). Finally, as in areas such as2008, the managementfall 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 wastewater treatment plants, the management of mud storage, online availability of water consumption levels, managementconstruction work at sites in The Hague and maintenance of rainwater networks, the maintenance of non-collective wastewater installations, and the monitoring of swimming water, which are all services related to increasing awareness of the challenges of sustainable development.

In the rest of Europe, the EBRD has committed to invest up to €105 million in 2007, €90 million of which has been invested since 2007, to acquire 10% of Veolia Voda, a holding company for Veolia Eau’s businesses in Central and Eastern Europe, with the aim of increasing the role of the private sector in providing water conveyance and the purification of waste water, notably in Russia and the Ukraine.   

At the end of 2007, the International Finance Corporation (IFC), the private sector arm of the World Bank Group, and PROPARCO, the subsidiary of Agence Française de Développement in charge of financing private investments in developing countries, acquired shareholdings of 13.89% and 5.56%, respectively, in Veolia Eau AMI. Veolia Water AMI is a subsidiary of Veolia Eau and operates water, wastewater and electricity services in Africa, the Middle East and the Indian subcontinent. The aim of this holding company is to develop infrastructure to serve those populations who are without water and electricity in the urban areas of these regions.    

In the Middle East, in addition to the Jubail and Fujairah contracts, negotiations with the Sultanate of Oman led to the signing of a contract in January 2007, in partnership with National Power and Water, to build, finance and operate a reverse osmosis seawater desalination plant in Oman (with a capacity of 80,000 m³/day). The 22-year contract should represent estimated total consolidated revenue of €434 million, including the construction of the plant.Belfast.

In Asia, Veolia Eau won several contracts2009 was marked by the ramp-up of the Tianjin Shibei contract, further organic growth in Shenzhen and robust construction activity in Shanghai in the run-up to the World Expo2010 in China, (see below) and in Japan, where it won a three-year contract for the operation and maintenance of a water decontamination plant in Chiba, a suburb of Tokyo which has experienced significant growth.  In Australia, the new Sydney contract followed the contracts that were won in 2006 for consulting services to the State of Queensland to recycle water produced by treatment installations in the region of Brisbane in an effort to combat drought, and the design, construction and management of a desalination by reverse osmosis facility designed to sustain, in particular,while the Gold Coast.

Veolia Eau recorded solid earningsCoast and Sydney Desalination construction contracts came to an end in 2007 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 (including sharing of best practices and better use of information technology) and to the progress generated by the implementation of new technology during past years (including energy efficiency gains and return on installations and networks).

Australia.

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Principal Contracts

The following table shows the principal contracts signed or renewed in 20072009 with either public authorities or industrial or commercial companiescompanies.¹.  

¹ Revenues expected under foreign contracts won during 2007 have been converted into euros at the rate of exchange prevailing on December 31, 2007 and represent the portion due to Veolia Eau under such contracts.   Accordingly, these amounts may differ from the amounts announced in earlier press releases.  

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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 20072009

The main acquisition and divestitures during the year include:

On November 28,•

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 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 acquiredreviewed certain economic aspects (financial restructuring) and the governance rules of its partnership with Mubadala Development Company in our operating activities in North Africa and the Middle East. The joint venture, which was formerly fully consolidated, is now under proportionate consolidation due to these changes. This operation resulted in a portion€189 million reduction in Group debt as of the unregulated activitiesDecember 31, 2009;

•

in Morocco, sale of Thames Water an additional 5% stake in Veolia Environmental Services Morocco to AAIF;

•

in the United Kingdom, principally for the provisionStates, sale of services and asset managementthree Enerserve entities operating in the waterCaribbean by Veolia Water North America.

Following the creation, acquisition or consolidation of 36 companies in 2009 and sewage sectors, somethe liquidation, divestiture or transfer of which are financed by19 companies, the Private Finance Initiative (PFI).

In addition, the biological treatment activitiesWater Division (excluding Proactiva) was composed of the Swedish company AnoxKaldnes were acquired and integrated in the second half of 2007.

In late 2007, Veolia Eau acquired the U.S. assets of one of the divisions of the Tetra Technologies Group. which is responsible for the treatment of waste in the petroleum sector.

Veolia Eau created, acquired or integrated 96728 companies during 2007, and liquidated or sold 48 companies. Asas of December 31, 2007, Veolia Eau’s group (excluding Proactiva) included 684 companies,2009 compared to 636711 in 2006.2008. The principal changes includedmain movements in the purchasescope of consolidation include the acquisition or creation of new companies with contractscarrying operating contacts that were effective as of the beginning of 2007.came into effect in 2009.

Environmental Services

Through our Veolia Propreté subsidiary, we are the number one reference in the environmental services division, Veolia Propreté,sector,¹ where we have become the largest environmental services providerare involved in the world (in terms of revenue) 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.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 authorities and industrial clients.  customers.

In 2007, Veolia Propreté once again reinforced its position by acquiring Sulo in Germany and TMT in Italy (now known as VSA Tecnitalia).

In 2007,As of December 31, 2009, Veolia Propreté employed 100,03285,600 people² around the world,¹ in approximately 35thirty-three countries. Veolia Propreté has partneredpartners with more thanover 750,000 industrial and commercial services clientssector customers²³ and serves nearly 60more than 73 million inhabitants on behalf of public authorities.

During 2007,In 2009, Veolia Propreté estimates that it collected nearly 40.643 million tons of waste and treatedprocessed nearly 6662 million tons of waste (of which 61.8 million tons were non-hazardous household and industrial waste and 3.9 million tons were hazardous waste).waste. As of December 31, 2007,2009, Veolia Propreté managed approximately 796861 waste treatmentprocessing units.

The term of Veolia Propreté’s environmental services 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 range from 1one to 5five years, in length, 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).

The following table shows the consolidated revenue

¹

Sources: Internal studies and operating income of our environmental services division, after elimination of all inter-company transactions.Eurostat.

Environmental Services*²

1 AsEmployees managed as of December 31, 2007,2009, including Proactiva’s 6,8507,023 Proactiva employees who are active inallocated to its environmental services activities.   business.

2 ³

The commercial figures providedappearing in this section (in terms of number of clients,customers, number of inhabitants served, tons of wastetonnages collected, etc.) do not take into account Proactiva’s activities,include Proactiva, unless otherwise indicated, but do take into account Sulo for the second half-year of 2007 and Tecnitalia for the fourth quarter of 2007.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 Division, after elimination of inter-company transactions.

Environmental Services*

Overview of Environmental Services

Our Environmental Services Division, Veolia Propreté, furnishes environmentalwaste 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, decontamination, and management of waste discharge at industrial sites.

Veolia Propreté also Downstream, our Environmental Services Division conducts basic or more complex downstream waste treatmentprocessing operations in order to reduce pollution and transform waste 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;

•

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

•

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

•

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:major 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;

•

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;

•

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, Paris, Alexandria, RabatSingapore and Singapore.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 at the sites of its industrial and commercial services clients’ sites,service sector customers, including cleaning of offices and maintenance of production lines. In the commercial services 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 petrochemical sites in particular.petro-chemical 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 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 subsidiary specializing in the management of hazardous waste.

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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 2007,2009, Veolia Propreté collected approximately 40.643 million tons of waste from private individuals, local authorities and commercial and industrial sites. More than 6073 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), as well as dispersed and diffused hazardous waste. In 2007, Veolia Propreté collected approximately 1.9 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

Waste of the same type 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 mix with other recyclable materials.

Veolia Propreté received approximately 910.3 million tons of solid waste at its 307352 sorting and recycling units in 2007,2009, of which 6.17.7 million tons were recovered, including 2.8 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 clientscustomers and with our 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 services clients.

customers.

Waste Recovery and Treatment through Composting, Incineration and Landfilling

In 2007,2009, Veolia Propreté treatedprocessed nearly 6662 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 2007,At its 122 composting units, Veolia Propreté recovered almost 2.3 million tons of waste at its 114 composting units. 235,000 tons ofprocesses urban and industrial sludge, were reintegrated by Veolia Propretépart of which is then re-introduced into the agricultural cycle through manureland spreading, with a related waste traceabilitytracking service offering.offered.

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Incineration and Waste-to-Energy and Incineration

Recovery

Veolia Propreté treats approximately 11.4 million tons of non-hazardous solid waste (consisting mainly of urban waste) per year at its 78operates 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.

Landfilling and EnergyWaste-to-Energy Recovery from Waste

In 2007,2009, Veolia Propreté treated approximately 38.4 million tons ofhad 147 non-hazardous waste in 150 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 160 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 76 landfills85 landfill sites have recovery systems to transform biogas emissions into alternative energies.

TreatmentProcessing of Hazardous Waste

In 2007,2009, Veolia Propreté treated 3.9 million tons of hazardous waste, of which 1.08 million tons were incinerated in 22had 24 incineration units for specialized industrial waste, 759,000 tons were landfilled in70 processing units using physico-chemical and stabilization methods, 14 class 1 landfillslandfill sites and 1.71 million tons were treated in 61 units by physico-chemical or stabilization methods.  The remaining 480,000 tons were treated in 3536 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 in specially designed landfills,processing at specially-designed landfill sites, and physico-chemical treatmentprocessing of inorganic liquid waste.

Through its specialized subsidiaries, SARP Industries and VES Technical Solutions (in the United States), Veolia Propreté has a worldwide network of experts, enablingwhich has helped it to become one of the currenta world leadersleader in treating,processing, recycling and recovering hazardous waste.

Description of Activities in 2007

In 2007, Veolia Propreté’s revenues increased by 23.5% compared to 2006. Excluding exchange rate effects and the effect of acquisitions and divestitures, internal growth was 7.5%.  In France, revenue increased by 7.1% in 2007 (or 6.6% at constant scope) as a result of strong price increases for recycled materials (paper, metals), higher tonnages in the collection and sorting-recycling of solid waste, waste electrical and electronic equipment (WEE) operations and the treatment of polluted soils, the increase in tonnages to landfills and the good level of business activity at incineration plants.  In the United Kingdom, revenues grew 56.4%, or 7.9% for internal growth at constant scope as a result of the expansion of existing integrated contracts (East Sussex and Nottinghamshire) and industrial services (in particular in the petroleum sector).  In the rest of Europe, revenues gr ew 21.6%, or 8.4% at constant scope, driven particularly by momentum in Norway and Denmark.  In North America, organic growth was significant as a result of increased fees relating to solid waste, the Marine Services businesses, the new Pinellas contract and the treatment of military waste at Port Arthur.  South America benefited from short-term contracts in the chemical and petroleum sectors that allowed it to experience marked growth.  A limited number of significant contracts were lost in 2007:  Chennai in India (cleaning), Canca in France (collection in Nice), and Solihull Borough in the United Kingdom (collection).  Among the significant developments in 2007 were the following:

In France, Veolia Propreté reinforced its recycling activities through the acquisition of the Bartin Recycling Group, number 3 in France in the business of recycling and reuse of scrap-metal and metals.  The development of D3E activities continued.  A new treatment unit for hydrocarbons and mineral liquid waste, Hydropale, was opened in Dunkirk.  A ship dismantling unit was created in Bordeaux.  In addition, the Polynesian businesses were sold.

In the United Kingdom, Veolia Propreté, while managing the acquisition and integration of Cleanaway UK, signed a new 27-year PFI (“Private Finance Initiative”) contract for the integrated management of household waste in the county of Shropshire, representing estimated total cumulative revenue of more than €1 billion.

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Description of Activities in 2009

In Europe,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 continuedrapidly implemented a tailored plan to reinforce its commercial position withinadjust costs to activity levels and introduce efficiency measures.

In France, in addition to 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 the incineration business, the kiln void-filling policy and related energy authorization sectors through the acquisitiongood performance of TMTincinerators enabled revenue growth, further driven by the recent Cenon contract signed at the end of 2008. Moderate price increases were achieved in Italy.a low-inflation context, marked by a fall in fuel prices. In Germany, the acquisitionsorting-recycling business, the Ludres high-performance materials recovery facility inaugurated in June 2009, gradually ramped-up activity. Finally, at the end of Sulo enabled Veolia Propreté to reinforce its role2009, the first French pilot unit for the production of biofuel from biogas produced by non-hazardous waste in landfill sites, commenced activity in the recycling sectorGreater Paris region.

In the United Kingdom, revenue fell due to a decrease in Europeindustrial and commercial waste collection and landfill volumes, a downturn in industrial services and the reuseloss of recycled material, especially paper.local authority waste collection contracts (such as the Liverpool contract at the end of 2008). Price increases in the collection and landfill sector helped limit the decrease in revenue. Internal growth also benefited from the new 20-year PFI 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.

In 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 America, Veolia Propreté reinforced its position withinAmerican 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 sector, winning severaland hazardous waste sectors. Major contracts lost in 2009 include the waste collection and processing contracts for the maintenanceNew York City boroughs of Manhattan and industrial cleaning of oil rigs inQueens, the Gulf of Mexico following the expansion of a fleet of specialized boats for this marine branch.  In early 2007, Veolia Propreté won a 17-year contract for the operationmaintenance of green areas in Birmingham, Alabama, and the energy recycling unit in Pinellas County (Florida), one of the largest incineration unitsAirbus industrial services contract in the United States.Kingdom. These contracts represented total estimated annual revenue of €26 million.

In Asia, Veolia Propreté signed a 29-year concession agreement for the construction and operation of a new household waste storage facility for the city of Jiujiang in China.  A 28-year concession agreement for the operation of a medical waste incineration unit was also signed with the city of Foshan.  Lastly, the repurchased Cleanaway businesses were integrated in 2007.

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Principal Contracts

in 2009

The following table shows the principal contracts signed or renewed in 20072009 with either public authorities or industrial or commercial companiesservice sector companies.¹.

¹

Revenues expected under foreignthe contracts won during 2007in 2009 have been converted into euros at the closing exchange rate as of exchange prevailing on December 31, 20072009 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 20072009

OnIn July 2, 2007,2009, 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 Sulo for an enterprise value of €1,450 million, which significantly reinforced its position in the waste management sector in Germany and in Eastern Europe.  Sulo was the second largest operator of waste management in Germany.  It is a leading specialist in paper and plastic recycling and has a high level of expertise in the areas of sorting and organic reuse.  Sulo is also a leader in Eastern Europe and in the Baltic states.  Sulo’s Environmental Technologies divisionNettoyage et Multiservices (VPNM) was sold to Plastic Omniumthe TFN Group. VPNM provides site cleaning services and waste sorting and collection services at sites mainly located in July 2007 for an enterprise value of €142 million.

In addition, on October 3, 2007, Veolia Propreté finalized the acquisition of 75%France. These transactions form part of the share capital of TMT (which has since been renamed VES Tecnitalia),multi-year divestiture program announced by the former subsidiary of Termomeccanica Ecologia in Italy.  Tecnitalia isGroup on March 6, 2009.

Following the leading private thermal waste treatment provider in the Italian market.  It operates ten treatment installations, including four thermal treatment installations, and has numerous contracts, as well as several factories that are currently under construction.

Other less significant acquisitions occurred in 2007.  They are expected to increase Veolia Propreté’s treatment and recycling capacities in Europe, Northern America and in Asia.

Taking into account all formations, acquisitions and integrations of companies (a total of 202) and liquidations, sales, and mergers (a total of 74), 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 753comprised 692 companies atas of December 31, 2007,2009, compared to 625766 in 2006.  2008.

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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 leverageelectrical services on public streets and roads. We seize opportunities foroffered by the development of the energy and greenhouse gas emission reduction markets. Dalkia seeks to partnerjoins forces with its clients,customers, helping them optimize their energy purchases and improve the efficiency of their installations (both in terms of cost and atmospheric emissions).

In 2007,As of December 31, 2009, Dalkia had 54,37552,557 employees in 42 countries around the world. Dalkia is present in almost 40 countries, primarilyworld and particularly in Europe.

The following table shows the consolidated revenue (revenue from ordinary activities under IFRS) and operating income of our energy services division,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 pricesprice of fossil fuels and their eventual scarcity; and

•

growing urban developmentexpansion and the 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 care sector is particularly importantalso of strategic importance to Dalkia: in 2007, it won landmark contracts in that sector, such as Santa Casa de Misericordia in Brazil.Dalkia.

Dalkia provides energy management services to public and private clientscustomers with whom it has formedwhich we form long-term partnerships. Dalkia’s managementManagement contracts for the operation of urban heating or cooling systemsnetworks are typically long-term, lasting up to 25 or 30 years, while its contracts for 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.

When

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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 in orderare combined, wherever possible, to take advantage of the complementary nature of each source. For instance,In the biomass sector, Dalkia considerably stepped-up its development in 2007 Dalkia acquired PannonPower,2009 by virtue of the leading biomass plant in Hungary.innovative services we propose to local authorities.

Heating and Cooling Networks

Dalkia is one of Europe’s leading operators of large “district”urban heating and cooling networks. Dalkia currently manages 700810 urban and district heating and cooling networks worldwide, particularly in the United States, France, the United Kingdom, Italy, Germany, Eastern and Central Europe and the Baltic states. Dalkia does not necessarily own the networks it operates, and in some 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.

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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 commercial services clientsservice sector customers with integrated energy services which includeincluding plant design, construction and improvement, energy supply, and 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 more than 100,000115,000 energy plants throughout the world.