UPDATE 1-China blames France's Veolia for tap water pollution

By Sui-Lee Wee BEIJING (Reuters) - China has blamed French utility Veolia Environnement for "supervision problems" in its water quality standards after authorities said a cancer-inducing chemical had been found in tap water supplied by the firm at 20 times above national safety levels, state media said on Wednesday. The reading of benzene in the tap water in the northwestern city of Lanzhou was taken on Friday, forcing the city to turn off supplies in one district and warn other residents not to drink tap water for the next 24 hours. Lanzhou, a heavily industrialised city of 3.6 million peoplein the northwestern province of Gansu, ranks among China's mostpolluted population centres. Investigators looking into the incident found "there weresupervision problems within Veolia Water Company related towater quality and safety", China National Radio said on itswebsite, quoting a Lanzhou government spokesman speaking at anews conference. The spokesman did not elaborate. The Lanzhou government and executives from Lanzhou VeoliaWater Co, a local unit of Veolia, could not be reached forcomment. Veolia France was not available for comment. The Lanzhou government's complaints come on the back ofrising scrutiny of foreign companies by Chinese state media. Thegovernment and state media have taken a series of firms to taskon issues ranging from pricing to alleged poor quality productsand shoddy customer service. Lanzhou Veolia Water Company's deputy general manager, YanXiaotao, said there was no late reporting of the benzene spikeor cover-up, Xinhua reported. Lanzhou Veolia Water Co ismajority-owned by the city government, with Veolia China, a unitof Veolia Environnement, holding a 45 percent stake. The government has already blamed a crude oil leak from apipeline owned by a unit of China National Petroleum Corp. forthe presence of benzene. The Chinese government has not said whether it has opened an investigation into CNPC. PetroChina, the listed unit of CNPC, has denied media reports that it is to blame for the leak. A PetroChina official, who declined to be named due to the sensitivity of the matter, said the company had been cooperating with the investigations. "The investigations showed that there is no PetroChina-operated pipelines that are close to the tap water production areas, no leaks were found, and no abnormal emissions," the official said. "All PetroChina facilities are operating normally." (Additional reporting by Li Hui, Chen Aizhu and Geert De Clercq; Editing by Kenneth Maxwell)