* EEW of interest to several companies, including Chinese
* Unusually for China, state firms may bid against each other
* Beijing seeking ways to tackle growing refuse problem
* German company valued at $1.6-2.1 billion
By Denny Thomas and Arno Schuetze
HONG KONG/FRANKFURT, Nov 17 (Reuters) - At least three Chinese state-owned enterprises are bidding for a German waste management company, underscoring China's desire to acquire advanced technology to tackle a growing refuse problem, people familiar with the matter told Reuters.
The rare bidding war between government companies is also a sign that China is giving greater freedom to its state-owned enterprises (SOEs), as part of President Xi Jinping's reforms of the country's sprawling government entities.
Chinese state-backed Beijing Enterprises Water Group Ltd , China Everbright International Ltd and Beijing Capital Group are among the suitors who have submitted initial bids for Energy from Waste (EEW), the people added.
It is Europe's market leader in energy-to-waste and valued at 1.5-2 billion euros ($1.6-$2.1 billion), they said.
If successful, the deal would mark China's biggest outbound M&A in the sector in about 16 years, according to Thomson Reuters data.
China had set a target to spend about $16 billion between 2013 and 2016 to improve sewage disposal and garbage treatment, according to domestic media reports.
Swedish buyout firm EQT put the company up for sale after taking full control of the waste-burning power producer, Reuters reported in September.
It is currently drafting a vendor due diligence report, reviewing the tentative offers and will soon shortlist several bidders, with a view to signing a deal in early 2016, the sources familiar with the process added.
Heavy Chinese interest and competition among state companies for an overseas asset comes as the government struggles to cope with an acute environment and waste recycling problem.
China needs top notch waste management technology to convert the enormous amounts of refuse the world's most populous country generates.
"EEW has state-of-the-art emissions control technology and also employs a very efficient garbage collection management system," one person familiar with the company said.
Waste treatment and recycling has emerged as one of China's biggest challenges as it tries to tackle pollution and ease pressure on its depleted and contaminated water and soil.
Government researchers have estimated that as much as 7 billion tonnes of waste is buried around China's major cities, and the capital Beijing is now surrounded by a belt of landfill sites known disparagingly as the "seventh ring road".
To ease the problem, China aims to convert 30 percent of its rubbish to electricity by 2030, up from less than 5 percent now. However, plans to build waste-to-energy power plants have routinely been opposed by residents alarmed at pollution risks.
EEW has long-term contracts for accepting waste and for delivering energy, process steam and heat. Like grids or pipelines, it generates stable returns, making it attractive to waste management companies.
EQT hired Morgan Stanley to run the sale process and the asset is being heavily marketed in Asia, the people said.
Beijing Enterprises, Beijing Capital and China Everbright are working with international banks on the deal, the people added. Last year, Beijing Capital paid almost $800 million to buy New Zealand's biggest waste management firm.
Separately, German utility Steag and Macquarie Group's infrastructure arm have put in a joint bid, as have several infrastructure groups, the people added.
EQT, Steag, Macquarie, Morgan Stanley and China Everbright International declined to comment. Beijing Enterprises was not available for comment, while Beijing Capital Group did not provide an immediate response.
EEW has a 17 percent market share in Germany and operates around 20 plants, with two-thirds of its sales coming from accepting garbage and the rest from selling energy.
About 10 percent of the waste is imported from other countries, mainly the United Kingdom.
In 2015, EEW is expected to post earnings before interest, taxes, depreciation, and amortisation of 180 million euros, the sources said. (Additional reporting by David Stanway and Matthew Miller in BEIJING; Editing by Mike Collett-White)