|From Christian Science Monitor...
Headline: Privatizing water: A glass half empty?
Byline: Brad Knickerbocker Staff writer of The Christian Science Monitor
From that cooler outside your office door filled with "mountain spring
water" to the single faucet supplying many villages in Africa and Asia,
water is seen around the world as an essential right for rich and poor
alike. If not free - like the air we all breathe - it's at least
outside the normal realm of commerce. At least that's been the general
perception among most societies and governments.
Increasingly, that view is changing as water and the means of providing
it are becoming economic commodities. Private companies own and operate
water systems around the world, with annual revenues estimated at $300
billion. In the United States, water systems in Atlanta, Milwaukee,
Houston, Jersey City, Indianapolis, New Orleans, San Francisco, and
other cities have been at least partially taken over by corporations,
some of them foreign-owned.
Fortune magazine has predicted that water "will be to the 21st-century
what oil was to the 20th." Indeed, Texas oilman (and corporate raider)
T. Boone Pickens now heads Mesa Water Inc., which has water rights
covering more than 150,000 acres of the massive Ogallala aquifer.
Many governments, along with such international development agencies as
the World Bank and the International Monetary Fund, believe
privatization of water supplies - tying them to the marketplace - is a
good thing, bringing with it greater economic efficiencies and surer
supplies to water-needy areas along with profits. And that's seen as a
good opportunity for investors wanting to link up with a product that
by its nature has potentially an eternal market.
"Today, Western Europe's water management is almost 40 percent
privatized; in the US it's 15 percent," says Philip Rohmer, comanager
of a global water investment fund launched earlier this year by Swiss
"By 2015, we think Europe will reach 75 percent privatization, and the
US 65 percent," Mr. Rohmer told TheStreet.com recently. "So there's
huge growth there."
Still, there are growing concerns about the trend, just as there have
been about the privatization of energy markets in the wake of the Enron
debacle. (The link between water and power generation is not as tenuous
as it might seem. One water marketing company - called "Azurix" - was
an Enron consortium of limited partnerships and interlocking
"There is little doubt that the headlong rush toward private markets
has failed to address some of the most important issues and concerns
about water," warns a recent report by the Pacific Institute for
Studies in Development, Environment and Security. "In particular, water
has vital social, cultural, and ecological roles to play that cannot be
protected by purely market forces."
"Part of the problem is that there are few formal guidelines and, in
most cases, inadequate public oversight," says Peter Gleick, president
of the research institute, based in Oakland, Calif.
The South African experience
In South Africa, for example, researchers at the University of
Witwatersrand report that every month in Johannesburg more than 20,000
people lose domestic water service because of rising costs which
critics tie to privatization.
Selling water - or the rights to water - has a long history,
particularly in the American West. In the drought-impacted Klamath
Basin of northern California and southern Oregon, farmers and
conservationists are working on a deal whereby farmers would be paid
$2,500 an acre during dry years not to use irrigation water which would
then be "banked." The result could benefit endangered fish and wildlife
in nearby refuges and rivers.
Europe's private systems
But these days, the controversy over providing water to individuals has
reached a much larger scale. And in this case, the history of
privatization goes back much further in Europe.
"France has a very different view than the rest of the world regarding
water, and that goes back to Napoleon," says Mr. Rohmer, the global
water investment fund manager. "Water management has been privatized
for a long time there, with old companies like Vivendi Environment and
Suez Lyon Eaux [which dates back to construction of the Suez Canal]
involved in water management."
Vivendi Environment reportedly has 110 million customers in more than
100 countries, and Suez Lyon Eaux claims 115 million customers in 130
countries. Britain privatized its water system in 1989. (When Margaret
Thatcher was prime minister.)
"Water is generally considered to be a free good," Rohmer adds. "But
it's not, it's an economic good - somebody has to pay for it
The question now for a growing number of American communities is
whether the economics of providing water should remain under local
government control or be contracted out to private for-profit firms.
As in other parts of the world, the picture here is mixed. After
control of Atlanta's water system was contracted out to the American
subsidiary of a foreign firm, customers complained of cuts in service,
billing problems, and a decline in water quality. What would have been
a big agreement between a private water-marketing firm with land and
water holdings in the Mojave Desert and the Metropolitan Water District
of Los Angeles fell through recently. Opponents (led by US Sen. Dianne
Feinstein) warned that it might "very well result in serious adverse
impacts to California's pristine desert."
Nonetheless, there are efforts in Congress to encourage privatization
of water systems. One bill would require that municipalities seeking
federal funds to upgrade such water systems consider privatization.
Some advocate regulation
In its recent report "The New Economy of Water," the Pacific Institute
makes several recommendations for privatizing water-supply systems and
infrastructure: Guaranteeing water for all those in the service area,
including subsidies for the poor; maintaining government regulation and
oversight; and ensuring that "negotiations over privatization contracts
[are] open, transparent, and include all affected stakeholders."
Global water providers appear to be hearing that message. Recognizing
the problems with privatization, Suez Lyon Eaux CEO Gerard Mestrallet
suggested earlier this year that water system infrastructures should
remain under public control with companies such as his providing the
delivery service. "Cooperation between the private sector and the state
is the best solution to manage water," he said.
(c) Copyright 2002 The Christian Science Monitor. All rights reserved.