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The privatisation of water

Jon Luoma

1st March, 2004

The privatisation of global water services means billion-dollar profits for corporations and pollution, disconnection and soaring prices for consumers

Even before the water turned brown, Gordon Certain had plenty to worry about. With his neighbourhood in the southern US city of Atlanta in the middle of a growth boom, the president of the North Buckhead Civic Association had been busy fielding complaints about traffic, a sewer tunnel being built near a nature reserve, and developers razing tidy but modest 1950s-era houses to make room for new mini-mansions.

But nothing compared to the volume of calls and emails that flooded Certain’s home office in May 2002, when the state of Georgia’s environmental protection agency issued an alert to North Buckhead residents: their tap water, the agency warned, wasn’t safe to drink unless it was boiled first.

Some neighbours, Certain recalls, had just given their babies their baby formula when they heard the alert. ‘I had parents calling me in tears,’ he says. ‘The things that have happened to the water here have sure scared the hell out of a lot of people.’ A month later, another boil-water alert came; this time when Certain turned on his own tap the liquid that gushed out was the colour of rust, with bits of brown debris floating in it.

In fact, all manner of complaints about municipal drinking water from all over the city had been pouring into the office of Atlanta’s mayor Shirley Franklin. Only a couple of years earlier, United Water – a subsidiary of the giant French conglomerate Suez - had taken over the municipal system and promised to turn it into an ‘international showcase’ for public-private partnerships. But instead of ushering in a new era of trouble-free drinking water, Atlanta’s experiment with water privatisation brought an avalanche of problems – from violations of federal drinking-water standards to major water-mains leaks that went unrepaired for weeks. (United, meanwhile, was insisting that the city paid it millions of dollars more for its services than had originally been agreed.)

By January 2003, after a month’s long investigation and threats by the mayor to cancel the contract, United had ‘voluntarily’ withdrawn from what had become more of an international debacle than a showcase. The debacle in Atlanta might have been a relatively trivial incident if Suez (and a handful of other private water utilities that competed for the contract) hadn’t seen the city as a beachhead in their attempts to turn water delivery into a hugely profitable business in both rich northern and poor southern economies.

From Bolivia to Ghana to the Philippines, from the UK to the US and Canada, a rapidly consolidating for-profit water industry has been attempting to capture a household drinking water ‘market’ that, until recently, had been viewed in most parts of the world not as a cash cow for private corporations but as a public service.

Multinational companies now run water systems for 7 per cent of the world’s population, and analysts say that figure could grow to 17 per cent by 2015. Private water management is estimated to be a $200 billion business, and the World Bank, which has encouraged governments to sell off their utilities to reduce public debt, projects it could be worth $1 trillion by 2021.

The potential for profits is staggering: in May 2000 Fortune magazine predicted that water is about to become ‘one of the world’s great business opportunities’, and that ‘it promises to be to the 21st century what oil was to the 20th’.

Tapped for cash

No one disputes that much of the world’s drinking water supply systems are woefully inadequate, and that an already troubled situation only promises to worsen. In a world with soaring populations and declining supplies, the UN has forecast that global per capita water availability could decline by as much as one third within only two decades.

Already, a fifth of the world’s population – 1 billion people – have no access to safe drinking water and only inadequate stores of water for cooking, bathing and basic sanitation. In the cities of the developing world, antiquated, often colonial-era water systems are no match for booming populations.

Dr Peter Gleick, president of the US-based Pacific Institute for Studies in Development, Environment and Security, has pointed out that ‘half the world’s people fail to receive the level of water service available to many in the cities of ancient Greece and Rome’. But will going private making things better? Entities such as the World Bank and the IMF appear to think so. They now routinely use their loan-granting power to pressure developing nations to privatise public services, including water delivery, in the hope that forcing government services into the private sector will lead to more faithful repayment of development loans. Companies like Suez and its primary competitors Vivendi and RWE Thames Water promise to use their expertise to build infrastructure and delivery systems in exchange for guaranteed profits on their investment.

In more developed nations where infrastructure is already in place, contracts often take the form of ‘public-private partnerships’ (as in Atlanta), with the local government continuing to own the plumbing, the pumping and filtering stations and other facilities, and the corporate partner merely managing it all. Advocates of privatisation insist that private businesses are inherently more efficient, that for-profit companies can more easily generate financing and that water delivery is just another saleable commodity.

To Gerard Payen, the executive who developed Suez’s programme for worldwide corporate expansion in the water industry, it’s a simple free-market proposition: ‘We purify water, and bring this water to your home. We provide a service. It has a cost, and somebody has to pay for it.’

That however, is the rub. Under corporate control, water fees inevitably rise, pushing those least able to pay them to try to make trade-offs between their water and other basic needs, including food, clothing, medicine and ‘extras’ like education. Yet whatever privatisation’s merits or demerits, the trend is already clear: in 1990 private water companies operated in only 12 nations; by the early 2000s, that number had grown to 100.

So, should water, a basic necessity for human survival, be controlled at all by for-profit interests? And if it should, can multinational companies actually deliver on what they promise – better service and safe, affordable water? Already, the two largest players in the industry, Suez and its fellow French corporation Vivendi, manage water for 230 million people – mostly in parts of Europe and, to a smaller extent, the developing world. Now the water corporations are seeking access to the vast and still untapped global markets that remain public entities. In the US 85 per cent of households still get their water from public utilities.

In general, water quality is excellent, and the costs of running most municipal water systems remain modest. Yet Atlanta is not the only US city where corporations and their political supporters have been pushing hard for privatisation. New and often controversial privatisation efforts have recently been promoted in cities that include New Orleans, Laredo in Texas and Stockton in California. Water companies have been conducting industry ‘by-ins’ to Washington, to press their legislative agenda with Congress, lobbying for laws that would protect companies from lawsuits over contaminated water and which would block municipalities from reversing failed privatisations.

The US’s National Association of Water Companies has pushed for a bill that would require cities to ‘consider’ privatisation before they can tap federal funds for upgrading or expanding public utilities, and which would also subsidise any such privatisation deals. At the municipal level the lobbying pressure is equally intense, with water companies actively courting local officials and spending hundreds of thousands of dollars supporting privatisation in local referendums.

‘It’s hard for local guys to turn these companies away,’ former Massachusetts water commissioner Douglas MacDonald has said. ‘They’re everywhere, with arms like an octopus.’ In the UK a massive water privatisation programme was pushed through by the Conservative Party at the end of the 1980s. The 10 regional water authorities of England and Wales were turned over to private companies in 1989. Henceforth, the reasoning went, the efficiency of private markets would lead to great improvements to an aging, inefficient water system. The harsh realities of market forces notwithstanding, the government sweetened the deal by absorbing several billion pounds of existing water authority debt, offering tax exemptions on future corporate profits, and selling the businesses at bargain prices.

‘The greatest act of licensed robbery in history’

But privatisation advocates can hardly point to the UK as an example of smooth transition to for-profit water delivery. Prices rose by nearly 50 per cent in inflation-adjusted terms in less than a decade, and disconnection rates also soared.

The new industry’s response to the public outcry over the health perils of disconnecting people’s water was to install special pre-payment meters at the homes of those at risk of non-payment. When a household was unable to pre-pay, the meters automatically shut off its water supply. Meanwhile, water quality steadily deteriorated, and stories began to appear in the press about the lavish bonuses the new water companies were awarding to top management. As early as 1994 the Daily Mail opined that the water companies had become ‘the biggest rip-off in Britain’. ‘Water bills,’ the tabloid said, ‘have soared, and the directors and shareholders of Britain’s top 10 water companies have been able to use their position as monopoly suppliers to pull off the greatest act of licensed robbery in our history.’

Most observers agree that the situation in the UK has improved notably since the Labour government pushed through changes to water legislation in 1999. Pre-pay meters were eliminated and sharp restrictions on disconnections introduced. A new Office of Water Services now regulates the industry, and it has insisted upon new investments in infrastructure along with rate reductions of about 12 per cent. Yet the questions remain, how and why can highly regulated monopolies be more economically ‘efficient’, or do as much public good, as properly run and regulated public agencies answerable to democratically elected officials?

Nor is the industry’s record any more encouraging in other parts of the world. Developing world cities with private water-management companies have been plagued by lapses in service, soaring costs, corruption and worse. In Manila, where the water system is controlled by Suez, San Francisco-based Bechtel and the prominent Ayala family, water is only reliably available for a few hours a day, and rate increases have been so severe that the poorest families must choose each month between paying for water and two days’ worth of food.

In 2001 the government of Ghana agreed to privatise local water systems as a condition for an IMF loan. To attract investors, the government doubled water rates, setting off protests in a country where the average annual income is less than $400 a year and the water bill (for those fortunate enough to have running water) can run upwards of $110. In Cochabamba, the third-largest city in Bolivia, water rates shot up by 35 per cent after a consortium led by Bechtel took over the city’s water system in 1999; some residents found themselves paying 20 per cent of their income on water.

An initial round of peaceful street protests led to riots in which six people were killed. Eventually, the Bolivian government voided Bechtel’s contract and told the company’s officials it could not guarantee their safety if they stayed in town. Privatisation has also spawned protests (and, in some cases, even dominated elections) in Paraguay, where police turned water cannons on anti-privatisation protesters, Panama, Brazil, Peru, Colombia, India, Pakistan, Hungary and South Africa.

In the US the Atlanta debacle appears to have been a major industry setback. ‘Atlanta was going to be the industry’s shining example of how great privatisation is,’ says Hugh Jackson of the Washington-based consumer advocacy group Public Citizen. ‘And now it’s turned into our shining example about how it maybe isn’t so great an idea after all.’ Peter Gleick is a bit more sanguine, suggesting that, with careful oversight, private operators may be able to provide such otherwise unavailable benefits as access to investment capital – particularly in the developing world. But he cautions: ‘Water privatisation is not about competition. These are long-term monopoly contracts. This isn’t free enterprise, or a competitive market.’

Gleick also points out that if governments are so dysfunctional that they cannot run efficient water systems they are also poor candidates for overseeing privatisation: they would be ill-equipped to prevent mismanagement or outright corruption. Conversely, he says: ‘We already know that good governments can run good public water utilities.’ ‘At least when you have public utilities,’ he adds, ‘the money they take in stays in the community. With the private companies, the profits are going to go out of your community‚Ķ and probably out of your country, too.’

Jon Luoma writes for Mother Jones magazine

This article first appeared in the Ecologist March 2004

 

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