The Giants of Water

who will buy the world’s
melting glaciers?
RWE, Vivendi, & Suez

Editor’s note: Although only about 5% of the world’s water resources are privatized, this is up from practically nothing only ten years ago, and the scale of this transfer of ownership is huge. World water withdrawals annually run a whopping 3,300 cubic kilometers, and usage is highly correlated to income. As the world industrializes, water withdrawals will increase far beyond current levels. Meanwhile much of the water infrastructure in the developed world was completed decades if not hundreds of years ago and is in acute need of overhaul, and water infrastructure in the developing world is either non-existent, or has not begun to keep pace with rapid population growth. Governments, always strapped for cash, have no idea how to fund overhaul and new construction of facilities to supply and treat water and resultant waste-water. Water markets and water privatization is undoubtedly part of the solution, but public dialogue has only just begun as to the pros and cons of this approach, and where to draw the line.

RWE Logo

San Francisco. – Not only in Europe, but also in the USA, more and more cities and communities suffer from a deficiency of public funds. As a result, American mayors are finding it expedient to have their cities’ municipal infrastructure upgrades (or at least their maintenance and operations) taken over by private firms.

After the extensive deregulation of the American energy market in the nineties, the municipal water supply and treatment facilities seem to be the next sector for privatization. It is just dawning on many Americans that many of their municipal waterworks are being operated by private European companies. These cross-national municipal water operations are being contracted throughout the world.

Suez’ new water subsidiary

The global market leader of the companies comprising the new water giants is the French firm Suez Lyonnaise (its water subsidiary is now called ONDEO), whose history actually dates back to the
investor group that built the Suez canal. Suez is followed by the French
company Vivendi-Environment, an off-spring of Vivendi-Universal, the world’s second largest media and entertainment conglomerate (since acquired by Veolia Environmental). Third is Germany’s RWE. Since aquiring Britain’s Thames Water and the USA’s American Water Works, RWE operates water-facilities in at least 44 countries of the world.

These three European firms have achieved market dominance in America in a short three years: in 1999 Suez bought the American provider United Water, for only a billion dollars. United Water furnishes drinking water to – among other places – Atlanta, Milwaukee and even the capital Washington D.C. Also in 1999 Vivendi bought the largest American water provider, U.S. Filter for more than 6 billion dollars. In the last year the German firm RWE has also delved into the American market. RWE first bought the British provider Thames Water, giving RWE the necessary market-insight and contacts to then buy American Water Works for about 6 billion dollars. At that time American Waterworks was the largest independent American water provider. RWE now operates water companies in at least 27 US states.

Lexington, Kentucky’s “FLOW” wants
local ownership of waterworks

Gradually however, resistance in the USA to the European water-giants is growing. For example,the city of Lexington, Kentucky, has already expressed the wish to repurchase its local water facilities, owned by American Water Works (Germany’s RWE). Recently citizens established an initiative, titled FLOW (For Local Ownership of Waterworks). FLOW is backed by the former Governor of Kentucky, Edward T. Breathitt. “Public ownership of water works is vital”, says Breathitt, who deliberately fans old anti-German sentiment as he describes the RWE-campaign as a “propaganda-blitz.”

The biggest problem for RWE, however, is the terrible image and dubious record of their British subsidiary Thames Water. According to a report by the BBC in October 2002, the water pipeline networks of Thames Water in Great Britain have so many leaks that the water quantity lost each day would easily cover the daily requirements of a city with 2.5 million inhabitants. The firm is also a notorious environmental offender: in 1999 the British Environmental Agency levied eight separate rulings against Thames Water, more than were ruled against any other firm in the country.

Former Kentucky
Gov. Edward Breathitt
“local ownership is vital”

Not only RWE is experiencing pressure, also Suez is expected to have difficulty with their further expansion into the USA. For instance, city officials of Atlanta, Georgia, have accused Suez of breach of contract after the firm failed to deliver the promised drinking water and service quality within the guaranteed time. In late January, Atlanta deciced to retake control of its waters system that Suez/United Water was contracted to manage until 2019. “Many of the private water providers have totally underestimated the overhead when they presented their original contract offers,” says Peter Gleick, president of the Pacific Institute in Oakland, California. The Pacific Institute is a think-tank that focuses on the security and policy effects of water scarcity. “With municipally operated water works you at least have the advantage that the collected money remains in the community,” says Gleick, “in privately operated water works, on the other hand, the profits leave the community and sometimes even the country.”

The original openness of many American communities to trust the promises of the multi-national water firms is however understandable: according to estimates by the US Environmental Protection Agency, the communities of the USA must invest approximately 150 billion dollars over the course of the next twenty years in order to renovate the corroded infrastructure of their water supply systems. In addition, to renew America’s municipal sewage cleaning systems, the EPA estimates a cost of 460 billion dollars. To meet this challenge, hiring an internationally active water services firm with more expertise, experience and synergies, seemed a better idea than leaving the job to each municipal water works. However, now that the American media has discovered the strategies of Europe’s water giants, the further expansion of RWE, Suez and Vivendi Environment into the American water market will become more difficult.

Despite this recent apparent setback in the US, Suez and Vivendi remain in control of approximately 70 percent of all privatized water supply systems worldwide, most of them in developing countries.

About the Author:

Wolfgang Harrer is a U.S. correspondent for Germany’s leading nationwide
daily newspaper, DIE WELT. Since 1999 he has been reporting about media,
business and technology affairs of the West Coast of the USA. His weekly
column, “Der Silicon Valley Reporter,” is Germany’s most read periodical
about this innovative region. This article has been translated from the
German version which originally appeared in DIE WELT.

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