27 AUGUST 2002: IT’S
WATER FOR PROFIT.
As Multinationals Run the Taps, Anger
Rises Over Water for Profit
By JOHN TAGLIABUE
SAN ISIDRO DE LULES, Argentina
When Jorge Abdala’s water bill jumped to 59 pesos a month from 24 a few
years ago, he went looking for someone to blame. He soon found his villain:
a French multinational company at the forefront of a global effort to privatize
government-run water systems.
a soft-spoken 54-year-old, scarcely seems the revolutionary. Scrambling
for a living like most of his neighbors in this sprawling town tucked up
under the Andes, he runs a meager catering business out of his kitchen.
protests Mr. Abdala organized here forced the company, now known as Vivendi
Environnement, to abandon its long-term contract to overhaul and manage
the waterworks of the Tucumán Province, where Mr. Abdala and roughly
one million other Argentines live.
main demand was, simply, `Go home!’ ” he said, shifting to the edge of
his seat in the living room of his simple one-story home. “We kept presenting
facts showing that they were not making any investments, just raising the
price of water. And any investments they made were with government money.”
numbers of people have also demonstrated in Bolivia, in Ecuador, in Panama,
in South Africa and elsewhere in a vivid illustration of how highly charged
the economics of water have become. At issue is this question: should water,
a substance close to life itself, be a profit-making business?
in Tucumán continues today as the province struggles to find a new
company to operate its aging water system. The reaction is still being
felt by the big European concerns that dominate the world water business
and the Western aid institutions that support privatization.
corporations own or operate water systems across the globe that bring in
about $200 billion a year. Yet they serve only about 7 percent of the world’s
population, leaving a potentially vast market untapped. Protesters are
determined to limit that market.
have heartened the companies’ critics, mainly environmentalists who oppose
globalization, but also consumer groups and labor unions. They all object
to private enterprise making a profit on water.
is a resource essential to life,” said Hannah Griffiths, of Friends of
the Earth, an environmentalist group based in Britain. “Decisions about
allocation and distribution should be democratic and based on everyone’s
fundamental right to a clean, healthy supply.”
agree. Some argue that unless water is treated as an increasingly precious
commodity and priced to reflect its value particularly for heavy users
like farmers and factories much of it will be wasted.
often takes more money than some governments are willing or able to spend
to improve the systems that deliver fresh water to cities and towns around
the world, especially to the poor.
allowing private enterprise to manage or own many of the world’s water
systems help overcome those problems? And will it expose the poor to impossibly
high water bills?
inability of public utilities in the developing world to provide clean
water is one of the strongest arguments in favor of privatization.
general rule, they’re heavily overstaffed, provide poor quality, are unwilling
or unable to invest, with not enough money to serve everybody,” said John
Briscoe, senior water adviser at the World Bank in Washington, referring
to public utilities.
enterprise appears to be no panacea. Here in Tucumán, Vivendi’s
critics say that the company recklessly pursued the contract in order to
break into the market and that most of the problems it encountered were
of its own making.
Pedinoce de Valls, a former state’s attorney in Tucumán, Vivendi
failed to recognize how strongly people feel about tampering with the substance
essential to sustaining what has long been a dusty region noted for its
citrus fruit crop.
she said, “is a gift from God.”
Barbaroux, the president of Vivendi’s water business, agreed but only
up to a point.
Mr. Barbaroux said, “but he forgot to lay the pipes.”
More Water, but No Sewers
When water filled the cellar
under Basilio Sajnik’s pizzeria in downtown Lomas de Zamora, a sprawling
suburb of Buenos Aires, he, too, looked for a culprit.
Mr. Abdala, he found a leading French multinational. That company, Suez,
along with Vivendi has led the push to privatize water management.
Suez signed a 30-year contract to manage the water around Buenos Aires.
Lomas, a sprawling low-slung city of 600,000 on the capital’s southern
edge, is home to many of the 2 million people that Suez provided with water
for the first time.
company was slower to install sewers. Now the cellar under the three-family
building that houses Mr. Sajnik’s pizzeria is permanently flooded. A pump
runs seven days a week.
the third pump I’ve purchased, yet nobody pays me for the electricity”
Mr. Sajnik, 58, said recently as he waded in dirty water almost to the
top of his knee-high boots.
Suez brought to the neighborhood produced so much runoff that the water
table rose, causing streams of sewage to trickle along curbs and flood
cellars, even in the driest of seasons. In summer, the stench is overwhelming.
So far there have been no outbreaks of sickness, but the threat to public
health is constant.
go to court, but it is too slow, and the powerful always win,” Mr. Sajnik
said. “They say it’s nature, and what can you do about nature?”
executives blame Argentina’s financial crisis instead of nature. Jacques
Petry, chief executive of Ondeo, the water division of Suez, explained
in Paris that Suez’s original investment plan foresaw the installation
of sewers. But the collapse of the Argentine peso has frozen the work.
Suez, he said, supports a program to provide 1,500 pumps to the area.
time being, said Jean Bernard Lemire, the new chief executive of Suez’s
Argentine affiliate, spending has been reduced to the essentials: paying
wages, buying chemicals and energy, and basic maintenance.
that renegotiating the original contract, which has already been modified
dozens of times, mocks the original agreement.
our competitors can say, `Under those conditions, we could have won the
contracts, too,”‘ he said. But he added, “We cannot forecast on a 30-year
basis; we have to be flexible.”
Suez says it is proud of its accomplishments in Buenos Aires. It modernized
treatment plants that were once on the verge of collapse, and efficiently
runs a fleet of more than 1,000 repair trucks. Billings are now computerized.
And except for the first eight months, when Suez lost $23 million, it has
been highly profitable.
Azpiazu, director of research at the Latin American School of Social Sciences
in Buenos Aires, accuses Argentina’s political leadership of cynically
permitting the public utilities to deteriorate so that voters would embrace
1992 survey, he said, 82 percent of Argentines questioned had favored privatization.
In the haste to privatize, however, regulatory bodies and oversight authorities
were rarely installed.
early phase, a regulatory agency was not in place,” said Abel Fatala, the
engineer in charge of public services in the municipal government of Buenos
Aires. “When it did start up, it was made in the image of the water company.
The concrete result was that there was no control at all.”
A Vast Market Gap to Fill
By 2025, as the world’s
population grows to eight billion, the United Nations expects the number
of people suffering from an inadequate supply of clean water to grow to
five billion from the current two billion.
potential to make money by filling that gap has prompted several large
multinationals like Vivendi and Suez to target what they see as a lucrative
market for the future.
for privatization germinated decades ago after the World Bank unsuccessfully
tried to fix the public water supply system in Manila. Despite five repair
attempts over the years, water loss was as high as 64 percent.
we realized that without a change in incentives some very logical, sensible
things this was not working,” said Mr. Briscoe, of the World Bank said.
still say it is unrealistic to expect private companies, whose main responsibility
is to their shareholders, to assume the financial risk of supplying water
to portions of the world’s population that may not be able to afford it
in the first place.
are betting that the business of water will boom in coming decades. “This
is a $200 billion market, growing at a 6 percent rate annually, in terms
of population,” said Hans Peter Portner, a fund manager at Banque Pictet
in Geneva who handles the bank’s Global Water Fund. He predicts that privatized
water systems will expand to serve about 17 percent of the world’s population
by 2015, up from 7 percent now.
with the Europeans, the American company with the biggest international
business in the field, Bechtel, whose directors include former Secretary
of State George P. Shultz, is a novice. Another American company, Azurix,
a unit of Enron, collapsed before its parent did.
leaves the field mostly to the French giants, Vivendi Environnement and
Suez. Last year, almost half of Vivendi Environnement’s $26 billion of
revenue came from water; roughly one quarter of Suez’s $38 billion in revenue
was generated by the water division, Ondeo.
dominance is now challenged by a third global player, Thames Water P.L.C.
of Britain. Thames rose, after Margaret Thatcher privatized water services
in Britain in 1989, by swallowing up smaller British competitors. In 1999,
it agreed to a $9.8 billion takeover bid from the big German utility RWE
European companies have spent lavishly expanding in the United States.
This year, Thames acquired American Water Works, the American market leader,
for $7.6 billion. It was playing catch-up to Suez, which spent $6 billion
in 1999 to buy United Water Resources and Nalco, a maker of chemicals for
water treatment. Earlier that year, Vivendi acquired the U.S. Filter Corporation
for almost $8 billion.
are pouring in. This year, both Suez and Vivendi signed long-term deals,
some for up to 50 years, to manage municipal water systems in China, which
faces huge water shortages. In Central Europe, cities like Warsaw and Budapest
are struggling to upgrade their water systems to meet the standards of
the European Union, which Poland and Hungary are expected to join within
the next few years.
executives recognize the need for oversight. “It’s always a difficult decision
to ask a private water company to manage such an essential service,” said
Gérard Mestrallet, the chief executive of Suez, in his Paris office.
“It is your duty to demonstrate that the arrival of the private sector
brings something concrete.”
their hurry, the companies often underbid to get a foot in the door, with
prices that fail to take account of the full cost of upgrading old and
inefficient water systems. Contracts are therefore regularly renegotiated.
often means that parts of the contract, like obligations to provide sewers
to go with water distribution, are cut or scaled back, sometimes causing
environmental difficulties. The situation in Lomas de Zamora is a pungent
illustration of the point.
charge that it is all part of corporate strategy. If the project doesn’t
make money, the critics say, the companies cry for renegotiation, threatening
to leave otherwise.
Moreover, there is an inherent contradiction
in many of the efforts to privatize water systems, particularly those in
Municipalities award those contracts in part to shift the investment risk
to the private sector. Often, however, the private contractors commit little
of their own capital, relying instead on the municipalities themselves,
private lenders like banks, and international development organizations
like the World Bank or regional development banks.
In South Africa, for example, 80 percent of the money for a recent water
development project came from the Development Bank of South Africa. In
Peru, 100 percent of the money for a similar project originated at the
Interamerican Development Bank.
Given those flaws, opponents, many representing nongovernmental organizations
that have becoming increasingly involved in development issues, contend
that the role of private companies in delivering water supplies should
be sharply limited, confined to simply building things like treatment plants
for public entities.
has to be a public good,” said Mr. Azpiazu, of the School of Social Sciences.
“It cannot be a predator business, in which you stay for a few years, make
your money and leave.”
America, most water remains publicly managed. Yet many municipal systems
are old and inefficient, and competition to take them over is intense.
Indianapolis, Atlanta and Milwaukee are among the city water services licensed
for management and operation to the European giants. In March, Suez landed
a 10 year, $4 billion contract to mange the water system of Puerto Rico.
executives muse about the billions of dollars modernization of the old
and dilapidated water works of great metropolises like New York might one
Uniting Against Vivendi
After Suez landed its lucrative
30-year contract to manage the water system in Buenos Aires, Vivendi decided
to jump in. It bid aggressively for the similar contract in Tucumán
Province, even after four other bidders dropped out.
rates continued to rise, Mr. Abdala joined other consumer leaders from
all over the province in calling for a payment strike. Vivendi’s collection
rate in Tucumán, which rose to 70 percent after it reorganized bill
collecting, plummeted to 10 percent.
Vivendi employees sought to shut off a nonpaying customer’s water, Mr.
Abdala and other protest organizers sent demonstrators who stood on manhole
covers and blocked access to the water mains.
lived in a permanent state of mobilization,” Mr. Abdala recalled.
1996, after manganese deposits, always present in the local water, became
so great that tap water ran the color of cola, popular anger translated
into large-scale demonstrations against Vivendi. Local officials blamed
the ineptitude of Vivendi’s French engineers; Vivendi suspected sabotage.
summer of 1998, Vivendi was losing almost $3 million a month in the province,
and it unilaterally canceled the contract. One month later, Tucumán
Province pulled out of the deal as well. Vivendi then sued Tucumán
before a World Bank tribunal, but lost.
province is starting from scratch. Water engineers sent from a neighboring
province to run the system have cut jobs at the water utility, to 500 from
850. A regulatory agency is being established to prepare for a new contract
later this year.
know what company will invest here,” said José Cuneo Verges, a former
government official who is working on the project. “Yet we want to show
that Tucumán is ready.”
is why Mr. Abdala is still on the case.
takes it over must have good ties to us,” he said. “We want the participation