THE WATER PRIVATEERS

from the booklet

Blue Gold

The global water crisis and the commodification of the world's water supply

A Special Report issued by the International Forum on Globalization (IFG)

by Maude Barlow
National Chairperson, Council of Canadians
Chair, International Forum on Globalization (IFG) Committee
on the Globalization of Water

WATER FOR SALE

Just at the time governments are backing away from their regulatory responsibilities, giant transnational water, food, energy and shipping corporations are lining up to take advantage of the world's water shortage, acquiring control of water through the ownership of dams and waterways; the development of new technologies such as water desalination and purification; control over the burgeoning bottled water industry; the privatization of municipal and regional water services, including sewage and water delivery; the construction of water infrastructure; and water exportation.

'Water is the last infrastructure frontier for private investors," says Johan Bastin of the European Bank for Reconstruction and Development. Tragically, water is also the last frontier of nature and the commons.

The Globe and Mail of Canada states that privatizing water looms as the national mega-industry of the next decade, with potential investment in the tens of billions of dollars. "Water is fast becoming a globalized corporate industry." In May 2000, Fortune magazine stated that, in a world fleeing the vagaries of technology stocks, water is the best investment sector for the century. The World Bank places the value of the current water market at close to $1 trillion; however, with only 5 percent of the world's population currently getting its water from corporations, the profit potential is unlimited.

The world of privatized water is overwhelmingly dominated by two French transnationals. Suez Lyonnaise des Eaux (which built the Suez Canal and had 1999 profits of $1.5 billion on sales of $32 billion) and Vivendi SA are referred to as the General Motors and Ford Motor Company of the water world. Both are ranked among the 100 largest corporations in the world by the Global Fortune 500. Between them they own, or have controlling interests in, water companies in over 120 countries on five continents, and distribute water to almost 100 million people in the world.

Suez's CEO, Gerard Mestrallet, says that he wants to take a page from his country's past and develop in his company the philosophy of "conquest" as Suez moves into new markets around the world. Suez is more than just a water company. According to Fortune, "its a fresh invention ...a diversified utility that offers cities a full range of infrastructure services, from water and sewer to trash collection, cable TV, and electric power." The company, which projects an annual 10 percent expansion of its water business, has just signed its first major business contracts in China, which Mestrallet says "will be a prime market at the onset of [this]century."

Both Suez and Vivendi are vying for the lucrative U.S. market, estimated to be the world's largest with annual revenues at $90 billion. New U.S. Iaws have opened the way to greater private sector involvement in the U.S. water supply and treatment business. Until now, this sector has been almost exclusively controlled by small public-sector operators. Now these companies are poised to promote the massive privatization of the American water market. In 1999, Suez paid $1 billion for United Water Resources and bought two major water treatment chemical producers, Nalco and Calgon, for $4.5 billion. In the same year, Vivendi purchased U.S. Filter Corp. for more than $6 billion in cash, giving the new company a projected revenue of $12 billion in annual sales. Vivendi also owns 42 percent of Air and Water Technologies (AWT).

Another French company, SAUR, owned by the construction company, Bouygues, is also emerging in a number of countries. The Spanish transnational Aguas de Barcelona is active in Latin America, and Great Britain's Thames Water and Biwater are acquiring water concessions in Asia and South Africa. United Utilities of Britain has joined up with the American construction and engineering giant, Bechtel, to promote privatization schemes in North and South America.

Recently, a number of large pipeline and energy and electricity companies have entered the water field, promising great stock profits from what they are calling "convergence"-the prospect of a single company carrying natural gas, water and electricity to millions of customers on a for-profit basis. General Electric has joined forces with the World Bank and investment speculator George Soros to invest billions of dollars in a "Global Power Fund" to privatize energy and water around the world, according to the Guardian Weekly.

U.S. energy giant Enron, having acquired Wessex Water PLC of Britain, is bidding for huge contracts against the established players for newly privatized water services in Bulgaria, Rio de Janeiro, Berlin and Panama under its new water division, Azurix. The RWE Group, Germany's largest electricity producer, is also emerging as a major player in water and wastewater services.

A POOR TRACK RECORD

The privatization of municipal water services around the world has a terrible track record. Since water services were privatized in France, customer fees have increased by 150 percent. The government of France also reports that the post-privatization drinking water of over five million people was contaminated. For most of the past decade, French magistrates have been investigating allegations of corruption against executives of the two major French water companies who have been convicted on three occasions of paying bribes to obtain water contracts in France.

Public Services International (PSI) reports that in England, between 1989 (the year water was privatized) and 1995, there was a 106 percent increase in the rate charged to customers, while the profits of the companies increased by 692 percent. The salary of the highest paid director of North West Water, for example, increased by 708 percent. As a result of these price hikes, the number of customers who have had their water disconnected has risen by 50 percent since privatization. British water corporations have been among the worst environmental offenders in the U.K. Between 1989 and 1997, Anglian, Severn Trent, Northumbrian, Wessex (a subsidiary of Enron) and Yorkshire were successfully prosecuted 128 times.

Furthermore, privatization is almost always accompanied by lay-offs. In Great Britain, the private companies fired almost 25 percent of the work force, approximately 100,000 workers, when they acquired rights to the water system. In December 1999, when companies were ordered by the government to make price cuts, they announced thousands of further layoffs, even though they were enjoying wide profit margins. In central Europe, private water companies reduced the work force of seven cities (whose rights they acquired) by 30 percent in just a few years. In Sydney, Australia, after the Water Board was privatized, thousands of workers lost their jobs and prices for consumers almost doubled in four years.

When water is privatized, the public often loses its right to access information about water quality and standards. A furor erupted when it was discovered in the summer of 1998 that the water supply of Sydney, Australia, now controlled by Suez Lyonnaise des Eaux, contained high levels of the parasites giardia and cryptosporidium and that the public had not been informed of the problem when it was first discovered.

In Ontario, Canada, the government introduced what it called a "Common Sense Revolution." Key to this "revolution" were massive cuts to the environment budget, the privatization of water testing labs, the deregulation of water protection infrastructure, and massive lay-offs of trained water testing experts. In fact, in 1999, just after a Canadian federal government study revealed that a third of Ontario's rural wells were contaminated with E. coli, the Ontario government dropped testing for E. coli from its Drinking Water Surveillance Program and, a year later, closed the program down entirely.

The results were catastrophic. E. coli outbreaks in a number of communities sent waves of panic through rural Ontario. In June 2000 at least seven people, one of them a baby, died from drinking the water in the small town of Walkerton. The town had subcontracted to a branch plant of a private testing company from Tennessee. The lab, A&L Laboratories, discovered E. coli in the water, but failed to report the contamination to provincial authorities, an option it has under the new "common sense" rules. A lab spokesman said that the test results were "confidential intellectual property" and, as such, belonged only to the "client" -the public officials of Walkerton who were not trained to deal with the tests.

WORLD BANK IN THE LEAD

The story in the non-industrial world is far worse because international financial institutions such as the World Bank and the International Monetary Fund are aggressively promoting the privatization of water. As Public Services International explains, the policies of these institutions distort nations' choices by imposing water privatization as a condition of loans and debt relief, financing water transnationals in preference to efficient public enterprises, and selling water utilities to reduce national debt.

World Bank-sponsored water privatization projects promote monopolies and protect rampant corruption and bribery and are often negotiated entirely in secret. The agreements are considered "intellectual property" and the public has no access to their terms. Collusion with dictators such as Indonesia's Suharto are too frequent. The Bank often puts up the lion's share of the investment while the company takes home the profits. Suez promised to invest $1 billion to privatize the water system of Buenos Aires, but only put up $30 million; the rest came from a World Bank agency.

When water is privatized, prices are set on the open market. Says Suez Director During, "We are here to make money. Sooner or later the company that invests recoups its investment, which means the customer has to pay for it." The result in the Third World is that millions of poor people are paying exorbitant prices for water, while others have been cut off. Because the companies are motivated by profit and not public service, they have no incentive to supply the poor with affordable water.

For example, in India, some households pay a staggering 25 percent of their income on water. The water system of Manila, in the Philippines, was divided by the World Bank into two zones in 1997, each run by a separate consortium. One consortium included Bechtel, the other, Suez Lyonnaise des Eaux. Only months into the new arrangement, these consortiums sharply raised customer rates, contrary to their proclaimed intention to keep rates low, to compensate for revenues lost due to the regional currency crisis. A year later, Biwater Plc. corporation increased water rates in Subic Bay in the Philippines by 400 percent.

Labor activists in South Africa have been threatened with legal action by British transnational Biwater for criticizing the company on the Internet. The activists charge the company with poor water management practices and with being involved in the British arms-for-aid scandal in the 1 980s, a fact documented by the British House of Commons' Foreign Affairs Committee. The South African Municipal Workers' Union says that Biwater is trying to stave off public criticism in the hopes of gaining the first private water contract in South Africa's history.

The union's position is firm "Water privatization is a crucial issue for public debate. Human lives depend on the equitable distribution of water resources; the public should be given a voice in deciding whether an overseas-based transnational corporation whose primary interest is profit maximization, should control those critical resources...Water is a life-giving scarce resource which therefore must remain in the hands of the community through public sector delivery. Water must not be provided for profit, but to meet needs."

The privatization of water is wrong on many counts. It ensures that decisions regarding the allocation of water center almost exclusively on commercial considerations. Corporate shareholders are seeking maximum profit, not sustainability or equal access. Privatization means that the management of water resources is based on the principles of scarcity and profit maximization rather than long-term sustainability. Corporations are dependent on increased consumption to generate profits and are therefore much more likely to invest in desalination, diversion or export of water than in conservation.

Further, the global trend to commodify what has been a public service reduces the involvement of citizens in water management decisions. Private water projects brokered by the World Bank, for example, have minimal disclosure requirements. A water corporation executive at the March 2000 World Water Forum in The Hague, said publicly that as long as water was coming out of the tap, the public had no right to any information as to how it got there. The concentration of power in the hands of a single corporation and the inability of governments to reclaim management of water services allows corporations to impose their interests on government, reducing the democratic power of citizens.

Pro-privatization advocates argue that they are seeking private-public partnerships, and give assurances that governments will still be able to establish regulations. However, because the provision of water services itself does not provide sufficient return, water corporations are increasingly seeking exclusive control over water service provision through acquisitions of infrastructure and water licenses and closing the loop around public involvement. In early 1999, when the government of Ontario announced the break up of the public utility, Ontario Hydro, into three new private companies, it also made public its intention to eliminate access to information laws.

In their support for large-scale project financing, the World Bank and others give preference to large multi-utility infrastructure projects that favor the biggest corporations, leading to monopolies against which local suppliers cannot compete. To add insult to injury, the World Bank is underwriting these giant corporations with public money, and often incurs the risk, yet the private company reaps the profit. And often governments, supposedly representing their people, have to assure a return to the shareholder. For example, Chile had to guarantee a profit margin of 33 percent to Suez Lyonnaise des Eaux as a World Bank loan condition-regardless of performance.

Most disturbing, the close alliance between governments, the World Bank and the water companies gives these corporations undue influence over government policies, such as deregulation and free trade, and preferred access to upcoming water contracts that favor their interests. The stated goal of the World Bank water loan to Budapest was to "ease political resistance to private sector involvement." In the Philippines, the water corporations can appeal government decisions and actions against them to an international arbitration panel appointed by the International Chamber of Commerce.

These World Bank-backed contracts gone so far that they now actually contain a form of "democracy insurance." A recent contract between this Azurix corporation and the Argentine government guarantees cash payment for "expropriation" if a future government changes its mind and wants to bring water services back under public control.

WATER WAR

In 1998, the World Bank refused to guarantee a $25 million loan to refinance water services in Cochabamba, Bolivia, unless the government sold the public water system to the private sector and passed the costs on to consumers. Bolivia, one of the poorest countries in the world, finally acquiesced. Only one bid was considered, and the company was turned over to Aguas del Tunari, a subsidiary of a conglomerate led by Bechtel, the giant San Francisco engineering and construction company.

In December 1999, before making any infrastructure investments, the private water company, Aguas del Tunari, announced the doubling of water prices. For most Bolivians, this meant that water would now cost more than food; for those on minimum wage or unemployed, water bills suddenly accounted for close to half their monthly budgets, and for many, water was shut off completely. To add to the problem, the Bolivian government, prompted by the World Bank, granted absolute monopolies to private water concessionaires, announced its support for full-cost water pricing, pegged the cost of water to the American dollar and declared that none of the World Bank loan could be used to subsidize water services for the poor. All water, even from community wells, required permits to access, and even peasants and small farmers had to buy permits to gather rainwater on their property.

The selling-off of public enterprises such as transportation, electrical utilities and education to foreign corporations has been a heated economic debate in Bolivia. But this was different; polls showed that 90 percent of the public wanted Bechtel out. Debate turned to protest and one of the world's first "water wars" was launched.

Led by Oscar Olivera, a former machinist turned union activist, a broad-based movement of workers, peasants, farmers and others created La Coordinadora de Defensa del Agua y de la Vida (the Coalition in Defense of Water and Life) to "de-privatize" the local water system. Between January and early February, 2000, hundreds of thousands of Bolivians marched to Cochabamba in a showdown with the government, and a general strike and transportation stoppage brought the city to a standstill. Police reacted with violence and arrests and in early April 2000, the government declared martial law. Activists were arrested during the night; radio and television programs were shut down in mid-program. A 1 7-year-old boy, Victor Hugo Danza, was shot through the face and killed.

Finally, on April 10, 2000, the directors of Aguas del Tunari and Bechtel abandoned Bolivia, taking with them key personnel files, documents and computers and leaving behind a broken company with substantial debts. Under popular pressure, the government revoked its hated water privatization legislation. With no one to run the local water company, Servico Municipal del Agua Potable y Alcantarillado (SEMAPO), the government handed water services over to the work force of SEMAPO and the people, complete with debts.

The people accepted the challenge, and set out to elect a new board of directors for the water company and to develop a new mandate based on a firm set of principles. The principles stated that the company must be efficient, free of corruption, fair to the workers, guided by a commitment to social justice (providing first for those without water), and it must act as a catalyst to further engage and organize the grassroots.

The first act of the new company was to operationalize a huge water tank in the poorest neighborhoods, establishing connections to 400 communities that had been abandoned by the old company. Then the company established an active presence in the neighborhoods, listening to the people and working with them to solve problems. In Summer 2000, La Coordinadora organized its first public hearings on SEMAPA to begin a public process on building a broad, consensus-based definition of what the company must become, and received many proposals from civil society.

The company has also taken a strong stand against any compensation to Bechtel for its "losses." Bechtel is suing the government of Bolivia for close to $40 million at the World Bank's International Court for the Settlement of Investment Disputes. It is claiming "expropriation" rights under a t992 Bilateral Investment Treaty (BIT) that Bolivia signed with Holland. Bechtel, an American company, must have sensed the conflicts in Bolivia brewing. In late 1999, it moved its holding company for Tunari from the Cayman Islands to Holland, thereby gaining the right to sue South America's poorest country.

While the Bolivian government has officially said it will fight this challenge, there are those in the government who feel it best to pay Bechtel its compensation to prove that Bolivia is ready for economic globalization and will be a "good" global player in the WTO. There is a real concern that the government of Bolivia is now in secret negotiations with Bechtel to settle that dispute out of court.

In the early months of 2001, a very disturbing pattern of surveillance, infiltration, harassment and physical attacks against members of La Coordinadora emerged. It is widely understood that both La Coordinadora and SEMAPA have powerful enemies in the echelons of power in the Bolivian and state governments. A failure on the part of the citizens to run their own water company could be used as a warning to others around the world who stand up to water privatization and the power of the World Bank.

HIGH-TECH WATER GUZZLERS

Similar water conflicts are growing in the computer industry, where big corporations are claiming unfair shares of local water supplies. Computer manufacturers use massive quantities of de-ionized freshwater to produce their goods and are constantly searching for new sources. Increasingly, this search is pitting giant high-tech corporations against economically and socially marginalized peoples in a battle for local water sources.

Electronics is the world's fastest-growing manufacturing industry, according to the Silicon Valley Toxics Coalition. Giants such as IBM, AT&T, Intel, NEC, Fujitsu, Siemans, Phillips, Sumitomo, Honeywell, and Samsung have annual net sales exceeding the gross domestic product of many countries. Originally thought to be a "clean" industry, high-tech has left a staggering pollution legacy in its short history. In 1980, the U.S. Congress set up the Superfund program through the EPA to locate, investigate and clean up the worst sites in the nation. Presently, the Silicon Valley has more EPA toxic Superfund sites than any other area in the U.S. plus more than 150 groundwater contamination sites, many related to high-tech manufacturing. Close to 30 percent of the ground water beneath and around Phoenix, Arizona, has been contaminated, well over half by the high-tech sector.

There are currently about 900 semi-conductor manufacturing plants, or fabrication facilities (fabs) making computer wafers (used for computer chips) around the world. Another 140 plants are now under construction. These plants consume a staggering amount of water. For example, Intel Fab, a software company located on the high desert near Albuquerque, New Mexico, is permitted to use nearly 6 million gallons (18 million liters) of water per day, or enough to supply a small town. At this rate (including the new plants under construction) the industry will be using over 500 billion gallons ( 1,500 billion liters) of water and producing over 100 billion gallons (300 billion liters) of waste water each year. Much of the new construction for high-tech manufacturing is in water-poor countries or in the desert, but as local activists say, 'Water flows uphill to money."

The question is: where will the water come from? The Southwest Network for Economic Justice and the Campaign for Responsible Technology explains "In an arena of such limited resources, a struggle ensues between those who have traditionally enjoyed these resources and those newcomers who look at these resources with covetous eyes."

High-tech companies are engaging in mechanisms to capture traditional water rights water pricing, whereby industry pressures governments for subsidies and circumvents city utility equipment to directly pump water, thus paying much less than residential water users pay for water; water mining, whereby companies gain rights to deplete the aquifers while driving up the access costs to smaller users such as family farmers; water ranching, whereby industry buys up water rights of ranches and farmers; and waste dumping, whereby industry contaminates the local water sources and then passes the costs on to the community.

Despite increasing industrial demand, conservation programs aimed at ordinary people are not applied to industry. "While some residents tore out their lawns last year [ 1996] to save water," the Albuquerque Tribune wrote of a city conservation project, "it poured with increasing volume through the spigots of industry." While residents had to decrease their use by 30 percent, Intel Fab was allowed to increase its use by the same amount. In addition, Intel pays four times less than the city's residents for its water. Perhaps the most disturbing trend, however, is the deliberate destruction of a local pueblo traditional acequia-a collective system of agricultural water distribution-to feed the voracious appetite of the high-tech giants.

Under the new commercial system, water is separated from the land it belongs to and transported great distances; this is anathema to the local indigenous ways. Says John Carangelo, a mayordomo of the La Joya Acequia Association, "In New Mexico, where the total finite supply of water is allegedly fully appropriated, the location of a high-tech industry is dependent on the purchase of existing water rights. This high demand for water and their vast financial resources makes water a valuable commercial product." He warns that water trading could hollow out rural America.

Local sources, however, will clearly not be sufficient to meet industrial needs, given the aquifer depletion taking place in many high-tech-intensive areas. The companies are starting to look farther afield within their own countries or abroad for new sources of water; the global trade in water provides a possible new source. Given the rapid growth of high-tech companies in the non-industrial world, particularly China, it is entirely possible that current bulk water exports are being negotiated to feed the voracious water appetite of the global technology industry.

Blue Gold

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