Eau Dear - Brief Article

Caspar Henderson explains how multinational corporations are taking over the world's water supplies - with corruption and ecological destruction the result.

In the majority of urban areas, where more and more of the world's population are concentrating, large networks of supply and disposal pipes are essential if basic water needs are to be met at prices poorer people can afford. Estimates vary wildly, but one suggests that at least $75bn of investment will be needed over the next 20 years just to stop the dire water-supply situation getting worse.

For the last decade or so, privatisation has been touted as the solution to this dilemma. Pro-privatisation propaganda reached a crescendo at the World Water Forum in The Hague in March this year. But, as abuses and inadequacies of commercial control have become widespread and manifest.

THE BOLIVIAN EXAMPLE

In the Bolivian city of Cochabamba this April, the new owners of the previously public water system, International Waters Ltd of London, tried to impose a 35 per cent hike in water prices. But, following demonstrations opposing the rise, in which the police injured around 175 people and killed six, the Bolivian Government revoked its water-privatisation legislation and the company bowed out.

This was a remarkable turnaround. For the last decade, multinational companies and others have urged the worldwide adoption of the 'French model', under which 30-year monopoly concessions are granted to private companies. But actual experience shows that private is by no means best.

PRIVATE ISN'T BEST

Private water, for starters, is not necessarily efficient in terms of cost, as direct cost comparisons between public and private water companies servicing cities in Sweden and England of similar size shows. The Swedish municipal suppliers delivered water at around a third of the cost, had operating costs of about half, and delivered nearly three times higher return on capital than English private companies. In Puerto Rico, Trinidad and Budapest, government authorities recently found serious deficiencies in maintenance, repairs, administration, operation and finance, significant increases in deficit, and unworkable business plans on the part of the French multinational Vivendi, England's Severn Trent and France's Suez-Lyonnaise des Eaux respectively.

Privatisation is supposed to bring the economic benefits of competition. But in the case of water, competition has often been almost non-existent. In the UK, a tough and resourceful regulator has tried to simulate competition since privatisation in 1989 by trying to outguess the companies' costs, and set price limits that would reward efficiency gains. Worldwide however, there is at least as much evidence of collusion, with very few companies dominating the global water market, often operating jointly and restricting works contracts to their own subsidiaries. Worldwide, three private French conglomerates - Vivendi, Suez-Lyonnaise des Eaux and SAUR/Bouygues - control more than 70 per cent of the private market.

In practice, privatisation and corruption have been inseparable. The world's largest water multinationals have been convicted three times of paying bribes to obtain water contracts in France. Subsidiaries of a dozen multinationals - from the UK, France, Italy, Germany, Canada, Sweden and Switzerland - are being prosecuted for paying bribes to obtain contracts in the huge Lesotho Highlands Project.

CORRUPTION

After the overthrow of the Indonesian dictator Suharto in 1998, Thames Water and Lyonnaise des Eaux admitted that the concessions they had negotiated for Jakarta's water supply with consortia involving friends of the dictator were no longer defensible. But the revised contracts have also been bitterly criticised on the grounds that they were never properly advertised, prices to customers are excessive and Suharto's son continues to hold a large equity stake.

Privatisation has frequently been made a condition of loans to developing countries. In 1999, Mozambique was forced to privatise its water and sanitation as a condition for the provision of $117m by the World Bank to improve water services and as one of the conditions for extending the country's debt relief. SAUR, a subsidiary of Bouygues, expects revenues of around $9m a year from the deal.

ENVIRONMENTAL DESTRUCTION

Environmental protection has also suffered directly from privatisation. In 1998, a major disaster occurred in Puerto Rico, whose water system is managed by Vivendi. Residents are suing the multinational for allowing a reservoir to overfill so that it burst during the hurricane. In Britain, many privatised companies have been convicted of numerous pollution offences. Increasing numbers of privatised water schemes are linked to ventures to abstract more water through vast dams and reservoirs. Private operators are getting involved in bulk water supply schemes with 'take or pay' contracts, which guarantee profits by requiring consumption regardless of need.

The 'politburo of privatisation', a close-knit club of top figures from water companies and multilateral agencies, tried to foist a new water order on the world at the World Water Forum in The Hague this spring with a global 'Framework for Action' which allocated no significant role to the public sector or local water provision. But thanks in part to joint statements from unions, environmentalists and NGOs at the Forum, these emperors were exposed as having no clothes.

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