with Peter Spillet
Head of the Environment, Quality and Sustainability for
Interview by CBC Radio's Bob Carty
Reading, UK | Dec. 6, 2002
YOU SERVE ABOUT 50 MILLION PEOPLE AROUND THE WORLD?
That's right. And with the acquisition of American Water
Works, when it comes on board, it gets closer to 70 million.
We were privatized in 1989, so we've grown from 12 million
to 50 million over those 12 years. I would guess our projection
over the next ten years would be to double that. To get
to 150 million.
WHAT LED YOU TO LOOK OVERSEAS SINCE 89?
The water authorities which preceded the private companies,
the re-organization of the UK market really took place
in 1973-4. That brought all the municipality and smaller
water boards together and created 10 large water authorities
based on catchment boundaries. Then in the 80s under Margaret
Thatcher there was a whole series of privatizations of
utilities with the aim of introducing private sector competition.
And water was always seen as quite difficult because it
is basically a monopoly. So when it came in 1989, it was
quite controversial. Since we were monopolies and held
100 per cent of our customers already, the only way to
grow is outside the UK - although there is some limited
competition around the margins. And in fact, the government
did encourage the embryonic water industry to diversity
and many did. And many lost quite a bit of money not sticking
to the knitting. We've been able to expand our sphere
of influence around the world.
WHAT ARE YOUR COUNTRIES OF GREATEST INTEREST AND PRIORITY
You have to look at the historical legacy. I think we
were initially very successful in the Asia-pacific region.
So we have operations in Thailand, Malaysia, Indonesia
and also Australia. So we where we have had some settled
existence, we see some expansion around those centres,
because when you are on the ground, people can come and
see whether it has been a success or not.
And the whole SE Asian market is huge. China is a bit
of a sleeping giant - because for people at the World
Bank there has always been a bit of difficulty regarding
financing issues. They tend to have gotten a bit clearer
just recently. But there you have rapidly expanding populations.
You also have improving lifestyles. So in the main we
are going for drinking water contracts, because people
are wanting access to clean water. But as the population
and the economy improves they also want pollution control
and wastewater services.
So, yes, southeast Asia - the Chinese market. And the
American one. In America 85% is owned by small municipalities,
about 65,000 discrete units, faced with investments in
infrastructure, new standards coming from the EPA, scares
to the public health like crytosporidium, these small
municipalities really can't cope with the level of investment
required. And so some form of public-private partnership
with an injection of capital, with the financial muscle
of large companies like ourselves, is probably I believe
the only way forward.
HOW DO YOU VIEW THE CANADIAN MARKET?
A bit behind the American one, a bit slower, quieter
- but then issues like Walkerton, crypto, concerns about
public health - the same issues that hit the States a
few years ago are hitting the Canadian market.
WHY INVEST IN WATER WHEN THERE ARE HIGHER RETURNS IN
Water is a utility. Utilities are much safer than high
risk ones, computing or whatever. But ironically, water
stocks actually do better than other utilities. So it
has features of being a safe utilities and at the same
time can attract higher dividend and growth rates. The
main reason I would say is you have such a steady market.
There is huge growth potential. We are worried about water
resources in the future, about public access, we think
there will be wars fought over water in the future. It
is a limited precious resource. So the growth market is
always going to be there, and the requirement for higher
standards. So it's a very viable place to put your money.
HOW DO YOU CONVINCE PEOPLE THAT THE PRIVATE SECTOR CAN
DO SOMETHING THE PUBLIC SECTOR CAN NOT.
I happen to think there is nothing wrong with the public
sector - I was involved in it myself. But mainly public
sector reliability is difficult because they are in competition
with their own government's funding for other sectors
like defense, health, education. You can't always guarantee
the investment you need. It is a long-term business, with
assets in the ground for 100 years - you need 20 years
to plan and fill a big reservoir these days. So the single
most important thing to me is provision of capital funding,
which I think the private sector can do better than the
public. Thereafter, because of market pressures we can
do things cheaper than the public sector. So if a country
wants a new waterworks, if it uses private people instead
of public people, on balance we could probably do it quicker
and cheaper. And finally I would say there are more skills
and innovation in the private sector simply because of
competitive things I've been talking about from the market
or regulators. There's nothing wrong with the public sector.
I just think the private sector can do it faster, quicker
and more innovatively.
HOW DOES THAMES VIEW THE ISSUE OF WHETHER WATER IS A
RIGHT OR A COMMODITY.
It is both a commodity and a service, that's the dilemma.
Clearly people do not understand the value of water and
they expect it to fall from the sky and not cost anything.
But if we use an analogy with beer - that's 99 per cent
water, but breweries have added their hops and malt and
it has gone through a lot of processing and the end product
has a lot of added-value and people are prepared to pay
a lot of money for it. In a sense purifying water from
the raw state, then treating it and bringing it to people
and taking it away again is almost the same industrial
product. You have a lot of value-added there and people
if they don't realize it's got a value, and don't pay
for it, don't treat it as a very precious resource. Of
course it is.
At the same time, water is essential for poverty elimination,
you need access to sanitation and two thirds of the world
hasn't got it. You can't treat it exactly the same as
other commodities because it is a vital part of people's
quality of life. Therefore, some form of compromise is
always needed with water and that's why there are all
IS THE RESISTANCE TO PRIVATIZATION INCREASING OR DIMINISHING?
Worldwide I think it's got to be a big issue, tied in
with the trouble we have seen in places like Genoa and
Seattle - globalization. It's a fascinating one, relating
to the growth of multinationals and so on. And you can
see why - it can be especially emotive in the case of
water. And to get over these suspicions we must be able
to explain how we operate, and what we've done and our
CHARACTERIZE YOUR RELATIONSHIP WITH THE WORLD BANK
We talk and with them on a range of issues, including
new forms of funding mechanisms, were we can work together
to alleviate risk. If you talk about the Third World market,
private companies are looking for ways they can leverage
their experience and muscle with organizations like the
World Bank so that their risk exposure is limited and
there are ways of providing finance which satisfy both
the lenders and the client. And we work quite a lot with
them and through various organizations like Global Water
Partnernship, World Water Council, World Water Forum And
there are a number of forums going on at the moment towards
finding the most appropriate financing deal which allows
companies like us to cope with these big issues like affordability
and willingness to pay in many poorer communities.
The World Bank is needed to put the kick-start money
into all these places. But then the companies want to
know they will get a return, even if they themselves are
subsidizing it themselves in some way because of their
expertise or cheaper tariffs or whatever. But the World
Bank needs to have some way of going into these contracts
such that the risk is hedged - that people know they are
going to get a return. So finding the models that satisfy
all the partners is the tricky bit.
THE WORLD BANK ENCOURAGES COUNTRIES TO ACCEPT PRIVATE
PARTICIPATION IN WATER - HAS THAT CONDITIONALITY BEEN
Well, yes. But again it exacerbates the political discussion
you were alluding to earlier. There are some sectors -
unions or whatever - who say this is shocking. Here's
the Bank and big business insisting that the only way
progress is going to be made is conditional on private
participation. This stinks. On the other hand, in my view,
since the only way we'll have progress is with the involvement
of the private sector, then having the big lending institutions
recognizing that and pushing ahead will lead to faster
solutions in the future than otherwise. But then again
you are always going to have that political battle with
different stakeholders about the value of working with
the private sector.