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Interview with Peter Spillet
Head of the Environment, Quality and Sustainability for Thames Water
Interview by CBC Radio's Bob Carty
Reading, UK | Dec. 6, 2002
03/26/03

 

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 OTHER SECTORS?

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 these debates.

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 track record.

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 USEFUL?

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.

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