Great Lakes Water
Privatization: Monopolies on the Local Water Front
Posted 08/30/ 2002
By Sheila R. Cherry
For most Americans opening
a tap to receive fresh, clean water is as basic as a flush
toilet. But the nation's water and wastewater infrastructures
are aging, creating an opportunity for multinational corporations
that have recognized the profit potential for buying up
cash-strapped municipal utilities.
Many cities, counties and townships are turning to giant
conglomerates that promise to pick up the tab for renovating
and/or operating outdated water utilities in exchange
for a guaranteed profit under monopoly authority. These
arrangements are called "build-own-transfer" or "build-own-operate"
When a local government cannot provide its citizens with
safe, clean water, outside help is welcomed. But with
large foreign-based multinational corporations increasingly
acquiring U.S. utilities there is concern lest Americans
find themselves as dependent on foreign ownership of water
as they are on foreign oil. And critics of utility privatization
charge that multinationals that win utility concessions
sometimes transfer debt burdens from other subsidiaries
to their utility divisions and then on to the utility
Moreover, even the World Bank is singing the multinationals'
tune. A World Bank white paper — "Private Capital in Water
and Sanitation" — puts in writing the new emphasis of
the World Bank and the International Monetary Fund (IMF)
on utility privatization as a condition of badly needed
financial assistance for developing countries. As critics
long have noted that these entities tend to favor government
rather than private solutions, it is surprising that the
"Private capital and initiative can help accomplish operational
efficiency and investment objectives if two stringent
requirements are met: (1) projects must generate revenues
that cover operating costs and debt-service payments,
and earn a competitive rate of return on equity, and (2)
risks that are internal (for example, construction and
operation) and external (for example, regulatory and foreign
exchange) to a project must be identified and clearly
allocated to the parties that are in the best position
to mitigate them. With their own capital at risk, lenders
and investors have strong financial incentives to ensure
that a project is built on time and within budget, and
is operationally efficient."
World finance favors the giant multinationals. And some
of them seem to be into almost everything these days.
It's hard to imagine that the same corporation that produces
Oscar-quality dramas such as A Beautiful Mind and Erin
Brockovich also bottles Seagrams beverages while collecting
water bills and hauling sewer sludge. But France-based
Vivendi Universal does, and it says of its water unit
in its annual report for 2000: "Revenues generated outside
France now represent almost 58 percent of total revenues,
with 19 percent derived from the United States."
Vivendi and major diversified European utilities slowly
have been acquiring private utilities in the United States
and other industrialized nations. They are purchasing
access to an established water market, effectively adding
to holdings in developing nations acquired from their
IMF/World Bank connections.
According to Vivendi's annual report, with operations
in all major regions of the world, its environmental group
provides integrated services that include water (Vivendi
Water), waste management (Onyx), energy services (Dalkia)
and transportation (Connex). All involve intimate relations
with government regulators.
And they are doing it with approval from local governments
— and, in most cases, without the knowledge of residents.
As one U.S. official admitted, if people today are mad
about high cable-TV fees, then imagine what will happen
(and in some parts of the world already has occurred)
when water monopolies start turning the screws on the
price of access to water.
But not all local-government officials are willing to
turn their water utilities over to multinational monopolies.
New Orleans City Council Chairman Jim Singleton is pushing
a referendum to let voters decide whether to put water
consumers in the same category as cable-TV subscribers.
"It is time for our city's elected officials and leadership
to stand up during this privatization process. We cannot
let this flawed process and 'mad' rush to to privatization
continue. Clean water is one of the largest assets that
our city owns and we should not sit idly by while a few
parties simply give one of our most basic resources away,"
he said in a statement.
Some may ask why this is so important. Consider Vivendi
Universal — which also has acquired such media footholds
as Universal Studios, record company Polydor Inc. and
a host of telecommunications subsidiaries — is the majority
shareholder of Vivendi Environment. Vivendi Water, a division
of Vivendi Environment, claims to be the world's No.1
water-sector provider. "Vivendi Water delivers drinking
water and manages wastewater collection and treatment
facilities for over 110 million people worldwide through
the outsourcing of municipal-utilities management," the
As such, the Vivendi Website explains, "Through USFilter,
Vivendi Water is the United States leader in industrial
outsourcing of process and wastewater treatment."
Vivendi Environment, the annual report says, "holds water,
as well as waste management, energy and transportation
operations." Its subsidiary Onyx is the third-largest
waste-management company in the world, serving through
monopoly contract more than 70 million people, and is
the only worldwide operator with the capacity to deliver
the full range of waste-management services.
Another subsidiary, Dalkia, is a leading European company
in energy services, managing more than 250 district heating
networks and supplying 40,000 industrial, commercial,
residential and local authority customers with integrated
energy-management services (industrial utilities and maintenance
services), according to the company. Once more the business
is contracted monopolies legalized through government.
In November 1999, BusinessWeek suggested that Vivendi
itself was at risk of being an acquisition target. In
its international edition, market analysts warned that
the corporation's acquisition strategies were increasing
its debt burden, to the point of prompting Standard &
Poor's Corp. to downgrade its long-term credit rating.
But what's a little debt between multinational friends?
Especially, say critics, when one is contracting for legalized
monopolies. Another French energy, water and waste conglomerate,
Suez Lyonnaise des Eaux, touts its mission as "delivering
the essentials of life" to the 110 million consumers it
provides with water-related services.
In August 2000, U.S. Water News Online reported that Suez
"completed the acquisition of United Water Resources Inc.,
the second-largest private water-services company in the
U.S., in an all-cash transaction valued at $1.02 billion.
Following the acquisition by its largest shareholder,
United Water Resources became a wholly owned subsidiary
of Suez Lyonnaise des Eaux."
According to its annual report for 2000, Suez also won
global water-management monopolies in Santiago, Chile;
Manaus, Brazil; and Johannesburg, South Africa, during
2000, adding more than 14 million new "customers" to its
service base. "With its 100th contract won in China during
the past year, the Group has now secured a major role
on this continent where it has built a full 10 percent
of that area's total water-treatment capacity," it states.
The annual report gives a glimpse of how attractive the
legalized monopoly of water management has become. "The
municipal water market remained very active in 2000,"
the company reports. "Over 38 million people saw their
water-management needs partially outsourced to a private
German utility giant RWE boasts on its Website: "Right
now, we're your source of power-supply and energy-related
services; in the near future, you can count on us for
a full-service lineup for your four walls: gas, water,
a power-outlet approach to the Internet, e-services in
According to Hoover's, the business-profile publisher,
RWE now is the parent company of Thames Water, the largest
water company in the United Kingdom. It serves some 12
million people in London, the Thames Valley and Scotland,
and is "the world's third-largest provider of water and
wastewater services [after Vivendi Environment and Suez],
serving about 31 million people in Europe, Asia, Australia,
Africa and the Americas."
Moreover, according to the Financial Times, RWE has purchased
American Water Works (AWW), the largest publicly traded
U.S. water company, which RWE reportedly plans to merge
with its Thames Water division. Added to the $4.6 billion
purchase was AWW's $3 billion in debt.
World Bank analysts use Argentina and Malaysia as model
examples of developing countries on the forefront in "privatizing"
water-service monopolies. But inquiries to a well-connected
source in Argentina raise questions about what is going
on there. An Argentine executive of a waterworks and sanitation
business tells Insight what happens to privatized services
when a government faces financial problems, such as Argentina's
recent governmental collapse.
"It is possible that many of the privatized services will
find their way back to municipal or provincial hands,
due to the fact that it is an area that needs large investments,
and in this moment of [Argentina's financial] crisis it
is hard to do that for two reasons: because the fees are
fixed and the investments promised, in large part, are
quoted in dollars, which have become expensive," the executive
"The financial-economic equation did not add up before
the devaluation, and the services are about to collapse,"
the executive continues. "There are many cases in which
people have stopped paying for their water and spend their
money on food or other essential goods such as medicine.
The [Argentine] Supreme Court has ruled that water service
cannot be cut if the customer has not paid due to a need
to cover other pressing needs."
The central government may have to pay off the companies
as part of a liquidity bailout from IMF and the World
Bank. But for some of Argentina's water customers, their
collapsed government may be compounded by woes of their
utilities, forcing the sale of still more monopolies to
"In Mendoza province the operation is done by the Azurix
company, which is associated with Enron," our insider
source notes. "Azurix paid an excessive price for the
$438 million concession, as the second-highest bidder
offered only $115 million. From the beginning there were
problems, as the promised investments were not made and
the services stipulated in the contract were not made
available. There were a lot of customer complaints in
many of the jurisdictions where their service was used."
And now the challenges and benefits of "privatized" water
are coming to the United States. Alex Tsybine, an analyst
with Public Citizen, complains that sale of utility monopolies
to the multinationals often brings problems here as well,
including high utility rates, poor service, closed-door
contracts and, sometimes, governmental corruption.
Tsybine says Cadiz, a British agricultural company, has
purchased land in the Mojave Desert in California and
now is trying to offer the water from the underlying aquifer
for sale to the Metro-politan Water District of Southern
California (MWDSC). Serving Los Angeles, San Diego and
Orange County, the MWDSC is the largest public water district
in the United States, accor-ding to Public Citizen.
The aquifer underlies federal lands that the Department
of the Interior is supposed to protect. Its depletion
likely would threaten the Mojave National Preserve. At
the same time, according to Tsybine, Cadiz Chief Executive
Officer Keith Brackpool has become the leading water adviser
and a confidant of California Democratic Gov. Gray Davis.
Tsybine points out the nearly $200,000 in campaign contributions
for Davis from Brackpool in both personal and company
Public Citizen is not the only entity wary of cozy relationships
between private companies seeking water monopolies and
concessions and government officials who can sign contracts
that are kept secret as proprietary corporate information.
Some relationships have proved too cozy.
According to a Center for Responsive Politics (CRP) report
called The Big Picture: The Money Behind the 2000 Elections,
the French utility and communications conglomerate Vivendi
Universal (Seagram & Sons) was among the top 100 contributors
to federal candidates and political parties in the 2000
elections. Vivendi and its officers, employees and their
families gave 60 percent of its $1.8 million to Democrats.
Similarly, CRP also records that Vivendi was among the
top 50 soft-money donors, with Democrat organizations
receiving slightly more than half of the conglomerate's
$1.17 million in donations.
But sometimes the private/public quid pro quo crosses
the line from merely influential to illegal. According
to a Department of Justice (DOJ) release, a subsidiary
of Aqua Alliance, a Vivendi water-treatment company, admitted
bribing a New Orleans Sewage and Water Board (S&WB;) member
in return for favorable treatment, including a glowing
endorsement for efficiency.
An Environmental Protection Agency (EPA) financial-advisory
board in 1998 outlined the contract operations. In it,
EPA officials pointed out that the New Orleans S&WB; was
having difficulty meeting environmental restrictions,
its operating costs were increasing, "and the plant's
main-tenance program could not keep pace with the repair
requirements for the aging East Bank facility."
As a result, the EPA report continued, "the S&WB; contracted
with Professional Services Group (PSG) in 1991 to operate,
maintain and manage the East Bank and West Bank Sewage
Treatment Plants for a five-year term. PSG operations
have saved the S&WB; an average of $1.1 million annually."
As part of the "lessons learned," the government officials
concluded that "the key to a successful privatization
is having a well-defined contract with a reputable firm."
Maybe so, maybe not.
According to a plea agreement Houston-based PSG entered
into with DOJ three years later, from June 1993 through
October 1996 company officials provided legal services
and cash payments of more than $70,000 to the New Orleans
official in charge of researching the privatization procurement
The company pleaded guilty to bribing the city official
to influence and reward her for supporting its subsidiary's
business interests with the Sewer and Water Committee,
which she chaired. In exchange, the DOJ reported, the
city official agreed to recommend "that the Board renew
PSG's contract to operate New Orleans' water system for
five years rather than the one year called for in the
original contract, thereby potentially locking PSG into
the lucrative New Orleans market."