UNIVERSITY OF PENNSYLVANIA - AFRICAN STUDIES CENTER
AFRICA ACTION Africa Policy E-Journal March 17, 2003
Africa: Water and Cholera (Reposted from sources cited below)
This posting contains brief excerpts from The Water Barons, an extensive report on water privatization around the world, including South Africa and the United States, from the International Consortium of Investigative Journalists.
Another posting today contains excerpts from the official press release announcing the World Water Forum now taking place in Kyoto, Japan; a longer background article and critique from a civil society perspective, by Maude Barlow of the Council of Canadians;, and links for additional sources on issues of water and water privatization.
Center for Public Integrity International Consortium of Investigative Journalists Washington, DC
The Water Barons February, 2003
Cholera and the Age of the Water Barons
[brief excerpts from introduction and chapter 1 overview; full text of chapter 1 and nine additional chapters (on France, South Africa, Argentina, Philippines, Indonesia, Columbia, United States, Canada, and Australia) available at http://www.icij.org/dtaweb/water]
The explosive growth of three private water utility companies in the last 10 years raises fears that mankind may be losing control of its most vital resource to a handful of monopolistic corporations. In Europe and North America, analysts predict that within the next 15 years these companies will control 65 percent to 75 percent of what are now public waterworks. The companies have worked closely with the World Bank and other international financial institutions to gain a foothold on every continent. They aggressively lobby for legislation and trade laws to force cities to privatize their water and set the agenda for debate on solutions to the world's increasing water scarcity. The companies argue they are more efficient and cheaper than public utilities. Critics say they are predatory capitalists that ultimately plan to control the world's water resources and drive up prices even as the gap between rich and poor widens. The fear is that accountability will vanish, and the world will lose control of its source of life.
Cholera and the Age of the Water Barons
When cholera appeared on South Africa's Dolphin Coast in August 2000, officials first assumed it was just another of the sporadic outbreaks that have long stricken the country's eastern seaboard. But as the epidemic spread, it turned out to be a chronicle of death foretold by blind ideology.
In 1998, local councils had begun taking steps to commercialize their waterworks by forcing residents to pay the full cost of drinking water. But many of the millions of people living in the tin-roof slums of the region couldn't afford the rates. Cut off at the tap, they were forced to find water in streams, ponds and lakes polluted with manure and human waste. By January 2002, when the worst cholera epidemic in South Africa's history ended, it had infected more than 250,000 people and killed almost 300, spreading as far as Johannesburg, 300 miles away.
Making people pay the full cost of their water "was the direct cause of the cholera epidemic," David Hemson, a social scientist sent by the government to investigate the outbreak, said in an interview. "There is no doubt about that."
The seeds of the epidemic had been sown long before South Africa decided to take its deadly road to privatization. They were largely planted by an aggressive group of utility companies, primarily European, that are attempting to privatize the world's drinking water with the help of the World Bank and other international financial institutions.
The days of a free glass of water are over, in the view of these companies, which have a public relations campaign to accompany their sales pitch. On a global scale, and in many developing nations, water is a scarce and valuable and clearly marketable commodity. "People who don't pay don't treat water as a very precious resource," one executive said. "Of course, it is."
A yearlong investigation by the International Consortium of Investigative Journalists (ICIJ), a project of the Center for Public Integrity, showed that world's three largest water companies - France's Suez and Vivendi Environnement, and British-based Thames Water, owned by Germany's RWE AG - have since 1990 expanded into every region of the world. Three other companies, Saur of France, and United Utilities of England working in conjunction with Bechtel of the United States, have also successfully secured major international drinking water contracts. But their size pales in comparison to that of the big three.
The investigation shows that these companies have often worked closely with the World Bank, lobbying governments and international trade and standards organizations for changes in legislation and trade agreements to force the privatization of public waterworks.
While private companies still run only about 5 percent of the world's waterworks, their growth over the last 12 years has been enormous. In 1990, about 51 million people got their water from private companies, according to water analysts. That figure is now more than 300 million. The ICIJ investigation, which tracked the operations of the six most globally active water companies over a 12-year period, showed that by 2002, they ran drinking water distribution networks in at least 56 countries and two territories. In 1990, they had been active in only about a dozen countries.
Revenue growth, according to corporate annual reports reviewed by ICIJ, has tracked with the companies' overseas expansion. Vivendi Universal, the parent of Vivendi Environnement, reported earning over $5 billion in water-related revenue in 1990; by 2002 that had increased to over $12 billion. RWE, which moved into the world water market with its acquisition of Britain's Thames Water, increased its water revenue a whopping 9,786 percent - from $25 million in 1990 to $2.5 billion in fiscal 2002.
This explosive growth rate has raised concerns that a handful of private companies could soon control a large chunk of the world' s most vital resource. While the companies portray the expansion of private water as the natural response to a growing water shortage crisis, thoughtful observers point out the self-serving pitfalls of this approach.
"We must be extremely careful not to impose market forces on water because there are many more decisions that go into managing water " there are environmental decisions, social-culture decisions," said David Boys of the U.K.-based Public Services International. "If you commodify water and bring in market forces which will control it, and sideline any other concern other than profit, you are going to lose the ability to control it."
So far, privatization has been concentrated in poorer countries where the World Bank has used its financial leverage to force governments to privatize their water utilities in exchange for loans.
In Africa, the ICIJ examination of water company records showed that they have expanded into at least 10 countries from three in 1990; they are also active in at least 10 Asian countries and eight Latin American ones, three in North America, two in the Caribbean plus Puerto Rico, three in the Middle East plus the Gaza Strip, Australia/New Zealand and in 18 European nations, with most of the expansion in Eastern Europe. There, the European Bank for Reconstruction and Development has played a key role in encouraging countries to privatize in exchange for loans.
Having firmly established themselves in Europe, Africa, Latin America and Asia, the water companies are expanding into the far more lucrative market of the United States. In recent years, the three large European companies have gone on a buying spree of America's largest private water utility companies, including USFilter and American Water Works Co. Inc. Peter Spillett, a senior executive with RWE's water unit Thames, told ICIJ his company projects that within 10 years it will double its market to 150 million customers primarily because of expansion into the United States. So far, the Europeans have privatized waterworks in several mid-sized U.S. cities, including Indianapolis and Camden, N.J., and are trying to secure contracts in New Orleans. Their expansion, however, recently ran aground in Atlanta, where the city canceled its 20-year contract - the largest of its kind in the United States - with a Suez subsidiary after only four years and returned control to the public utility.
The water companies have also dramatically increased their lobbying and federal election campaign spending. In Washington, they have already secured beneficial tax law changes and are now trying to persuade Congress to pass laws that would force cash-strapped municipal governments to consider privatization of their waterworks in exchange for federal grants and loans. Government and industry studies have estimated that U.S. cities will need between $150 billion and $1 trillion over the next three decades to upgrade their aging waterworks.
Worldwide, the ICIJ investigation showed that the enormous expansion of these companies could not have been possible without the World Bank and other international financial institutions, such as the International Monetary Fund, the Inter-American Development Bank, the Asian Development and the European Bank for Reconstruction. In countries such as South Africa, Argentina, Philippines and Indonesia, the World Bank has been advising the leaders to "commercialize" their utilities as part of an overall bank policy of privatization and free-market economics.
In South Africa, heavy lobbying by private multinational water companies, such as Suez, together with advice from the World Bank helped persuade local councils to privatize their waterworks. Some communities began turning their utilities into commercial enterprises as a preparatory step to outright privatization. Others immediately contracted out to private water. Urged by the World Bank to introduce a "credible threat of cutting service", the local councils began cutting off people who couldn't pay. An estimated 10 million people have had their water cut off for various periods of time since 1998. The result has been cholera and other gastrointestinal outbreaks.
The ICIJ investigation focused on the activities of these companies in South Africa, Australia, Colombia, Asia, Europe, the United States and Canada.
The investigation showed that while these companies claim to be "passionate, caring and reliable", as one company states, they can be ruthless players who constantly push for higher rate increases, frequently fail to meet their commitments and abandon a waterworks if they are not making enough money. As in South Africa, the water companies are pillars of a user-pay policy that imposes high rates with little concern over people's ability to pay. These rates are then enforced by water cutoffs despite the serious dangers to people's health that these actions create.
The water companies are chasing a business with potential annual revenue estimated at anywhere from $400 billion to $3 trillion, depending on how you do the math. Water is the basis of life and, if they have to, people will pay just about anything to get it.
"These companies want to crack open this oyster and go get the pearl inside. It's big money," said Boys of Public Services International.
About 1.5 billion people do not have access to safe drinking water. The United Nations predicts that by 2025 two thirds of the world's population will experience shortages of clean water. Experts claim enormous financial resources will have to be expended to meet this need. ...
The free marketers
Lending about $20 billion to water supply projects over the last 12 years, the World Bank has not only been a principal financer of privatization, it also has also increasingly made its loans conditional on local governments privatizing their waterworks. The ICIJ study of 276 World Bank water supply loans from 1990 to 2002 showed that 30 percent required privatization - the majority in the last five years.
The bank claims its policy of privatization alleviates poverty by bringing management efficiency and private capital to developing countries whose cash-starved water utilities are usually in a mess. The bank argues that private companies succeed in bypassing the usual bureaucratic morass and political cronyism and corruption that corrodes so many public utilities in poorer countries. While it is clear that considerable improvements have been brought to many waterworks as a result of privatization, in many cases, the companies put in relatively little capital of their own, relying primarily on loans from the World Bank and related international financial institutions to help cover costs of repairing and expanding waterworks networks.
There's also evidence that if the World Bank applied the same energy and money to improving local utilities, while allowing them to maintain control of their water systems, the local utility would actually perform better than private companies. ,,,
A global oligarchy
The investigation also showed that the water companies have joined forces with the World Bank and the United Nations to create an array of international think tanks, advisory commissions and forums that have dominated the water debate and established privatization as the dominant solution to the world's water problems.
"What we have seen during the 1990s has been the setting-up of a kind of global high command for water," Ricardo Petrella, a leading researcher on the politics of water, wrote in the French daily Le Monde in 2000.
The leading think tank on water issues and the principal adviser to the World Bank and United Nations is the World Water Council, which was established in 1996 by the World Bank and the United Nations. It is headquartered in Marseille, France, and one of its three founding members is Rene Coulomb, a former Suez vice-president.
In 1998, the WWC created the World Water Commission to promote public awareness of water issues and to help formulate global water policies. The commission holds water conferences around the world and channels its policy statements through international forums held every three years. ...
Both of these institutions strongly support privatization and a user-pay policy. "Global experience shows that money is the medium of accountability," the commission said in a 2000 report.
The commission has held two international forums on water with a third planned for Kyoto, Japan, in March 2003. At its forum at The Hague in March 2000, the commission issued a policy statement that said water management was the main problem facing mankind and the solution was to treat water like any other commodity and open its management to free market competition.
Serageldin stated that water delivery should be in private hands, but publicly regulated, in the same way as private companies run the food industry.
The ties that bind the World Bank to the major water companies include shared membership on the boards of various policy institutions as well as personal and business relations. ,,,
Financial titans, bribery and fraud
In addition to their political connections, each of the three leading companies has enormous financial resources. Each is among the top 100 corporations in the world. Together they had revenue in 2001 of $156.7 billion and continue to grow at a rate of about 10 percent a year, outpacing the economies of some of the countries in which they operate. ...
Though competitors, the companies often form joint ventures to obtain water concessions in foreign countries. The ICIJ investigation, for example, revealed that Thames and Vivendi formed a business alliance in 1995 to capture the Asian market. Suez and Vivendi share interest in Buenos Aires. And Thames and Suez, with the support of the former Indonesian dictatorship, divided up Jakarta.
Finally, the private water companies make promises they often can't keep - a tactic one World Bank water official called "over selling." Essentially, they promise to deliver a better service at a lower price. The ICIJ investigation found, however, that governments often drive up water prices just prior to privatization to give water companies room to immediately reduce prices and win popular approval. Once a company has won the contract and lowered prices, it often quickly attempts to renegotiate for higher rates and reduced performance targets. The fact that the companies now control the city's waterworks gives the company tremendous leverage in these negotiations. In many cases, water prices soar and original targets for expanded water and sanitation systems are not met. ...
Even in developed countries, such as Australia and Canada, which generally have stronger regulatory bodies than poorer countries, privatization has weakened public accountability. ...
Having established firm footholds on six continents, the big three water companies say they now intend to concentrate most of their efforts on the potentially lucrative markets of North America, China and Eastern Europe. All three told ICIJ they hope to more than double their revenue and their client base in the next 10 years. ...
Some countries are definitely not on the privatization agenda any more. Yves Picard, managing director of Vivendi in South Africa, said his company is not interested in concessions in southern Africa unless the World Bank or other institutions finance the capital costs. Otherwise, he said, there is no payback for the company because people are too poor to pay the high water rates private companies charge to cover their capital costs.
Dependence on the World Bank appears to be increasing. There is rising concern among the companies that capital markets are not open to them because water is such a volatile political issue and many poorer countries have unstable local currencies. ,,,
Date distributed (ymd): 030317 Region: Continent-Wide Issue Areas: +economy/development+
Message-Id: <200303171833.h2HIXbV00405@marduk.africapolicy.org> From: "Africa Action" <email@example.com> Date: Mon, 17 Mar 2003 13:37:43 -0500 Subject: Africa: Water and Cholera
Editor: Ali B. Ali-Dinar
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