Privatizing water: A glass half empty?
As cities contract out water service, some say prices will rise, quality fall.
From that cooler outside your office door filled with "mountain spring water" to the single faucet supplying many villages in Africa and Asia, water is seen around the world as an essential right for rich and poor alike. If not free like the air we all breathe it's at least outside the normal realm of commerce. At least that's been the general perception among most societies and governments.Skip to next paragraph
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Increasingly, that view is changing as water and the means of providing it are becoming economic commodities. Private companies own and operate water systems around the world, with annual revenues estimated at $300 billion. In the United States, water systems in Atlanta, Milwaukee, Houston, Jersey City, Indianapolis, New Orleans, San Francisco, and other cities have been at least partially taken over by corporations, some of them foreign-owned.
Fortune magazine has predicted that water "will be to the 21st-century what oil was to the 20th." Indeed, Texas oilman (and corporate raider) T. Boone Pickens now heads Mesa Water Inc., which has water rights covering more than 150,000 acres of the massive Ogallala aquifer.
Many governments, along with such international development agencies as the World Bank and the International Monetary Fund, believe privatization of water supplies tying them to the marketplace is a good thing, bringing with it greater economic efficiencies and surer supplies to water-needy areas along with profits. And that's seen as a good opportunity for investors wanting to link up with a product that by its nature has potentially an eternal market.
"Today, Western Europe's water management is almost 40 percent privatized; in the US it's 15 percent," says Philip Rohmer, comanager of a global water investment fund launched earlier this year by Swiss Pictet Funds.
"By 2015, we think Europe will reach 75 percent privatization, and the US 65 percent," Mr. Rohmer told TheStreet.com recently. "So there's huge growth there."
Still, there are growing concerns about the trend, just as there have been about the privatization of energy markets in the wake of the Enron debacle. (The link between water and power generation is not as tenuous as it might seem. One water marketing company called "Azurix" was an Enron consortium of limited partnerships and interlocking subsidiaries.)
"There is little doubt that the headlong rush toward private markets has failed to address some of the most important issues and concerns about water," warns a recent report by the Pacific Institute for Studies in Development, Environment and Security. "In particular, water has vital social, cultural, and ecological roles to play that cannot be protected by purely market forces."
"Part of the problem is that there are few formal guidelines and, in most cases, inadequate public oversight," says Peter Gleick, president of the research institute, based in Oakland, Calif.
In South Africa, for example, researchers at the University of Witwatersrand report that every month in Johannesburg more than 20,000 people lose domestic water service because of rising costs which critics tie to privatization.