Privatizing water: A glass half empty?

Selling water – or the rights to water – has a long history, particularly in the American West. In the drought-impacted Klamath Basin of northern California and southern Oregon, farmers and conservationists are working on a deal whereby farmers would be paid $2,500 an acre during dry years not to use irrigation water which would then be "banked." The result could benefit endangered fish and wildlife in nearby refuges and rivers.

But these days, the controversy over providing water to individuals has reached a much larger scale. And in this case, the history of privatization goes back much further in Europe.

"France has a very different view than the rest of the world regarding water, and that goes back to Napoleon," says Mr. Rohmer, the global water investment fund manager. "Water management has been privatized for a long time there, with old companies like Vivendi Environment and Suez Lyon Eaux [which dates back to construction of the Suez Canal] involved in water management."

Vivendi Environment reportedly has 110 million customers in more than 100 countries, and Suez Lyon Eaux claims 115 million customers in 130 countries. Britain privatized its water system in 1989. (When Margaret Thatcher was prime minister.)

"Water is generally considered to be a free good," Rohmer adds. "But it's not, it's an economic good – somebody has to pay for it ultimately."

The question now for a growing number of American communities is whether the economics of providing water should remain under local government control or be contracted out to private for-profit firms.

As in other parts of the world, the picture here is mixed. After control of Atlanta's water system was contracted out to the American subsidiary of a foreign firm, customers complained of cuts in service, billing problems, and a decline in water quality. What would have been a big agreement between a private water-marketing firm with land and water holdings in the Mojave Desert and the Metropolitan Water District of Los Angeles fell through recently. Opponents (led by US Sen. Dianne Feinstein) warned that it might "very well result in serious adverse impacts to California's pristine desert."

Nonetheless, there are efforts in Congress to encourage privatization of water systems. One bill would require that municipalities seeking federal funds to upgrade such water systems consider privatization.

In its recent report "The New Economy of Water," the Pacific Institute makes several recommendations for privatizing water-supply systems and infrastructure: Guaranteeing water for all those in the service area, including subsidies for the poor; maintaining government regulation and oversight; and ensuring that "negotiations over privatization contracts [are] open, transparent, and include all affected stakeholders."

Global water providers appear to be hearing that message. Recognizing the problems with privatization, Suez Lyon Eaux CEO Gerard Mestrallet suggested earlier this year that water system infrastructures should remain under public control with companies such as his providing the delivery service. "Cooperation between the private sector and the state is the best solution to manage water," he said.

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