Will water slake a thirst for profits?

"When you invest in a for-profit enterprise to deliver water to the public, at least in North America, what's happening is that we're having a transfer from public water systems to private water systems," says Verda Cook, water campaign coordinator for Polaris. "You're siphoning off the profits. Those profits ... are not being returned to a community but are going to investors. So you're playing into what we feel is the destruction of a society or a municipality."

Veolia begs to differ: "We're actually able to reduce the overall cost to citizens while simultaneously creating a profit for the company," says Scott Edwards, spokesman for Veolia North America, a division of Veolia Environnement. He says, for instance, that Tampa, Fla., taxpayers saved $80 million by contracting this spring with Veolia to build a water treatment plant.

Suez declined to comment.

Some water experts meanwhile see a different picture. Public water utilities routinely face political pressure to keep prices so low that big users, including farms and industry, have little incentive to conserve, says Rick Rheingans, an economist at Emory University's Center for Global Safe Water in Atlanta. Inadequate pricing means that many utilities in poor nations can't make enough to restore their decaying infrastructures, he says.

What's more, the poorest citizens of developing nations often lack access to municipal water and instead pay three to 10 times as much to have water supplied, for instance, by truck-driving entrepreneurs who mark up the price and can't guarantee safe contents.

Because they aren't on the water grid, the poorest "simply don't benefit from subsidies channeled through utilities," says Gary White, executive director of WaterPartners Inter­­national, a Kansas City, Mo., nonprofit that aims to increase safe water access in developing nations. "Thus, the really poor don't see their water rates go up when a utility is privatized." Indeed, the poor are likely to pay less if they gain access to the grid.

Private firms and their investors can play a role, Mr. Rheingans says, by supplying water to customers who can afford it and reinvesting profits in infrastructure. This may free up public subsidies, he says, to focus on getting the poorest citizens safe water at rates they can afford. Private-­sector investment "is a very important piece of the pie, and it's one that's been remarkably untapped," Rheingans says.

As investors move in, they often look to exploit the very situations that disturb advocates who want to keep water a very inexpensive public resource. For instance, analyst Eric Cinnamond at Intrepid Capital in Jacksonville, Fla., says the firm is investing in Connecticut Water Services, a public utility, because regulators recently approved a 22 percent rate hike over two years.

Water-sector analyst Joseph DiLillo at the Shemano Group in Los Angeles likes California water utilities because they're some of the few in the country that actually own the water they sell.

"If you want the safety of a utility with a bit of a [dividend] yield, to me this is the way to go: Buy California water utilities because they own 40 to 50 percent of the water they distribute," Mr. DiLillo says. "You get the best of all worlds," because the company owns both the commodity and the distribution channels.

Market watchers see opportunities

Investing to bring water to those who can already afford it may not thrill everyone with a driving sense of mission, but investors who require a financial return have few other options at this point.

"It is very difficult right now for people to make money in the global water space if they want to target people at the bottom of the economic pyramid," Mr. White says. "Investments seeing a competitive return on investment are generally not hitting people at the bottom."

But market watchers who trust private enterprise to solve social problems see a lot of opportunities – including many that steer clear of ethical controversy.

"Improved piping, valves, and monitoring helps detect and prevent leaks, improve efficiency, and – obviously – control costs," says Brian Dunn, a San Francisco adviser to high net worth investors with social agendas. "More efficient and effective treatment and storage technologies do the same. Private enterprise is essential to meeting these challenges."

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