Public Services International (PSI), with over 480 affiliates worldwide, representing 20 million workers in public services including health care, energy, waste and water, is concerned about the continuing deregulation and privatization of essential services such as water. To monitor what was happening, PSI commissiones research from the UK-based Public Services Privatization Research Unit (PSPRU).
The results of this research are more alarming than was expected. This article concentrates on the water industry, but is only a summary of the wealth of detail that is available. Those interested in more of the research carried out by the PSI and PSPRU on these matters may wish to visit the PSPRU's web site at www.pspru.org, where they will find much more information on the problems of privatization and the companies involved.
Canadian public authorities are now looking to privatize their water and/or sewage systems. This means that they are offering a vital public service to:
The water industry has a handful of multinationals. Unusually, none of the main ones are North American. The world of privatized water is overwhelmingly dominated by two French multinationals, Generale des Eaux and Lyonnaise des Eaux. These huge groups run private water concessions in France, and also in Spain, Italy, the U.K., and some cities in central and eastern Europe. They now have major operations in every continent--e.g., in Buenos Aires, in Adelaide,in New Zealand, in Casablanca.
A third French company, SAUR,(*recently merged with Lyonaisse) owned by the construction company Bouygues, is also present in many countries, but is not as large as the others. A Spanish company, Aguas de Barcelona, is also internationally active, mainly in Latin America; it is itself 24% owned and effectively controlled by Lyonnaise des Eaux.
The U.K. Conservative government created 10 private water companies in 1989, but only a few have any significant presence outside the U.K. Thames Water has acquired a number of concessions, mainly in Asia; United Utilities (formerly known as NorthWest Water), which has an international alliance with the U.S. construction company Bechtel, has gained a few contracts, mostly in North America; Hyder (formerly Welsh Water), Anglian Water and Severn Trent also have one or two overseas contracts.
All of the French groups are also present in the U.K. Lyonnaise des Eaux now owns Northumbrian Water, which it took over in 1996. All three French companies own all or part of some of the smaller U.K. water-only companies.
There are no true independent North American water multinationals. Nor are the European multinationals well established in the U.S., where privatization of water and waste water is still on a relatively small scale.
The three French companies all have operations in North America.
United Water Resources (UWR) is 26% owned by Lyonnaise, and together they run a joint venture, JMM-OSI, which has the sewage contract in Indianapolis. Lyonnaise's presence in Canada, with operations in Banff and Edmonton, is via this U.S. joint venture. Air and Water Technologies (AWT) of the U.S. is 42% owned by Generale des Eaux.
SAUR *(now owned by Lyonnaise des eaux) operates in Canada through Aquatech, which is present in Quebec.
There are some subsidiaries of the U.K. companies, which have so far made little impact. Severn Trent Environmental Services (STES) is owned by Severn Trent; U.S. Water is a joint venture bewteen United Utilities of the U.K. and Bechtel; Anglia-American Water Company is a joint venture between Anglian Water and the American Waterworks Company; Canadian Clean Water is another joint venture between Yorkshire water and Ogden. There are two independent U.S. companies.
The US waste management conglomerate, WMX Technologies, has some interests in water, both through its Wheelabrator subsidiary in North America, and through a small 20% shareholding in Wessex Water, one of the less active U.K. companies.
A Colorado engineering company, CH2M Hill, is a partner in TAP, which already has operations in Halifax.
The French companies are not just water multinationals. They are large international companies in other public services and utilities. Water, however, is the most profitable business. Their other interests include:
Competition is supposed to be the mechanism by which the benefits of privatization are realized. But it is not a concept which the water companies are very familiar with.
All the English water companies, for example, were given a regional monopoly for 25 years by the Thatcher government in 1989, without having to compete against each other or anyone else for the privilege. In France, nearly 80% of the water business is now shared between the three big companies. European Union legislation on competition has so far given exemption to water supply, so the home markets remain protected.
When concessions are advertised for competition outside Europe, the water multinationals often form joint ventures in a series of fluid partnerships which reduce the amount of competition still further. In Argentina in 1993, for example, the concession for Buenos Aires attracted two bids--one from a consortium which included Lyonnaise des Eaux, Generale des Eaux, Aguas de Barcelona, and Anglian Water. Thames Water was left to put up the other bid, which failed.
In 1995, when South Australia advertised a water concession, Thames Water went into partnership with Generale des Eaux, and won against a competing bid from Lyonnaise, who were partnered by the British shipping conglomerate P&O. Thames were even more delighted because at the same time they won a concession in China, this time in partnership with P&O themselves.
In other sectors, the companies have also been known to operate cartels and participate in joint ventures. Generale des Eaux, for example, was fined in 1995 for operating a cartel in bidding for refuse collection contracts in the south of France.
On major construction projects, the groups often work together--on the Channel Tunnel, for example. The new French national stadium in Paris has been built, and will be operated, by a joint venture which is equally owned by Lyonnaise des Eaux, Generale des Eaux, and Bouygues.
The recent history of the water multinationals is full of all kinds of problems, court cases and rejections. The three major issues are corruption, competence, and rejection.
Since June 1994, French magistrates have been investigating numerous allegations of corruption used by large companies to win public sector contracts. Executives of both Lyonnaise des Eaux and Generale des Eaux have been convicted of corruption, and further cases are pending. In mid-1996, no less than five out of 13 directors on the main board of Generale des Eaux were under investigation for corruption (mostly in connection with their jobs with other companies). Similar allegations and convictions of bribery and corruption have occurred elsewhere in the world, and not only with the French companies.
For the U.K. companies, the overwhelming issue has been incompetence. Yorkshire Water so badly failed to maintain its network that in 1995-1996 it was forced to hire a vast fleet of trucks for months on end to get water to major towns.
Nearly all other companies have also had problems in maintaining supplies, or avoiding pollution, or both. The English water companies have done more to undermine support for privatization than any other group in the country.
Most English people react with astonished disbelief when they hear that public authorities in other countries are seriously considering inviting the U.K. water companies to manage their systems.
In many parts of the world, there have been successful local campaigns against privatization of water and sewage. In 1995, the town councils of Lodz in Poland and Debrecen in Hungary rejected privatization proposals from the French multinationals. In both cases, trade unions drew up clear alternative financing proposals. The councils then decided that they could carry out the necessary investment more cost-effectively by themselves. Elsewhere, in Aguas Calientes, Mexico, and Tucuman province, Argentina, local political reaction against water privatizations forced the companies into making drastic cuts in the price of water.
Neo-liberal politicians argue for privatization on the basis of the theoretical benefits flowing from competition, and pay little attention to empirical evidence. Reality does not support their views.
Municipal water companies in Sweden provide a cheaper service than their privatized counterparts in England, according to a study carried out by consultants. The only area in which the U.K. companies performed better was in the rate of return on capital.
Privatization does not make prices lower. It just takes the responsibility away from politicians. In the U.K., water prices have risen far faster than inflation since privatization--partly to pay for investment, and partly to fund dramatic increases in dividend payments.
In France, recent privatizations have had similar effects on costs. In St Etienne, where the council handed over the concession to a joint vetnture of Lyonnaise and Generale in 1990, prices rose from 3.52 francs in 1990 to 8.50 francs in 1996.
In other places where water has been privatised--Rostock in Germany, Tucuman in Argentina, Pecs in Hungary, Limeira in Brazil, Gdansk in Poland, Aguas Calienteds in Mexico--prices have risen sharply after privatization. In some cases where this has not happened--e.g., Mexicio City, because local politicians blocked it--the companies complain they cannot do the job properly.
The reason for this is that price rises are the key to financing the investment (and profits) of the multinationals. In most countries of the world, there is a genuine need for large-scale investment in new or improved water and sewage systems. The multinationals claim that they can raise the large sums of money more easily, and finance them more cheaply, than municipal authorities can.
In practice, whatever the source of the loans, the consumers are the ultimate source of the repayments of those loans, with interest. Moreover, the companies do not on the whole invest their own equity. In Buenos Aires, held up as one of the great examples of privatization, a $1 billion investment program was undertaken by the Lyonnaise-led consortium--yet 97% of the finance came from loans raised by the *World Bank and by Argentine Banks. The companies put in virtually no new capital at all.
This is why advocates of publicly-run water systems in Lodz, Poland, and Debrecen, Hungary, were able to demonstrate a convincing financial case. The municipalities can borrow money from international funds and banks, often at a better rate of interest, and without the need to make a profit for shareholders.
Even in eastern Europe, they may be able to command more favourable interest rates than the multinationals. As the table shows, even AWT, the U.S. arm of Generale des Eaux, which recently won a water concession in Bosnia, has a worse credit rating than Romania, and considerably worse than Slovakia or even the small Czech municipality of Ostrava.
The companies invariably manage to make new concessions profitable. The key method they use is to cut jobs. In Buenos Aires and South Africa, in Indianapolis and Adelaide, in Manchester, Carlsbad and Gdansk, the number of employees and the pay-bill have been reduced--and the dividend payments increased. The English companies in particular have also enriched the company directors, whose salarie are now a national scandal.
Two examples from different companies in different continents:
The English company United Utilities was formed in 1995 when North West Water took over its local electrical utility, Norweb. It then announced that it was getting rid of 2,500 jobs, in order to cover the costs of the takeover and the dividend increases that had been promised during the takeover. It also tried to oust the trade unions, but backed down after international protests.
At the same time, in Cartagena de los Indias, in Colombia, over 500 employees of the public water company were sacked when the concession was privatized to Aguas de Barcelona. They were given no rights to transfer, and the company did not negotiate with the union.
There are long-term consequences which are rarely considered. Local authorities often see the sale of a water utility as a way of generating some much-needed cash for short-term projects. This may be doubly shortsighted. If the utility can be run to generate a surplus, then that surplus will no longer be available to the municipality in future. Moreover, in an era when fiscal deficits are being politically constrained all around the world, the apparent immediate cash bonanza of the sale may be rapidlly offset by a deterioration of the authority's deficit, due to the loss of the utility's surplus.
Finally, it is hard to reverse a decision to privatize such a service. The authority loses its own expertise, and no longer has direct access to financial information and understanding. The company is in a very strong position to keep the concession regardless of the public interest.
An extreme example of this is the Spanish town of Valencia. In 1900, it privatized its water system, on a concession that was supposed to run for 120 years. In 1994, the city felt that it would like to test the market, to see if it was still getting value for money. The water comapny, Aguas de Valencia, which is today part the Bouygues/SAUR group, responded by threatening to sue the city for 26 years for loss of earnings if they awarded the new contract to any other company.
Negotiations took place--and the upshot was that the city backed down and Aguas de Valencia retained the contract.
(Jan-Willem Goudriaan is a research officer with Public Services International in France. David Hall is a researcher with the Public Services Privatization Research Unit in Britain.)
Taken from The CCPA Monitor April 1997.
Jim Tucker
Victoria BC Canada