One feature of the quickly changing water scene is consolidation leading to oligopoly - a situation of limited competition among a handful of corporations. For example, since privatization in England and Wales a decade ago, the number of water companies has declined from 29 to 15.
The leaders in this global oligopoly are French-based water giants Vivendi and Suez Lyonnaise des Eaux - the Exxon and Shell of the water industry. France's national audit office recently criticized the degree of concentration in the water supply market because of the dominance of Vivendi and Suez Lyonnaise des Eaux.
Another characteristic of the water corporations is aggressive expansion into other service sectors. Vivendi and Suez Lyonnaise are involved in energy, waste management, construction, transportation and communications and they both own a major share of the privatized New Brunswick toll highway. Their core activities, however, are in water, energy and waste management. Corporations such as Enron are also establishing cross-utility organizations starting with energy and water.
Vivendi ranks 69 on the Fortune global 500. The corporation's 1998 profit was US$1.24 billion, up 35 per cent from 1997. It operates water and wastewater facilities in over 100 countries.
Calling America "the world's largest market," Vivendi is focusing on North America, where it is snapping up water and waste management corporations. Vivendi bought USFilter for over US$6 billion in April 1999 - the largest American acquisition ever made by a French company. Combined with its controlling interest in Culligan Water Technologies, this gives Vivendi a major presence in the water products industry and cements its position for expansion into municipal water and wastewater services.
With the acquisition of USFilter, Vivendi's sales are projected to approach US$20 billion in 1999. Through USFilter, Vivendi will have a direct hand in operations and maintenance contracts and public private partnerships in the North American water and wastewater sector.
Vivendi recently won a five-year contract to operate and maintain the wastewater facilities of the Region of Haldimand-Norfolk in Ontario. But its biggest Canadian contract is a 20-year design, build and operate agreement for water treatment facilities in Moncton, New Brunswick. USFilter partnered with the Hardman Group, an Atlantic construction and development company, to form the Greater Moncton Water consortium. The city's new water treatment facility is now operating - Canada's first major private drinking water scheme. The corporation claims it will save the taxpayer 11 per cent over a publicly operated system, but such claims have yet to be substantiated.
Given Vivendi's record in other parts of the world, scepticism is warranted. According to Public Services International, Vivendi and its subsidiaries have encountered complaints and opposition in Tucuman, Argentina and the Hungarian city of Szeged. In Szeged, the municipality has withdrawn its contract. In Tucuman, the regional government terminated Vivendi's contract, citing problems with quality and cost. The company is now suing the region for compensation.
Suez Lyonnaise des Eaux has water and wastewater services contracts in over 100 countries. It supplies drinking water to 77 million people and wastewater services to 52 million. It ranks 70 on the Fortune global 500 list, right behind world leader Vivendi. The company's 1998 profit was more than US$1.1 billion - a 63 per cent increase from 1997 - and its assets are valued at more than US$85 billion.
Suez' global expansion provides many examples of the dangers of water privatization. Massive price increases, accusations of bribery, corruption and mismanagement, and serious water-related public health problems plague Suez Lyonnaise des Eaux around the globe - from Casablanca, Jakarta and Sydney, Australia to Grenoble, France and Fort Beauford, South Africa. Yet the company continues to grow.
Suez has strengthened its control of three affiliates in the key sectors of energy, waste management and water. United Water Resources, the second largest water utility in the US, controlling supply to more than 2.5 million Americans across 14 states, is now wholly controlled by Suez. The group also bought two major US water treatment companies in 1999 -Nalco (the world's biggest producer of water treatment chemicals) for US$4.1 billion, and Calgon for US$425 million. Together with the increased stake in UWR, this gives Suez a huge base in the American water industry.
The Wall Street Journal reports that by taking over Nalco, Suez hopes to move closer to its goal of building a 'multiservice utility' that would offer 'one-stop shopping' for energy, water and waste management.
Consolidation can lead to conflicts of interest. The British water regulator OFWAT recently criticized Suez Lyonnaise for "featherbedding" its own subsidiaries when it came to awarding contracts. Two transportation subsidiaries of the company had put in bids for vehicle maintenance to contracts held by Northumbrian Water, also a Suez subsidiary.
Suez Lyonnaise des Eaux has been active in Canada since 1960 through various affiliates and subsidiaries involved in everything from design, construction and supply of water treatment facilities to the Confederation Bridge public private partnership and the privatized toll highway in New Brunswick.
Suez set up an office in Toronto in 1995 and actively promotes the privatization of water in Canada through its project development office. It sponsors the Canadian Council on Public Private Partnerships and is a regular presenter at water privatization conferences. Its Canadian subsidiary is United Water Services.
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The British water companies are world leaders on at least one front - their return to shareholders.
Profit margins in Britian are three or even four times higher than the margins of private and public water companies in France, Spain, Sweden and Hungary. Even the profit margins of the largest water multinationals, Vivendi and Suez Lyonnaise des Eaux, yield a much lower return -
6.3 per cent for Vivendi's worldwide water operations and 4.2 per cent for Suez, compared with 59.7 per cent for the UK Southern Water Company, 51.6 per cent for South West water and 46.7 per cent for United Utilities.
The government and regulator can't stop the companies from cutting jobs and service delivery to maintain and enhance their profits. Since 1990, there have been 8,599 water and sewage jobs lost - and the water companies are threatening further job cuts on a huge scale to finance the cost of meeting newly-introduced price rollbacks. While the regulator can impose price changes, it is powerless to limit the water companies' profit margins.
This is a clear warning sign for other countries confronting privatization. Once private companies get a monopoly on delivery and treatment of water, the floodgates open to unmitigated profiteering.