Olivier Hoedeman
Corporate Europe Observatory(CEO)

After a decade of sweeping privatisation, 460 million people around the world are now supplied water by private water corporations (up from just 51 million people in 1990)(*1). Water industry analysts expect the privatisation trend to accelerate and predict the number to reach 1.16 billion people in 2015(*2). Whereas the water corporations during the 1990's primarily conquered newly privatised markets in developing countries, their focus is now increasingly shifting to the more predictable and profitable consumers in Europe, the United States and presumably Japan. While privatisation or public-private partnerships are still the exception in most industrialised countries today, analysts estimate that no less than 75% of European and 65% of US water utilities will be privatised by 2015(*3).

If current privatisation trends continue, the global private water market of the next decade will likely be firmly controlled by only a handful of giant corporations, all with headquarters in Europe. The world's two largest corporations, France-based Suez and Vivendi, already today control around 70% of global markets(*4). Based on a solid (and protected) position in their French home market (where they control 85% of private water markets), they have successfully pursued international expansion throughout the 1990's(*5). The only company which may threaten the dominance of Suez and Vivendi is Germany-based RWE, which has grown big in recent years through acquisitions of companies like Thames Water and American Water Works.

After the collapse of Enron and its ambitious water division Azurix, also the runners-up in global water markets are all Europe-based corporations. France-based Saur, International Water and Severn Trent, both headquartered in the UK, hope to catch up, but further concentration in the hands of the Big 3 is a more likely scenario. According to Global Water Intelligence these smaller companies are struggling to expand in order to survive: it may soon be a question of eat lunch or be lunch for the second tier. (*6)

The EUs Helping Hand
The rapid global expansion of the European water giants would be impossible without the far-reaching support they enjoy from European governments, the European Commission and other international institutions. The World Bank, in which European governments play a decisive role, has dramatically accelerated water privatisation in developing countries by making water supply and structural adjustment loans conditioned on privatisation. Through its affiliate International Finance Corporation (IFC), the World Bank has been directly involved in promoting and shaping privatisation processes in Buenos Aires, Manila, and many other cities around the world(*7). The EU's own European Investment Bank (EIB) plays a similar, but less well-known role.

European governments, particularly the French and British, are deeply committed to helping their� water corporations winning new markets. The French government for instance played a very active role in helping Suez win the bid when the water supply in Buenos Aires was privatised in the mid-1990痴 (*8). Also, the European Union's development aid spending on water in developing countries effectively subsidises the EU-based water corporations. Rather than directly supporting water infrastructure improvement, the aid budget primarily goes to administrative restructuring and other costs related to introducing privatisation (*9). This pro-privatisation bias is also at the heart of the EU痴 Water Initiative, presented last August at the Johannesburg World Summit on Sustainable Development (WSSD). Increasing the role of private water corporations through subsidies for Public Private Partnerships (PPPs) is presented as a 努in-win� approach, whereas in fact the only certain winners are Suez, Vivendi, Thames Water and other large EU-based water TNCs(*10).

The European Union also uses the negotiations on services sector liberalisation within the World Trade Organisation (GATS) to further the market expansion interests of large EU-based water corporations(*11). The European Commission, which coordinates the EU痴 position in the WTO talks, worked directly with Vivendi, Suez and other water TNCs when it finalised the EU liberalisation wish-list in June 2002. Liberalisation of water markets through the GATS talks would not only help Europe-based water TNCs expand, bringing water supply into the WTO would effectively make privatisation irreversible.

Broken Promises
After a decade where privatisation was hailed as panacea for improving access to clean water in the cities of the South, it is now clear that the water TNCs have time after time failed to improve the situation of the poorest. In order to win contracts, they routinely promise major investments in new infrastructure, lowering prices and improving the service, with no real intention of delivering these promises. Once the corporation has taken over a city's waterworks, it often seeks renegotiation to allow price increases and downscale the promised improvements(*12). The water TNCs have shown an unfortunate tendency to skim the cream: concentrating on supplying those consumers who can pay market prices while doing very little for the poorer neighborhoods.

2002 was the year in which the water TNCs finally started admitting their inability to supply drinking water in low-income areas. J.F. Talbot, CEO of Saur, questioned whether running privatised water systems in developing countries is a good and attractive business(*13). Without government subsidies and soft loans, for instance from the World Bank, the TNCs would move out of the water business in developing countries, Talbot warned. Later in 2002 Suez shocked many by pulling out of both Manila and Buenos Aires, two cities often highlighted by the World Bank as examples of successful privatisations. Suez has now embraced a crude policy of "preparing for departure": simply leaving if a city's water supply fails to bring in the expected profits(*14). Suez also announced a more general shift of investments towards safer and more profitable markets in industrialised countries. Although selected growth markets in developing countries, such as China, are still major targets for Suez.

The Turning Tide
Despite of water industry projections of a continued global privatization wave, there are clear signs that the tide is starting to turn(*15). Earlier this year, Suez lost its 20-year contract for the water supply of Atlanta, US, after failing to live up to promised improvements in water quality. Atlanta decision to cancel the contract is a serious setback for water privatisation in the US, already considered to be cooling politically, particularly concerning the European corporations(*16). A growing number of Southern governments, including South Africa and Brazil, are starting to reconsider the virtues of privatisation. Lula da Silva's new Brazilian administration has most clearly signalled its opposition to further privatisation of water companies. "Privatisation has not resolved the water problems of most of the population," explains Olivio Dutra, the new minister of cities(*17).

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(*1) The Center for Public Integrity. Cholera and the Age of the Water Barons. 3 February 2003.
(*2) Masons Water Yearbook 2002-2003. Quoted in #News from the Global Water Industry. Global Water Intelligence, December 2002.
(*3) The Center for Public Integrity. Cholera and the Age of the Water Barons. 3 February 2003.
(*4) Vivendi Environnement (VE), which runs Vivendi's water investments, is currently undergoing major changes, including adopting a new company name. VE was split off from Vivendi Universal in July 2002, after the mother company collapsed under enormous debt built up during the leadership of Jean-Marie Messier. The French ministry of finance is now working with major French banks and state-owned companies to ensure that VE stays in French hands.
(*5) The French water market is effectively closed to foreign competitors. The Center for Public Integrity. Defending the Internal Water Empire. 4 February 2003.
(*6) Global Water Intelligence. News from the Global Water Industry. December 2002.
(*7) The Center for Public Integrity. The Aguas Tango: Cashing in On Buenos Aries Privatization. 6 February 2003.
(*8) Ibid.
(*9) Only 64 million euro went to concrete water projects, whereas 168,2 million euro went to water resources policy and administration. Considering the absolute dominance of EU-based water corporations, this policy is in effect a new form of tied aid. PSIRU. Investing in the bureaucracy of privatization: A Critique of the EU Water Initiative Papers. February 2003.
(*10) Ibid.
(*11) See for instance, http://www.gatswatch.org
(*12) The Center for Public Integrity. Cholera and the Age of the Water Barons. 3 February 2003.
(*13) PSIRU. Investing in the bureaucracy of privatization: A Critique of the EU Water Initiative Papers. February 2003.
(*14) PSIRU. "Water Multinationals in Retreat." January 2003.
(*15) "Southern Discomfort." Forbes Global. 3 February 2003.
(*16) Global Water Intelligence. News from the Global Water Industry. December 2002.
(*17) "Vivendi moves to keep Brazil water company." Financial Times. 18 February 2003.