Monopolies on the Local Water Front: Foreign-Based Multinationals Increasingly Are Buying and Privatizing U.S. Utilities. Critics Are Warning of the Potential for a Rising Tide of High Rates and Poor Service. (Business: Water Management)
Cherry, Sheila R., Insight on the News
For most Americans opening a tap to receive fresh, clean water is as basic as a flush toilet. But the nation's water and wastewater infrastructures are aging, creating an opportunity for multinational corporations that have recognized the profit potential for buying up cash-strapped municipal utilities.
Many cities, counties and townships are turning to giant conglomerates that promise to pick up the tab for renovating and/or operating outdated water utilities in exchange for a guaranteed profit under monopoly authority. These arrangements are called "build-own-transfer" or "build-own-operate" contracts.
When a local government cannot provide its citizens with safe, clean water, outside help is welcomed. But with large foreign-based multinational corporations increasingly acquiring U.S. utilities there is concern lest Americans find themselves as dependent on foreign ownership of water as they are on foreign oil. And critics of utility privatization charge that multinationals that win utility concessions sometimes transfer debt burdens from other subsidiaries to their utility divisions and then on to the utility customers.
Moreover, even the World Bank is singing the multinationals' tune. A World Bank white paper -- "Private Capital in Water and Sanitation" -- puts in writing the new emphasis of the World Bank and the International Monetary Fund (IMF) on utility privatization as a condition of badly needed financial assistance for developing countries. As critics long have noted that these entities tend to favor government rather than private solutions, it is surprising that the paper asserts:
"Private capital and initiative can help accomplish operational efficiency and investment objectives if two stringent requirements are met: (1) projects must generate revenues that cover operating costs and debt-service payments, and earn a competitive rate of return on equity, and (2) risks that are internal (for example, construction and operation) and external (for example, regulatory and foreign exchange) to a project must be identified and clearly allocated to the parties that are in the best position to mitigate them. With their own capital at risk, lenders and investors have strong financial incentives to ensure that a project is built on time and within budget, and is operationally efficient."
World finance favors the giant multinationals. And some of them seem to be into almost everything these days. It's hard to imagine that the same corporation that produces Oscar-quality dramas such as A Beautiful Mind and Erin Brockovich also bottles Seagrams beverages while collecting water bills and hauling sewer sludge. But France-based Vivendi Universal does, and it says of its water unit in its annual report for 2000: "Revenues generated outside France now represent almost 58 percent of total revenues, with 19 percent derived from the United States."
Vivendi and major diversified European utilities slowly have been acquiring private utilities in the United States and other industrialized nations. They are purchasing access to an established water market, effectively adding to holdings in developing nations acquired from their IMF/World Bank connections.
According to Vivendi's annual report, with operations in all major regions of the world, its environmental group provides integrated services that include water (Vivendi Water), waste management (Onyx), energy services (Dalkia) and transportation (Connex). All involve intimate relations with government regulators.
And they are doing it with approval from local governments -- and, in most cases, without the knowledge of residents. As one U.S. official admitted, if people today are mad about high cable-TV fees, then imagine what will happen (and in some parts of the world already has occurred) when water monopolies start turning the screws on the price of access to water.
But not all local-government officials are willing to turn their water utilities over to multinational monopolies. …