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Giants in the water market

By Manoj Nadkarni

When a public good such as water is treated as an economic good, with an economic value and price, water is set to become, like oil, a precious commodity that determines the wealth of nations. No wonder corporations worldwide are battling over a $ 287 billion global water market. This article looks at the major international players in the water market, and charts their rapid growth

The World Bank has predicted that by the year 2025, two-thirds of the world’s population will run short of fresh drinking water. In 2000, Fortune, the business magazine, declared: “Water promises to be to the 21st century what oil was to the 20th century: the precious commodity that determines the wealth of nations.” According to the magazine, the annual revenues of the water industry amount to approximately 40% of the oil sector.

Unlike oil, the real value of water is incalculable, since no life is possible without it. In 1995, total global water abstraction was some 3,750 km3/year, with actual consumption being 61% of this, or 2,270 km3/year. There are projections that water withdrawal will grow by about 10-12% every ten years, and by 2025 it will reach approximately 5,100 km3/year. Right now, about 57% of total water withdrawal and 70% of global water consumption occurs in Asia where most of the major irrigated agriculture takes place. During the next few decades, the most intensive growth in water withdrawal is expected to occur in Africa and South America (by 1.5-1.6 times), and the smallest in Europe and North America (1.2 times).

Most of the water we use is for agriculture; irrigation accounts for nearly 70% of total global use. Growing food is water-intensive; every kilogram of potatoes we eat uses 1,000 litres, wheat 1,450 litres and rice, 3,450 litres. Industry uses 20%, and nearly every industrial process needs some water; it takes 477,750 litres of water to make a single car, for instance.

The remaining 10% is for everyday use -- for drinking, washing, bathing and cooking. We need a minimum of 2-3 litres of water to drink every day.

Not everyone gets those clean 2-3 litres of water: 1.1 billion people worldwide lack clean drinking water, and in what is a sure sign of lack of water, 2.4 billion people lack access to sanitation. An estimated 14,000-30,000 people, mostly young children and the elderly, die every day from water-related diseases. The United Nations’ Millennium Development Goals include halving these figures in the next ten years (consensus is that this is unlikely to happen, progress is far too slow). It has been estimated that this halving would cost an extra $ 16 billion each year, an amount that, as the international NGO WaterAid famously points out, is less than what North Americans and Europeans spend on pet food in one year. Different organisations have estimated that meeting the Millennium Development Goal on drinking water supply coverage would require between US$ 10 billion and US$ 30 billion a year on top of the amount already being spent. The World Health Organisation in its VISION 21 report calculates that US$ 47 billion per year over 25 years will be required for universal water access.

It may be worthwhile to go the other way and see what the absence of clean water costs: a study based on WHO health statistics that analysed deaths and the burden of disease (measured in Disability Adjusted Life Years: DALYs) due to water, sanitation and related hygiene risks showed a total of some 4 billion diarrhoea cases per year, which resulted in between 1,085,000 and 2,187,000 deaths per year and between 37,923,000 and 76,340,000 DALYs; 90% of these deaths occurred among children under five. Adding other polluted water diseases like worms led to a total estimate of 2,213,000 deaths and 82,196,000 DALYs per year. While the economic dollar cost of DALYs is controversial, if the commonly used figure of US$ 500 per DALY is used, then the annual health costs attributed to poor access to water and sanitation are in the order of US$ 40 billion.

Water companies everywhere have grabbed this idea of the economic value and price of water. The current size of the global water market is $ 287 billion right now, and is expected to be $ 413 billion by 2010, yet it is considered a ‘young’ industry serving only 5% of the world’s population.

It was the United Nations that started the world thinking of water in terms of money. The 1992 International Conference on Water and the Environment, held in Dublin, was a  precursor to the United Nations Rio Conference on Environment and Development. It came up with what is known as the Dublin Statement, which said: “Water has an economic value in all its competing uses and should be recognised as an economic good.” The statement did go on to add: “Within this principle, it is vital to recognise first the basic right of all human beings to have access to clean water and sanitation at an affordable price.”

Water markets are actually not uncommon. Wherever people have more water than they need they sell it to others. In the USA, rural water markets have become institutionalised, with farmers’ associations selling water to each other and to urban centres in need of water. Farmers’ markets exist in India too, some formal, others informal, with prices fixed through negotiation, and payment not in currency but in labour or products.

Some farmers’ water markets in India have become notorious. A well studied case is in Tirupur, which has a large and prosperous textile manufacturing and dyeing industry that is dependent on water from the Noyyal river. Over the years, the industry had dangerously polluted the river and depleted its water supply to the point where the entire industry was in danger of closing down because of scarcity of clean water. Farmers outside the town realised they could actually make more money selling their groundwater to the dyeing industry than by growing crops. As the scarcity intensified, water prices shot up and farm wells pushed up their prices. The result: industrial pollution now affects most of the surrounding soil too and the water table has been significantly lowered.

In the Indian situation, where all surface water is public, groundwater belongs to the person who owns the land that ‘contains’ it. So, if you are a farmer with a lot of acreage, you can pump water out and sell it. In parts of Karnataka, farmers have switched from traditional crops to those that do not need much water, not because of water conservation but because they can sell the surplus.

However, such water mining works only for farmers and industries. The real money to be made in water is not in the rural areas but in the rapidly urbanising big towns, with suburbs extending further out and new satellite townships coming up every day. All of these are dependent either on water systems left over from colonial times or new provisions dependent on aid. This is where the interests of big players in the water market lie.

Helped by the liberalisation policies of the World Bank and the IMF these companies have become rich and powerful. While the 5% mentioned above sounds small and trivial, the growth of these companies is frightening. In 1990, around 51 million people got their water from private companies, according to water analysts. That figure is now more than 300 million.

As in oil, there are the major international players who call the shots; they are big enough to influence multilateral donor agencies and governments, and their names feature in all the lists of the global top-performing companies, with revenues matching those of small countries. Analysts expect these companies will control 65-75% of formerly public waterworks in Europe and North America in the next 15 years.
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The two biggest water companies in the world are Veolia (Vivendi) and Suez, both French. France was one of the few countries that privatised water services as early as the middle of the 19th century. Both Suez and Veolia pioneered the building of the water industry, learning the trade and expanding their operations through their home-based markets. Together, they have monopoly control over 70% of the existing world water market. Suez operates in 130 countries and Vivendi in well over 90. While Vivendi is the larger of the two water giants, posting bigger annual sales than its rival mainly because of its diverse operations and large customer base in France, Suez serves far more people -- around 110 million globally. Of the 30 water contracts awarded by big cities since the mid-1990s, 20 went to Suez.

Wherever these companies operate, in different countries or different areas of operation such as desalination or wastewater or distribution, they form or acquire subsidiaries with expertise in these areas. Or they get into formal partnerships and joint ventures with other corporations on specific projects. Because of local subsidiaries, these big players are often hard to identify. Suez, for example, goes by other names such as Ondeo, Aqua Chem, Degremont and United Water Resources. Headquartered in Paris, France, Suez was originally set up in 1858 to build and operate the Suez Canal. Since then it has spread all over the globe for the control of water. Suez has a total revenue of $ 41.9 billion, of which $ 15.23 billion is from water services. Its net income is $ 2.1 billion. It’s these figures that put it at 99 on the Fortune 500 list of the world’s most successful businesses. Suez has its biggest grip on markets in the United States, Europe, China and Latin America. But because of the bad press that Suez (and other water companies) is getting as it tries to find markets in the developing world, it is backing off from a third of its investments in developing countries, maintaining only those which carry low levels of risk. Suez is the only big water corporation that has a water contract in India -- the Sonia Vihar plant in Delhi.

Veolia Environnement operates internationally in waste management and energy. It was previously called Vivendi, and before that Generale des Eaux. After it ran into major financial difficulty when it went into the movie and music business, the company was split up, and the environmental services element of Vivendi was recreated as Veolia in 2003. In many countries it still operates as Generale des Eaux, in others as Onyx Environmental and Connex. Veolia is number 463 in the Fortune 500 list, with a net income of US$ 2.58 billion, from a total revenue of US$ 35.96 billion. Water services make up 40% of this.

Bouygues, another French water company and one of the bigger companies, operates through its subsidiary SAUR in 80 countries around the world. Recently, the RWE Group from Germany overtook it to third place. RWE is also known as Thames Water, American Water and China Water Company. It is number 53 in the Fortune 500 list and had sales of $ 59.4 billion in 2002, of which water sales accounted for $ 3.6 billion. RWE operates in over 50 countries, with 70 million customers. But its biggest markets are in the United States, Europe, China and South America. RWE, originally an energy group, got so big by merging with Thames Water in 2000, creating the third largest water service supplier in the world. Later, in 2003, RWE acquired American Water, which gave it access to US markets since AW already had a presence there.

Bechtel, the American construction giant, has also entered the water business and because of its size is one of the big water companies though its water operations are not as big as Suez and Veolia. But Bechtel is a private family-owned company, so its finances are private. It has a partner relationship with Edison, an Italian water and electricity company, and together they own the International Water Company. In 2004, Bechtel revenues were $ 17.4 billion. Right now, Bechtel is receiving a lot of criticism because of water infrastructure projects in Iraq. Shortly after the war started, the US government awarded Bechtel a private $ 680 million contract for the reconstruction of Iraq. Now that contract has increased to more than $ 1.8 billion. Bechtel received $ 515 million to rebuild Iraq’s power stations; $ 33 million for roads and railroads; $ 44 million to dredge a deepwater sea port; $ 45 million for a telephone network; $ 52 million for repairs to Baghdad airport; $ 53 million for the reconstruction of schools; and, finally, $ 208 million to rebuild sewage and water treatment plants.

Though these water companies are in a sense rivals and business competitors, they often team up directly or through their subsidiaries. A well-documented example of water privatisation -- the Buenos Aires water supply concession -- was done through a company called Aguas Argentinas, a consortium of five partners including both Vivendi and Suez.

All these water multinationals see themselves as multi-utility providers and this is how they continue to make money even while their operations are being closed down in country after country. They use their range of expertise as water corporations to deal in wastewater services, water treatment facilities, water-related construction and engineering and research and development of water technologies like desalination. So, in some guise or the other, the doors are always open.

The doors are further jammed in place by the pressure these companies are able to put on supposedly independent multilateral organisations. Take the World Trade Organisation that is supposedly open only to governments of participating nations. As a business, Suez does not officially take part in the events, but the European Services Forum (ESF) does. The ESF is formed by Suez and Veolia and can influence negotiations. At the collapsed WTO meeting in Seattle, the ESF was an official member of the EU WTO delegation. As it is, executives of the major French water companies often end up in government.

Multilateral international development lending agencies support the big water companies, though they are supposed to be pro-poor. Both the IMF and World Bank’s policies and programmes strongly reflect their views on what is euphemistically called “public sector reform”, a major component of which is the privatisation of state-owned utilities, including water services. The pressure is applied quite directly as ‘structural adjustment’ and ‘water sector restructuring’ loans from the World Bank, requiring privatisation of water services by giving concessions, leases, or management contracts to “international operators” that have the supposed expertise to handle such services.

In a world where clean water is getting harder to find, and where the poor are being denied their share, the logical step for business is to further own water by bottling it and selling it to those who can afford it. The global bottled water market, with a total yearly volume of 89 billion litres, is estimated to be worth US$ 22 billion. Western Europeans are the biggest consumers (85 litres/person/year), but the most promising markets are in Asia and the Pacific where an annual increase of 15% is projected.

In India the market for packaged water is estimated to be between Rs 8 billion and 10 billion, and is growing at the rate of nearly 40% per annum. Even though it accounts for only 5% of the total beverage market in India, branded bottled water is the fastest growing industry in the beverage sector. In spite of just making it onto the list, it is already one of the top 10 global bottled water markets.

Global bottled water market

Leading countries’ consumption and compound annual growth rates (CAGR)

1999-2004

 

2004

 

Millions of gallons

CAGR

Rank

Countries

1999

2004

1999/04

1

United States

4,579.9

6,806.7

8.2%

2

Mexico

3,056.9

4,668.3

8.8%

3

China

1,217.0

3,140.1

20.9%

4

Brazil

1,493.8

3,062.0

15.4%

5

Italy

2,356.1

2,814.4

3.6%

6

Germany

2,194.6

2,722.6

4.4%

7

France

1,834.1

2,257.3

4.2%

8

Indonesia

907.1

1,943.5

16.5%

9

Spain

1,076.4

1,453.5

6.2%

10

India

444.0

1,353.3

25.0%

 

Top 10 sub-total

19,159.8

30,221.6

9.5%

 

All others

6,833.5

10,535.0

9.0%

 

   Total

25,993.3

40,756.6

9.4%

Source:  Beverage Marketing Corporation

And this trend does not show any signs of stopping. As long as our governments shirk their responsibility of providing water, of abiding by some standards of quality and quantity, the water companies will go grabbing and selling back to us what should be everyone’s right. Those who can afford to will sit and compare brands and toss empty bottles out into the garbage. Those who cannot afford such prices will fill those same bottles for their drinking water, drop by drop, from some leaking municipal pipe. Leaks that privatisation will supposedly plug.

(Dr Manoj Nadkarni is Programme Coordinator at the Centre for Communication and Development Studies, Pune, and a researcher and writer on water and sanitation issues)

InfoChange News & Features, October 2005