thirst for profits

An astonishing one billion people worldwide lack access to clean water, while global consumption of water is doubling every 20 years – more than twice the rate of human population growth. In short, the world faces a major water crisis. Increasingly, multinational water corporations are asserting that they can provide the answer to the world's water needs. Yet in recent years, the rapidly rising level of private investment in water services in both developing and developed countries has been accompanied by an alarming number of incidents involving corporate malfeasance and irresponsibility. Despite these failures, water companies have lobbied hard, often through powerful lobby groups such as the European Services Forum and US Coalition of Service Industries, to open up the water market and to have international rules adjusted accordingly.

International financial institutions (IFIs) – including the World Bank and IMF– have supported the expansion of these companies' operations globally by pressing countries to privatize their water service systems as a condition for loans and debt restructuring. The World Trade Organization has also recently begun negotiations to liberalize water services under the General Agreement on Trade in Services (GATS). Meanwhile, investment treaties are being used by water corporations to try to force governments to compensate them for failed water privatization schemes, and similar investor rights rules are being written into new trade agreements such as the Free Trade Area of the Americas (FTAA). Services and investment negotiations could cement privatization in those countries which have been forced to privatize their water and also require the countries to deregulate their water sectors.

The intersection among the IFIs and trade agreements has become increasingly evident due to the events in Cochabamba, Bolivia. The water system there, Bolivia's third largest city, was privatized following World Bank pressure on the national government. A private water consortium controlled by the Bechtel Corporation took over operation of the city's water system and doubled and even tripled prices for many poor customers. When popular opposition to the price increases emerged, security forces shot and injured protesters, killing one. The Bechtel consortium finally decided to leave Cochabamba, but then brought a suit against Bolivia to the International Center for the Settlement of Investment Disputes (ICSID) at the World Bank. Using an international investment treaty that is similar to the one being negotiated in the FTAA, the Bechtel group is suing Bolivia for $25 million in lost future profits.

Key Players: Controlling the water and re-writing the rules
The world of privatized water is overwhelmingly dominated by two French multinationals: Suez (formerly Suez Lyonnaise des Eaux), with $9 billion of water revenue in 2001, and Vivendi Universal , with $12.2 billion of water revenue in 2001. Both are ranked among the 100 largest corporations in the world by the Global Fortune 500, and between them they own, or have controlling interests in, water companies in over 100 countries on five continents and distribute water to more than 100 million people around the world. Other major corporate actors include German water giant RWE and its British subsidiary Thames Water , and US-based Bechtel , which is promoting privatization plans in South America. Another major player – Enron – has recently withdrawn from the scene.

A record of bribery, high prices and pollution
The major water companies are being given increased access to and control over water markets, yet their record has been troubling on many fronts.

Bribery has been endemic to the industry.

• For most of the past decade, French magistrates have been investigating allegations of corruption against executives of Suez and Vivendi. On three occasions, water executives have been convicted of paying bribes to obtain water contracts in France.

charged by the water corporations:

• In Cochabamba, Bolivia, rates reached as high as 25% of household income for some poor residents.
  
• The water system of Manila, in the Philippines, was divided by the World Bank into two zones in 1997, each run by a separate consortium. One consortium included Bechtel, the other, Suez Lyonnaise des Eaux. In October 2001, the Suez consortium was given permission to raise rates by up to 64%, contrary to their proclaimed intention to keep rates low.
  
• Since 1993, Suez has been the major partner in the privatized utility supplying water to Buenos Aires' 10 million inhabitants, one of the largest water concessions in the world. According to the first independent study of the utility, prices were raised by more than 20% after privatization. It reported that many poorer families - if at all connected to the supply - could no longer afford to pay their water bill.
  
• In 2001, Enron's water subsidiary, Azurix, was fined for overcharging thousands of customers to whom it supplied water in Buenos Aires.
  
  

and have failed to provide adequate or sanitary water supplies:

• Suez, Vivendi, Thames Water (RWE) and Wessex Water (Enron) all have been ranked among the top five polluters by the UK Environment Agency.
  
• In 1995, the Puerto Rico Aqueducts and Sewers Authority (PRASA) water supply and sanitation services were privatized to Vivendi's Compaia de Agua in 1995. Since then, PRASA has been the subject of two highly critical reports by the Puerto Rico Office of the Comptroller. The most recent report found 3,181 deficiencies in management of the infrastructure and said the leakage rate was around 50%. Since privatization, PRASA has reportedly been fined a total of $6.2 million for various violations of environmental laws. Whole communities on the island have had no water supply for weeks and even months at a time.
  
• In Buenos Aires, where Suez operates the major water concession, 95% of the city's sewage is dumped into the Rio del Plata River, causing environmental damage that must in turn be paid for with public funds.
  

A Poor Fit
Multinational water companies are being handed increasing control of the world's water. International financial institutions continue to promote these companies' expansion internationally, and international trade agreements will enable the companies to have even greater influence over the water sector. Yet the major water companies have thus far failed to demonstrate that they are fit to be the providers of water to those who need it most, and the international financial and trade institutions have failed to ensure that water privatization schemes will not harm people and the planet. A significant shift in water policy is needed to protect the poor and the environment.

FoEI, September 2002

For additional information, contact David Waskow at (202) 783-7400 x108