Water, a multi-billion-euro business

Posted on 05. March 2013

by Lukas Brück

EPCHave you heard about the directive of the European Parliament and of the Council on the award of concession contracts?  No? No problem, none of my friends and fellow students here in Aberystwyth, Wales heard about it either.

Privatization of formerly state owned companies did already happen in the UK; whether public transport, energy or water supply and disposal (such as in London in 1999). Many French cities ‘alienated’ or sold operator rights of their water supply to private investors, while ostensibly reducing public budget deficit by obscure contracts.

In Germany on the other hand, privatization or PPP – projects of public water supply were not realized (besides some exceptions such as Berlin or Potsdam). The aforementioned directive by the Commission has given rise to a broad outcry in the population, especially after a broad coverage by all major German newspapers and TV channels triggered by a investigative TV magazine by ARD (a public channel).  Whereas here in the UK, privatized (former public utility companies) are already status quo and the directive wasn’t worth mentioning for the media.

However, starting from the beginning, what does the directive proposal entails? Is it a trivial concessions directive envisaging free access to the market, free competition while combating corruption or rather a first step towards irreversible privatization of water (as Heide Rühler, MEP for the Greens puts it)? She accuses the Commission that “the concessions directive does not open directly the door for water privatization, it rather opens the back-door, a crack”.

Can the new directive be described as agenda towards broader privatization step by step? Staying with the motto by Jean-Claude Juncker: “We decide something, put it into the room, then wait for some time what happens. If there is no big clamor and no riots, because most haven’t comprehended at all what has been decided there, then we continue – step by step, until there is no more way back.”

The directive does not force cities and communities to privatize their public water supply – as some critics argue. However, big cities are facing public tendering following suggestions by the European Union to engage in the energy sector with their public owned utility companies, and therewith will have to compete for the water supply concessions with private competitors.

The proposals from Brussels have rarely triggered such a wave of protests across all political divides in Germany. It is obvious that the directive is a first step towards a liberalization and privatization of the water market – a market estimated by analysts worth a three-digit billion figure.

Privatization or public-private partnerships and laws for more transparency for healthy competition within a market, are in principle a good thing. It is in the interest of the customers to achieve a better quality or a lower prize. Unfortunately in the case of water supply, all prior examples are drawing another picture. In countries all over Europe, whether in Germany, Portugal, France or the UK, privatization led in the worst case to a lower quality of water and in the best case to rising prices.

A study from 2010 by the university of Barcelona comes to a conclusion that by “meta-regression analysis of all econometric studies examining privatization of water distribution and solid waste collection services […] no systematic support for lower costs with private production [can be found].1Furthermore, public maintenance calculates with 30-60 years to an amortization for successful operation of water infrastructure projects such as the building of a new drain. This opposes the logic of private companies responsible for the interests of their investors and with a maximal length of concession contracts of 15 to 20 years. It is clear and visible in the last couple of years that according to commercial market principals and the drive to achieve high revenues, private companies avoid investments in expensive maintenance.

The consequences of privatization can be illustrated with the statistics of drainage of water in France. The numbers publicized by Le Journal du Dimanche (JdD) from 2009 show that within the private water supply an average of 25% of water is lost as a consequent of leaking drains. In Marseille, Lille Antibes, Dijon, Bordeaux, Nice Toulon (between 17% and 27 %), Avignon 35%, Nîmes 41% or even  44% in Arles sur Tec, while in the public infrastructure of Paris, Tours, Reims, Limoge and La Rochelle, the percentage of water lost is between 3% and 12%. 2

So far, notwithstanding evident problems caused by privatization of the public water sector, the EU, IMF and ECB (generally named as the Troika) accelerate and push for privatization of water in Portugal and Greece; in cities such as Athens (Athens Water EYDAP), Thessaloniki (Thessaloniki Water EYATH) or the Portuguese municipal utility company Aguas de Portugal.

According  to German magazine “Monitor” due to privatization of the communal water supply, prizes of water in a Portuguese city of Pacos de Ferreira have risen for more than 400% within few years. This effect was not only seen in southern European countries. A termination of contract with a private operator in Potsdam, repurchase of the partially privatized water infrastructure in Berlin (repurchase of 24,95% of the shares hold by RWE for more than 600 Million due to unreasonably raise of prices, high guaranties of revenues for the private companies agreed on in secret contracts and high seepage) or added chlorine in private run water supplies in France to provide water security because of leaking pipes, are only few examples.

Apprehensions are raising that the Troika requirements in southern Europe in conjunction with the new directive could trigger a new wave of privatization in north European countries, in which former privatization or public-private partnership projects were undone or are not prolonged, with the exeption of the special case of the UK.

EU-commissioner Michel Barnier proclaimed smaller changes during a consultation of the responsible committee of the European Parliament on 21.02.2013, due to arising disputes and protests about communal water supply.

The number of cities and towns affected by the revised directive to have public tendering is lower than before. According to his new draft, public utility companies do not need any public tendering, once their business volume is more than 80 percent within their home community in the category of water, whereas before all involvement of the public utility company was taken into account, such as electricity or gas. Despite this change, still 400 out of 800 public utility companies in German cities would be affected.

Indeed, the new directive will not necessitate cities or communities to privatize. However, communities opposed to the idea of privatization have to find legal finesse as Brussels makes the actually self-evident matter of public good in public hand complicated. Therewith Brussels sends a signal in the wrong direction – not being able to stop pushing a market and neo-liberal agenda.

Another fact that gives us food for thought is the development of the directive and connection of commissioner Barnier from France with representatives of big business.  In France, neither the Postal service nor railway are privatized, but in the economic field of water technique and operation, the French company Veolia is one of the global players – in the search for new markets. The new directive helps during prospective acquisitions to come. Noteworthy is furthermore the process of development. Special focus should be laid on the committee of experts which drafted the lines in the directive: Steering Group of the European Innovation Partnership on Water, consisting mainly out of representatives of the water and related industries.    –      Honi soit qui mal y pense.

Water as a fundamental human right, publicly accessible as stated by the UN, however not enforceable, or as a commodity like any other product? The new directive, even though slightly, pushes towards water as the new blue gold.

I am a big proponent of the European Union, the new directive however gives me serious doubts about the main interests by which especially the European Commission is driven.

I do not want to participate in condemning attempts of privatization in general – I support efforts to regulate privatization and ensure equal opportunities in the market. But given the current conditions I do not see any reasons which would corroborate the need to privatize respectively open the market. According to surveys more than 80% of the people Germany are strongly against the privatization of their public water supply.

The European Union is based on the principle of subsidiarity. Providing the most basic product of all – water – is one of the issues a state should care about. State should be able to comply flexibly with the needs and requirements of the local conditions with decisions based on long-run foresights, cost-covering and in accordance with the solidarity principle, rather than to privatize with operators seeking maximization of revenues within the next 5 years.

Things certainly remain interesting – the battle for the public good, water, has just started.

Footnotes

1. Germà Bel & Xavier Fageda & Mildred E. Warner, 2010. “Is private production of public services cheaper than public production? A meta-regression analysis of solid waste and water services,” Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 29(3), pages 553-577. Available: http://www.ub.edu/graap/JPAM_BFW.pdf (7.02.2013)

2. http://m.franceinfo.fr/france-societe-2009-11-08-la-grand-gachis-de-l-eau-25-se-perd-dans-les-canalisations-366480-9-12.html