Reports: Water Privatization

The 2008 global financial crisis left many governments around the world with serious fiscal challenges. Eroded tax bases and growing health and retirement costs created or worsened local budget deficits across the United States, and a sovereign debt crisis rattled the European Union. Instead of confronting these problems head-on, a number of public officials across the globe sought to lease or sell public water and sewer systems to fund ongoing government functions or to pay down liabilities. That is, they have tried to use water privatization to create the illusion of having balanced the budget, when in fact they are just digging the hole deeper.

Investment bankers and other major financial players are increasingly interested in taking control of water and sewer services across the United States. Private equity vehicles are armed with more than $100 billion for infrastructure worldwide. Although most deals in the U.S. water utility market have involved existing private sector companies, a number of fund managers anticipate that the ongoing fiscal crisis will drive some governments to privatize their water infrastructure. To make that prediction a reality, major financial interests are backing various government proposals that facilitate privatization and private financing of public infrastructure.

Many communities across the country want local public control of their water and sewer services. Municipalization — the purchase of a privately owned system by a local government — is a fairly common occurrence, but for communities unfamiliar with it, the process could appear daunting. This guide provides an overview of the process and a number of logistical considerations involved in government purchases of privately owned water and sewer systems. Although the general procedure is similar, the specifics will vary by situation, partly because every state has its own legal and regulatory framework.

The United Nations General Assembly declared in July 2010 that access to clean water and sanitation is an essential human right, calling on countries and organizations to help provide access for the 884 million people currently without safe drinking water and the more than 2.6 billion people without basic sanitation.

Clean drinking water and wastewater treatment are basic services that societies and governments provide. Water is a necessity for life, and safe water and sanitation are crucial for public health. In July 2010, the United Nations declared access to clean water and sanitation to be a human right. But recognizing the human right to water does not explain how to deliver this right to households. Even with this commitment to enhance water delivery and safety, an estimated 884 million people worldwide lack access to safe water, and 2.6 billion lack access to improved sanitation.

Europe Report: Clean drinking water and wastewater treatment are basic services that societies and governments provide. Water is a necessity for life, and safe water and sanitation are crucial for public health. In July 2010, the United Nations declared access to clean water and sanitation to be a human right. But recognizing the human right to water does not explain how to deliver this right to households. Even with this commitment to enhance water delivery and safety, an estimated 884 million people worldwide lack access to safe water, and 2.6 billion lack access to improved sanitation.

Veolia’s corporate profits plummeted in 2008 and remained languid through 2010. In the water division, the company has suffered major losses from municipalizations and has struggled to obtain new long-term privatizations. Despite its disappointing performance, the company continued many of the same strategies in 2011 that it had used over the preceding five years. It sought long-term, complex contracts to control entire municipal water and sewer systems. Such arrangements, however, seem to be increasingly rare for the company. For Veolia, complex deals were appealing because they involved less competition. The company and several of its peers have come under the scrutiny of anti-trust regulators in the European Union. Veolia has focused half of its new growth investments in Europe, particularly Eastern Europe, where it has the financial backing of multilateral lending institutions.

Confronted with daunting budget shortfalls following the recent economic downturn, various cities and towns across the country have considered cashing out their water utilities to generate revenue. But rather than ease fiscal pressures, the sale or lease of water assets would likely further weaken a locality’s long-term financial health and saddle consumers with debt.

“Public-Public Partnerships: A Backgrounder on Successful Water/Wastewater Re-engineering Programs” features four case studies of U.S. cities that kept ownership in public hands by reorganizing the operation and management of their own system successfully in order to save money, reward employees, and enhance services.