Goodbye International Water
- From: Vol 5, Issue 7 (July 2004)
- Category: Analysis
- Region: Unspecified
- Related Companies: Bechtel, Edison, General Electric/Osmonics, International Water (IWL), ITT Industries, RWE/Thames (Water), Siemens, Suez and Veolia
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The curtain has fallen on Bechtel and Edison’s joint venture to take water to the world. The world has moved on.
With the sale of its interests in the Scottish PFI projects (see story p25), International Water closed its doors last month. Already the concept of a company which exists to bring private water to far flung parts of the world looks quaint. Can anyone imagine investing hard currency in water projects in countries like the Philippines, Argentina and Bolivia now?
The map of the world according to the private water companies has changed a lot since IWL was founded in 1996. There are only a dozen or so countries marked on it: China, Malaysia, the United Arab Emirates, Britain, France and Spain are the big ones. If you look closer you might find tiny specks representing the USA, Saudi Arabia, Germany, Italy and Mexico. Africa, South America, south and most of South East Asia have been erased.
Even within those markets the main growth is not concessions on the distribution side. It is plant sales with operating contracts. Our interview with Joe Burgess of Veolia Water North America on p13 is a good illustration of how the focus of the large international water companies is changing. Inevitably it brings them into competition with the large industrial groups which have recently bought their way into the equipment supply side of the business – GE, ITT and Siemens. These companies will undoubtedly want to offer a service element alongside their equipment sales, which may bring them into the DBO and BOT market as well.
There are some compelling arguments for growth in the market for packaged plant sales with operating contracts. Significantly tighter environmental legislation on discharges and tougher drinking water treatment challenges, as increased demand forces utilities to look to lower quality raw water sources, have created increased demand for new hi-tech plants. Operating contracts are easy to sell around these new facilities, save municipalities (and industrial customers) the need to develop new skills in-house and protect them from additional employee liabilities.
But they don’t solve the old problem of underfinanced and inefficient distribution systems. In fact, they can make those
problems worse because they divert scarce financial resources away from the distribution network.
Distribution in many countries is inefficient because it is underfinanced, and it is underfinanced because tariffs are too low, and tariffs are too low because it is difficult to win political support for higher tariffs when the service is so inefficient. In the late 1990s, private water concessions were seen as a means of breaking this cycle of neglect, with tariff increases taken out of political control, and foreign investment coming in to improve efficiency. Some of them, such as IWL’s concession in Cochabamba, Bolivia, had the reverse effect: they dramatically increased the politicisation of the tariff issue, making governments across the world more reluctant to increase tariffs to pay for investment. The result is that the cycle of neglect has continued.
But with the withdrawal of IWL, Suez, Veolia and RWE/Thames from the developing world, the issue should become depoliticised. The focus will be on delivering efficient water services rather than confronting the “evils” of privatisation. Eventually the same efficiency based rationale which is behind the growth in the market for treatment plants with operation contracts will start to be applied to distribution. Similarly, local currency financing options will make the developing world more attractive to international private water companies.
IWL’ll be back.