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11/1/13 The Race to Buy Up the World's Water

mag.newsweek.com/2010/10/08/the-race-to-buy-up-the-world-s-water.html 1/4

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T H E N E W O IL

Oct 8, 2010 9:45 AM EDT

Should private companies control our most precious natural resource?

itka, A laska, is ho m e to o ne o f the w o rld’s m o st spectacu lar lakes. N estled into a U -shaped valley o f dense fo rests and

m ajestic peaks, and fed by sno w pack and glaciers, the reservo ir, nam ed B lu e L ake fo r its deep blu e hu es, ho lds trillio ns

o f gallo ns o f w ater so pu re it requ ires no treatm ent. T he city’s tiny po pu latio n— few er than 1 0 ,0 0 0 peo ple spread

acro ss 5 ,0 0 0 squ are m iles— m akes this an em barrassm ent o f riches. E very year, as co u ntries aro u nd the w o rld stru ggle to m eet

the w ater needs o f their citizens, 6 .2 billio n gallo ns o f S itka’s reserves go u nu sed. T hat co u ld so o n change. In a few m o nths, if

all go es acco rding to plan, 8 0 m illio n gallo ns o f B lu e L ake w ater w ill be sipho ned into the kind o f tankers no rm ally reserved

fo r o il— and shipped to a bu lk bo ttling facility near M u m bai. F ro m there it w ill be dispersed am o ng several dro u ght-plagu ed

cities thro u gho u t the M iddle E ast. T he pro ject is the brainchild o f tw o A m erican co m panies. O ne, T ru e A laska B o ttling, has

pu rchased the rights to transfer 3 billio n gallo ns o f w ater a year fro m S itka’s bo u ntifu l reserves. T he o ther, S 2 C G lo bal, is

bu ilding the w ater-pro cessing facility in India. If the co m panies su cceed, they w ill have bro u ght w hat S itka ho pes w ill be a $ 9 0

m illio n indu stry to their city, no t to m entio n a so lu tio n to o ne o f the w o rld’s m o st pressing clim ate co nu ndru m s. T hey w ill also

have tu rned life’s m o st essential m o lecu le into a glo bal co m m o dity.

he transfer o f w ater is no thing new . N ew Y o rk C ity is su pplied by a w eb o f tu nnels and pipes that stretch 1 2 5 m iles

no rth into the C atskills M o u ntains; S o u thern C alifo rnia gets its w ater fro m the S ierra N evada M o u ntains and the

C o lo rado R iver B asin, w hich are hu ndreds o f m iles to the no rth and w est, respectively. T he distance betw een A laska

and India is m u ch farther, to be su re. B u t it’s no t the distance that w o rries critics. It’s the transfer o f so m u ch w ater fro m pu blic

hands to private o nes. “W ater has been a pu blic reso u rce u nder pu blic do m ain fo r m o re than 2 ,0 0 0 years,” says Jam es O lso n, an

atto rney w ho specializes in w ater rights. “C eding it to private entities feels bo th m o rally w ro ng and dangero u s.”

veryo ne agrees that w e are in the m idst o f a glo bal freshw ater crisis. A ro u nd the w o rld, rivers, lakes, and aqu ifers are

dw indling faster than M o ther N atu re can po ssibly replenish them ; indu strial and ho u seho ld chem icals are rapidly

po llu ting w hat’s left. M eanw hile, glo bal po pu latio n is ticking skyw ard. G o ldm an S achs estim ates that glo bal w ater

co nsu m ptio n is do u bling every 2 0 years, and the U nited N atio ns expects dem and to o u tstrip su pply by m o re than 3 0 percent

co m e 2 0 4 0 .

ro po nents o f privatizatio n say m arkets are the best w ay to so lve that pro blem : o nly the invisible hand can bring su pply

and dem and into harm o ny, and o nly m arket pricing w ill drive w ater u se do w n eno u gh to m ake a dent in w ater

scarcity. B u t the benefits o f the m arket co m e at a price. B y definitio n, a co m m o dity is so ld to the highest bidder, no t

the cu sto m er w ith the m o st co m pelling m o ral claim . A s the crisis w o rsens, co m panies like T ru e A laska that o w n the rights to

vast sto res o f w ater (and have the capacity to m o ve it in bu lk) w o n’t necessarily w eigh the needs o f w ealthy w ater-gu zzling

co m panies like C o ca-C o la o r N estlé against tho se o f w ater-starved co m m u nities in P ho enix o r G hana; privately o w ned w ater

u tilities w ill charge w hat the m arket can bear, and spend as little as they can get aw ay w ith o n m aintenance and enviro nm ental

pro tectio n. O ther co m m o dities are su bject to the sam e law s, o f co u rse. B u t w ith energy, o r fo o d, cu sto m ers have o ptio ns: they

can sw itch fro m o il to natu ral gas, o r eat m o re chicken and less beef. T here is no su bstitu te fo r w ater, no t even C o ca-C o la. A nd,

o f co u rse, tho se o ther things do n’t ju st fall fro m the sky o n w ho ever happens to be lu cky eno u gh to be living belo w . “M arkets

do n’t care abo u t the enviro nm ent,” says O lso n. “A nd they do n’t care abo u t hu m an rights. T hey care abo u t pro fit.” 11/1/13 The Race to Buy Up the World's Water

mag.newsweek.com/2010/10/08/the-race-to-buy-up-the-world-s-water.html 2/4

n the develo ped w o rld— A m erica especially— it’s easy to take w ater fo r granted. T u rn o n any tap, and it co m es ru shing

o u t, clean and plentifu l, even in the arid S o u thw est, w here the C o lo rado R iver B asin is stru ggling thro u gh its 1 1 th year

o f dro u ght; in m o st cities a m o nth’s su pply still co sts less than prem iu m cable o r a genero u s cell-pho ne plan. M any o f u s

have no idea w here o u r w ater co m es fro m , let alo ne w ho o w ns it. In fact, m o st o f u s w o u ld pro bably agree that w ater is to o

precio u s fo r anybo dy to o w n. B u t the rights to divert w ater— fro m a river o r lake o r u ndergro u nd aqu ifer— are indeed sellable

co m m o dities; so to o are the plants and pipes that pro cess that w ater and deliver it to o u r taps. A nd as dem and o u tstrips su pply,

tho se co m m o dities are set to appreciate precipito u sly. A cco rding to a 2 0 0 9 repo rt by the W o rld B ank, private investm ent in the

w ater indu stry is set to do u ble in the next five years; the w ater-su pply m arket alo ne w ill increase by 2 0 percent.

nlike the villain in Jam es B o nd’s Q u a n tu m o f S o la ce w ho hatched a secret plo t to m o no po lize B o livia’s fresh-

w ater su pply, the real w ater baro ns canno t be redu ced to a sim ple archetype. T hey inclu de a diverse array o f bu yers

and sellers— fro m m u ltinatio nal w ater giants like S u ez and V eo lia that to gether deliver w ater to so m e 2 6 0 m illio n

taps aro u nd the w o rld, to w ildcatter o il co nverts like T . B o o ne P ickens w ho w ants to sell the w ater u nder his T exas P anhandle

ranch to thirsty cities like D allas. “T he w ater m arket has beco m e m u ch m o re so phisticated in the last tw o decades,” says C lay

L andry, directo r o f W estW ater R esearch, a co nsu lting firm that specializes in w ater rights. “It’s go ne fro m paro chial

transactio ns— back-o f-the-tru ck, handshake--type deals— to a serio u s m arket w ith increasingly serio u s players.”

ventu ally, O lso n w o rries, every last dro p w ill be privately co ntro lled. A nd w hen that happens, the w o rld w ill find

itself divided alo ng a new set o f bo u ndaries: w ater haves o n o ne side, w ater have-no ts o n the o ther. T he w inners

(C anada, A laska, R u ssia) and lo sers (India, S yria, Jo rdan) w ill be different fro m tho se o f the o il co nflicts o f the 2 0 th

centu ry, bu t the bo tto m line w ill be m u ch the sam e: co u ntries that have the m eans to explo it large reserves w ill pro sper. T he rest

w ill be left to fight o ver ever-shrinking reserves. S o m e w ill go to w ar.

ntil recently, w ater privatizatio n w as an alm o st exclu sively T hird W o rld issu e. In the late 1 9 9 0 s the W o rld B ank

infam o u sly requ ired sco res o f im po verished co u ntries— m o st no tably B o livia— to privatize their w ater su pplies as a

co nditio n o f desperately needed eco no m ic assistance. T he ho pe w as that m arkets w o u ld elim inate co rru ptio n and

big m u ltinatio nals w o u ld invest the reso u rces needed to bring m o re w ater to m o re peo ple. B y 2 0 0 0 , B o livian citizens had taken

to the streets in a string o f vio lent pro tests. B echtel— the m u ltinatio nal co rpo ratio n that had leased their pipes and plants— had

m o re than do u bled w ater rates, leaving tens o f tho u sands o f B o livians w ho co u ldn’t pay w itho u t any w ater w hatso ever. T he

co m pany said price hikes w ere needed to repair and expand the dilapidated infrastru ctu re. C ritics insisted they served o nly to

m aintain u nrealistic pro fit m argins. E ither w ay, the rio ters sent the co m panies packing; by 2 0 0 1 , the pu blic u tility had resu m ed

co ntro l.

hese days, glo bal w ater baro ns have set their sights o n a m o re appealing target: co u ntries w ith dw indling w ater

su pplies and aging infrastru ctu re, bu t better eco no m ies than B o livia’s. “T hese are the co u ntries that can affo rd to

pay,” says O lso n. “T hey’ve go t hu ge infrastru ctu re needs, shrinking w ater reserves, and m o ney.”

o w here is this tru er than C hina. A s the w ater table u nder B eijing plu m m ets, w ells du g aro u nd the city m u st reach

ever-greater depths (nearly tw o thirds o f a m ile o r m o re, acco rding to a recent W o rld B ank repo rt) to hit fresh w ater.

T hat has m ade w ater drilling m o re co stly and w ater co ntracts m o re lu crative. S ince 2 0 0 0 , w hen the co u ntry o pened

its m u nicipal services to fo reign investm ent, the nu m ber o f private w ater u tilities has skyro cketed. B u t as private co m panies

abso rb w ater system s thro u gho u t the co u ntry, the co st o f w ater has risen precipito u sly. “It’s m o re than m o st fam ilies can affo rd

to pay,” says G e Y u n, an eco no m ist w ith the X injiang C o nservatio n F u nd. “S o as m o re w ater go es private, few er peo ple have

access to it.” 11/1/13 The Race to Buy Up the World's Water

mag.newsweek.com/2010/10/08/the-race-to-buy-up-the-world-s-water.html 3/4

n the U .S ., federal fu nds fo r repairing w ater infrastru ctu re— m o st o f w hich w as bu ilt aro u nd the sam e tim e that H enry

F o rd bu ilt the first M o del T — are so rely lacking. T he O bam a adm inistratio n has secu red ju st $ 6 billio n fo r repairs that

the E P A estim ates w ill co st $ 3 0 0 billio n. M eanw hile, m o re than half a m illio n pipes bu rst every year, acco rding to the

A m erican W ater W o rks A sso ciatio n, and m o re than 6 billio n gallo ns o f w ater are lo st to leaky pipes. In respo nse to the fu nding

gap, hu ndreds o f U .S . cities— inclu ding P ittsbu rgh, C hicago , and S anta F e, N .M .— are no w lo o king to privatize. O n its face, the

m o ve m akes o bvio u s sense: elected o fficials can u se the pro fits fro m w ater sales to balance city bu dgets, w hile sim u ltaneo u sly

o fflo ading the hu ge co st o f repairing and expanding infrastru ctu re— no t to m entio n the po litically u npo pu lar necessity o f

raising w ater rates to do so — to co m panies that pro m ise bo th jo bs and eco no m y-stim u lating pro fits.

f co u rse, the reality do esn’t alw ays m eet that ideal. “B ecau se w ater infrastru ctu re is to o expensive to allo w m u ltiple

pro viders, the o nly real co m petitio n o ccu rs du ring the bidding pro cess,” says W eno nah H au ter, execu tive directo r o f

the no npro fit, antiprivatizatio n gro u p F o o d and W ater W atch. “A fter that, the private u tility has a virtu al m o no po ly.

A nd becau se 7 0 to 8 0 percent o f w ater and sew er assets are u ndergro u nd, m u nicipalities can have a to u gh tim e m o nito ring a

co ntracto r’s perfo rm ance.” A cco rding to so m e repo rts, private o perato rs o ften redu ce the w o rkfo rce, neglect w ater

co nservatio n, and shift the co st o f enviro nm ental vio latio ns o nto the city. F o r exam ple, w hen tw o V eo lia-o perated plants spilled

m illio ns o f gallo ns o f sew age into S an F rancisco B ay, at least o ne city w as fo rced to m ake m u ltim illio n-do llar u pgrades to the

o ffending sew age plant. (V eo lia has defended its reco rd.)

ven as m any U .S . cities lo o k to w ard ceding their w ater infrastru ctu re to private interests, o thers are w aging expensive

legal battles to get o u t o f su ch co ntracts. In 2 0 0 9 C am den, N .J., su ed U nited W ater (an A m erican su bsidiary o f the

F rench giant S u ez) fo r $ 2 9 m illio n in u nappro ved paym ents, high u nacco u nted-fo r w ater lo sses, po o r m aintenance,

and service disru ptio ns. In M ilw au kee a state au dit fo u nd that the sam e co m pany vio lated its co ntract by shu tting do w n sew age

pu m ps to save m o ney; the m o ve resu lted in billio ns o f gallo ns o f raw sew age spilling into L ake M ichigan. A nd in G ary, Ind.,

w hich canceled its co ntract w ith U nited W ater after 1 2 years, critics say privatizatio n m o re than do u bled annu al o perating co sts.

“It ends u p being a ro u ndabo u t w ay to tax peo ple,” H au ter says. “O nly it’s w o rse than a tax becau se they do n’t spend the m o ney

m aintaining the system .”

epresentatives o f U nited W ater po int o u t that 9 5 percent o f its co ntracts are in fact renew ed and say that a few bad

exam ples do n’t tell the w ho le sto ry. “W e are dealing w ith facilities that w ere designed and bu ilt at the end o f W o rld

W ar II,” says U nited W ater C E O B ertrand C am u s. “W e have plenty o f ho rro r sto ries o n o u r side, to o .” T he G ary

facility, to take o ne exam ple, w ent private o nly after the E P A fo rced the pu blic u tility to find a m o re experienced o perato r to

so lve a range o f pro blem s. “Individu al m u nicipalities do n’t have the expertise to em plo y all the new techno lo gy to m eet the new

standards,” C am u s says. “W e do .”

he bo tto m line is this: that w ater is essential to life m akes it no less expensive to o btain, pu rify, and deliver, and do es

no thing to change the fact that as su pplies dw indle and dem and gro w s, that expense w ill o nly increase. T he W o rld

B ank has argu ed that higher prices are a go o d thing. R ight no w , no pu blic u tility anyw here prices w ater based o n ho w

scarce it is o r ho w m u ch it co sts to deliver, and that, privatizatio n pro po nents argu e, is the ro o t cau se o f su ch ram pant o veru se.

If w ater co sts m o re, they say, w e w ill co nserve it better.

he m ain pro blem w ith this argu m ent is w hat eco no m ists call price inelasticity: no m atter w hat w ater co sts, w e still

need it to su rvive. S o beyo nd trim m ing no nessential u ses like law n m aintenance, car w ashing, and sw im m ing po o ls,

co nsu m ers really can’t redu ce w ater co nsu m ptio n in pro po rtio n to rate increases. “F ree-m arket theo ry w o rks great fo r

discretio nary co nsu m er pu rchases,” says H au ter. “B u t w ater is no t like o ther co m m o dities— it’s no t so m ething peo ple can

su bstitu te o r cho o se to fo rgo .” D o zens o f stu dies have fo u nd that even w ith steep rate hikes, co nsu m ers tend to redu ce w ater

co nsu m ptio n by o nly a little, and that even in the w o rst cases, the cru nch is dispro po rtio nately sho u ldered by the po o r. In the

string o f dro u ghts that plagu ed C alifo rnia du ring the 1 9 8 0 s, fo r exam ple, do u bling the price o f w ater dro ve ho u seho ld 11/1/13 The Race to Buy Up the World's Water

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co nsu m ptio n do w n by a third, bu t ho u seho lds earning less than $ 2 0 ,0 0 0 cu t their co nsu m ptio n by half, w hile ho u seho lds

earning m o re than $ 1 0 0 ,0 0 0 redu ced u se by o nly 1 0 percent.

n fact, critics say, private w ater co m panies u su ally have very little incentive to enco u rage co nservatio n; after all, w hen

w ater u se falls, revenu e declines. In 2 0 0 5 a seco nd B o livian rio t eru pted w hen ano ther private w ater co m pany raised

rates beyo nd w hat average peo ple co u ld affo rd. T he co m pany had du tifu lly expanded the city’s w ater system to several

po o r neighbo rho o ds o u tside the city. B u t the villagers there, accu sto m ed to life w itho u t taps, w ere o bsessive w ater co nservers

and hadn’t u sed eno u gh w ater to m ake the investm ent pro fitable.

he biggest w inners o f a so phisticated w ater m arket are likely to be the very few w ater-rich regio ns o f the glo bal no rth

that can pro fitably m o ve m assive qu antities acro ss hu ge distances. R u ssian entrepreneu rs w ant to sell S iberian w ater

to C hina; C anadian and A m erican o nes are vying to sell C anadian w ater to the S o u thw estern U .S . S o far, su ch bu lk

transfers have been im peded by the high co st o f tanker ships. N o w , thanks to the glo bal recessio n, the tankers’ rates have

dro pped significantly. If the S itka plan su cceeds, o ther w ater-rich cities m ay so o n fo llo w .

u t in betw een the co u ntries that w ill pro fit fro m the freshw ater crisis, and tho se that w ill bu y their w ay o u t o f it, are

the co u ntries that have neither w ater to sell no r m o ney w ith w hich to bu y it. In fact, if there’s o ne thing w ater has in

co m m o n w ith o il, it’s that peo ple w ill go to w ar o ver it. A lready, P akistan has accu sed India o f diverting to o m u ch

w ater fro m rivers ru nning o ff the H im alayas; India, in tu rn, is co m plaining that C hina’s co lo ssal diversio n o f rivers and aqu ifers

near the co u ntries’ shared bo rder w ill deprive it o f its fair share; and Jo rdan and S yria are bickering o ver access to flo w s fro m a

dam the tw o co u ntries bu ilt to gether.

o w hat do w e do ? O n the o ne hand, m o st o f the w o rld view s w ater as a basic hu m an right (the U .N . G eneral A ssem bly

vo ted u nanim o u sly to affirm it as su ch this Ju ly). O n the o ther, it’s beco m ing so expensive to o btain and su pply that

m o st go vernm ents canno t affo rd to sho u lder the co st alo ne. B y them selves, m arkets w ill never be able to balance these

co m peting realities. T hat m eans state and federal go vernm ents w ill have to play a stro nger ro le in m anaging freshw ater

reso u rces. In the U .S ., investing as m u ch m o ney in w ater infrastru ctu re as the federal go vernm ent has invested in o ther pu blic-

w o rks pro jects w o u ld no t o nly create jo bs bu t also alleviate so m e o f the financial pressu re that has sent so m any m u nicipal

go vernm ents ru nning to private indu stry. T hat is no t to say that indu stry do esn’t also have a ro le to play. W ith the right

incentives, it can develo p and su pply the techno lo gy needed to m ake w ater delivery m o re co st-effective and enviro nm entally

so u nd. U ltim ately bo th pu blic and private entities w ill have to w o rk to gether. A nd so o n. U nless w e m anage o u r w ater better

no w , w e w ill ru n o u t. W hen that happens, no pricing o r m anagem ent schem e in the w o rld w ill save u s.

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