Water: Human Right or Commodity?

3/1/2009 by Erica Gies
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It is a marker of developed countries that nearly everyone has access to clean water. But roughly 1.1 billion people around the world have no such reliable access, according to the United Nations. The result is both grim and predictable: the lack of clean water leads directly to a higher incidence of preventable waterborne diseases such as cholera and dysentery, which kill 2.2 million a year. Because water is so critical, cultures worldwide share a belief that it belongs to everyone and that access is a basic human right. This idea has been enshrined legally at least as far back as an ancient Roman precedent called the public trust doctrine. But in recent years, following a worldwide trend toward privatization across sectors, private companies (often European multinationals) have started assuming management of municipal water systems in countries around the world. Western models of capitalism argue that private firms are more efficient and effective than government-run entities, and this rationale can be compelling to local governments in developed countries. However, in developing countries it is often less a matter of choice; rather, pressure to privatize comes from conditions put on loans by the Western-run World Bank, International Monetary Fund, and Inter-American Development Bank. This broad trend toward privatization has begun to raise concerns in many quarters, although so far only 14 percent of water works in the United States have been privatized, and 10 percent worldwide. Some people resist on principle, believing that water should be in the public domain. Others turn against privatization when prices rise or water quality decreases. “The privatization of public wealth is one of the great issues in our time,” says U.S. Representative Dennis Kucinich of Ohio, a Democrat who chairs House subcommittee hearings on water. “There’s a systematic attempt to dismantle everything owned by the public,” he says, mentioning health care, education, the post office, roads, and social security. “What you have is a move from a democracy toward a plutocracy. This is not just an academic philosophical exercise. This has real economic consequences.” Rising Rates For many people, water privatization exploded into public view for the first time in 2000, when residents of Cochabamba, Bolivia, revolted against soaring water rates. The previous year, Bolivia’s government, pushed by the World Bank, had granted a 40-year water privatization contract to a consortium jointly owned by U.S. engineering giant Bechtel Corporation and the Italian energy company Edison. Rates increased immediately by as much as 200 percent, and many families were paying one-fifth their income for water. The rioting led to government instability and the revocation of the water contract. Other early adopters of privatization have also experienced rate increases, along with poor maintenance and repair and a lack of water accessibility. The disenchanted circle the globe, from U.S. cities such as Atlanta, New Orleans, Buffalo, and Stockton (California), to Dar es Salaam, Tanzania; Guayaquil, Ecuador; Buenos Aires, Argentina; Manila, the Philippines; Jakarta, Indonesia; and cities in South Africa and Namibia, just to name a few. Food & Water Watch (FWW), a U.S.- and Germany-based consumer advocacy organization, has tracked rate increases after privatization. It compared rates charged by publicly and privately owned utilities in California, Illinois, Wisconsin, and New York, and found that privately owned water utilities charge customers up to 50 percent more than those that are publicly owned. A 2008 FWW report, Costly Returns, explains why this is the case: “Regulators typically set prices so that a water company recovers all its expenses and a certain percentage of profit [in the United States, usually about 10 percent]. Because its profits are a percentage of expenditure, a company increases them by spending more money on the system. Private companies have a financial incentive to unnecessarily inflate the costs of water and wastewater systems.” Water companies such as American Water and Veolia Water, a French multinational, say that local public utility commissions have the ultimate say over infrastructure improvements and therefore industry profits. “Every project is reviewed by regulators and other rate case interveners to ensure that the project’s scope, delivery, and cost are appropriate,” says Maureen Duffy, director of external communications for American Water. “Costs deemed excessive are not allowed to earn a rate of return.” Lou Ann Baker, vice president of communications and community affairs for the central region of Veolia Water North America, said her company operates the same way: “In Indianapolis we have a service advisory board that also has to take a look at a capital plan and make the determination [about whether a project goes forward].” However, the FWW report argues that public utility commissions are often too susceptible to industry pressure. Companies also say water is more expensive today because the ability to measure contaminants in water has increased, leading to greater regulation and a need for more sophisticated treatment. They also say increasing populations and demands on water resources have rendered traditional, local sources inadequate, requiring the building of large reservoirs, long-distance pipelines, and desalination plants. Models vary for private participation in water utilities. Some companies own the delivery infrastructure (treatment plants, pipes, and meters). Others have public-private partnerships in which the city retains ownership of the infrastructure while contracting with a private company to manage and operate the system. In either case, water activists believe a fundamental problem is that a private company, beholden to its shareholders, simply can’t be as accountable to the public as its local government. Annie Weinberg, a water organizer with FWW’s Take Back the Tap campaign, says, “The decisions being made about something that crucial need to be accessible to the people in the community whose water it is. If you have a problem with your water, you can find out what’s wrong with it, you can get a public hearing, you can get a person unelected. Those systems don’t exist with these multinational corporations.” Infrastructure The water privatization trend does not stem simply from an economic philosophy. Better infrastructure is a pressing need in developed and developing countries alike, and cash-strapped local governments often consider privatization as a solution. Developed countries built their water systems many years ago, and aging infrastructure is wearing out. For example, in the United States, one-fifth of drinking water is lost to leaks, while overworked treatment plants release 4.5 trillion liters of raw sewage into waterways annually, according to the Congressional Budget Office. Estimates show that the United States will need to spend up to $1 trillion by 2019 to make necessary upgrades. Such financial pressures increase the lure of privatization. In the United States, the federal share of spending on water infrastructure dropped from 78 percent of the total in 1978 to 3 percent in 2008, and Costly Returns cites a document from equity research firm Boenning & Scattergood, Inc., noting the commercial opportunity in this decrease of support: “In terms of rate base, theoretically, every dollar that the federal government injects into local water systems is a dollar that will not go into someone’s rate base.” As noted, proponents of privatization argue that a private company can be more efficient and deliver better service than a municipality. Governments can usually qualify for better interest rates on loans than corporations. But John Young, president of American Waterworks Service Company (a subsidiary of American Water), says American Water offers many advantages: “This is what we do, and this is all we do, whereas the municipal government is in many different things. We can deliver projects much more cost-effectively than a municipality because of our expertise, but also because of our scale. We can buy things cheaper than other people, such as meters, because we buy in quantity.” Veolia’s Baker agrees. “The company has a global network and can look at the type of plant, size, [and] environmental conditions and can compare that to 600 other locations. It is better able to make recommendations and improvements in system operation…. We have 150 years of experience. You learn a thing or two along the way.” Pros and Cons As human populations continue to increase and the effects of climate change intensify, freshwater supplies are expected to tighten, according to the Intergovernmental Panel on Climate Change. The prospect of increasing shortages suggests that conservation would be a leading strategy in coping with rising demand, but water activists say that private companies have no incentive to conserve water, because the more water they sell, the more money they make. Clearly conservation is desirable both for water access and affordability, and there is room to conserve without changing quality of life. For example, California is the biggest water consumer in the United States, which is itself the largest per-capita consumer of water in the world. The state could cut its wasteful use of water by 20 percent in the next 25 years, while meeting the needs of a growing population, its huge agricultural sector, and a healthy economy, according to the Pacific Institute, a sustainable- development research organization headquartered in Oakland. Companies also push expensive, perhaps unnecessary, treatment options to increase profits, according to water activists, who promote low-cost, natural methods of treating water, such as preserving watersheds to allow water to filter through the ground or wetlands. Aside from being less expensive than mechanical treatment, this method has ancillary environmental benefits. A classic example dates to 1989, when New York City contemplated a new US$6 billion water filtration plant. Instead, the city spent $1.2 billion over 10 years to purchase and restore its watersheds, allowing a 5,000-square-kilometer forest to clean the water. Other communities, such as Auburn, Maine, have done likewise. American Water said it uses all the water management tools available, including conservation, watershed management, and wastewater reuse. But sometimes these measures are not enough. “Watershed management is critical,” says Young. “We do that even where we have a treatment plant because the better the water quality coming into the plant, the easier it is to treat and the less expensive it is to treat. But in this day and age, you just can’t do that alone.” As far as supply is concerned, he says American Water promotes public education about conservation and the repair of leaks, but sometimes more supply is needed, like reservoirs, long-distance pipelines, or desalination plants. Water activists strongly oppose desalination on the grounds of cost and environmental harm. “Desalination is an expensive, dirty, energy-intensive, environmentally destructive practice that has been sold to water managers around the country as the silver bullet solution for their seeming water shortages,” said Zach Corrigan, staff attorney for Food & Water Watch. Environmental impacts include dumping the byproduct (brine and pollutants) into the ocean, where it can harm local marine life. Many plants also suck in water directly from the ocean (a few draw water from wells sunk into beaches), killing fish and other organisms. A 2006 report from the Pacific Institute, Desalination, With a Grain of Salt, says desalination will play a role in some areas, such as some Middle Eastern countries, because it produces a drought-proof supply under local control. However, lead author Heather Cooley agrees that most current technology is environmentally harmful and expensive. Reaction Anti-privatization groups have organized around the world, including Africa Water Network, formed in 2007 and now comprising more than 40 African countries. Ghanaian Al-hassan Adam, coordinator of the Network, says it shares resources and ideas with RedVIDA (Interamerican Network for the Defense of the Right to Water), based in Bolivia, and international Groups Water Justice and the Reclaiming Public Water Network. These collaborations are paying off. “We are already seeing the dividends when our members are winning court cases against private companies,” said Adam. Developing countries are often pushed into water privatization deals against their will because they need loans from international development agencies. “The World Bank applies conditionality for privatization very clearly in the Country Assistance Strategy document,” said Adam. “Before you [can] benefit from the relief, you will have to privatize. This is what happened to Ghana, Tanzania, and Zambia.” One of the promises of privatization is that it will provide infrastructure. Developing countries need new infrastructure in many areas, and they need repairs and improvements to existing infrastructure. But in practice, that’s not what happens in Africa, said Adam. “Companies are only interested in customers who can pay: that is, the rich,” he said. Darcey O’Callaghan, a senior policy advocate for Food & Water Watch who works on Africa, concurs: “You wouldn’t see a private company going into a rural area [in Africa]. They are really disinterested in rural areas unless it is to put their name on a humanitarian cause.” In an effort to profit while operating in poor communities, companies have installed prepaid water meters in some neighborhoods. To get water, residents must buy a voucher. “When your unit runs out, it cuts you off automatically,” said Adam. “You cannot negotiate with the machine. If you have no money, there is no water. Sometimes the device fails even though you have credit on it.” O’Callaghan said the people of Soweto, a poor township in South Africa, filed a lawsuit contesting these meters as unconstitutional. The judge ruled in their favor, but the case is being appealed. “[The companies] are only installing prepaid meters in the poor neighborhoods because they think poor people won’t pay their bills,” said O’Callaghan. “It’s intrinsically biased.” While developed countries have yet to see prepaid water meters, they are not exempt from harsh measures governing access. In some parts of the United States, new industry-backed laws allow utility managers to turn off water due to customer nonpayment. In Pennsylvania in 2005,managers cut off water to thousands of people unable to pay their bills. Dennis Kucinich, the U.S. representative, says, “We have to make up our minds: Is water a basic right or not? If water is a privilege, based on ability to pay, then there are going to be a lot of people who can’t afford that privilege.” Some argue that water should be more expensive to ensure it is used more carefully. But the very poor use far less water than people in developed countries. While water consumption in industrialized countries runs as high as 380 liters per capita per day (in the United States), people in developing countries use as little as 20 to 30 liters per capita per day, which is considered enough to meet basic human needs, according to the UN. While there is likely some truth to the notion that higher prices would encourage more careful use, that position doesn’t really acknowledge the economic policies shaping water prices around the world. In some places, water is heavily subsidized for certain users, such as industrial agriculture. For example, in the American West, water law has encouraged people with water rights to waste water they don’t need, because if they don’t use it, they lose rights to it in the future. That is a completely different reality than the one very poor people inhabit. In the developing world, billions of people earn less than $3 a day and can afford to pay nothing for water. When water prices increase, these people revert to free, often contaminated, water sources. Diseases like cholera have increased after price hikes in poor areas of countries such as Tanzania, Mali, South Africa, and Ghana, said Adam. Higher prices also the encourage sabotage of water infrastructure in poor areas, where people punch holes in pipes to extract water for free. Reclaimed Water Water privatization in the developed world is not so starkly a matter of life and death, but it remains an emotionally charged subject. In many communities, citizens faced with privatization of their local water systems organize and fight. Felton, California, is a small mountain town about an hour south of San Francisco. Its water system had been privately owned since the turn of the nineteenth century. But the utility was acquired by American Water in 2001, which was itself temporarily acquired by the German multinational RWE—whereupon they proposed a 74 percent rate hike, galvanizing the community. Felton resident Jim Graham joined with some of his neighbors to found Felton Friends of Locally Owned Water (FLOW). The group set about methodically to gain the support of the community, going door to door. “We came to understand there were three issues [the community] had problems with,” said Graham. “The humongous rate hike, the decline in customer service, and a major infrastructure repair project that closed off part of the town’s main access road every day for five months.” FLOW wanted to pass an $11 million municipal bond to buy back the water utility but found that people were concerned with the cost. Members crunched the numbers by tracking the history of rate hikes imposed by California American (American Water’s California branch) in other communities where it operated compared with those of public utilities in neighboring towns. Even figuring in the bond payments, FLOW estimated that in three to five years residents would be paying $50 a month more for water with California American. Graham said personal outreach made the difference in Felton. “We did an analysis of the tactics [American Water uses] when they encounter a citizen effort. In large communities, they dominate radio, TV, and print. But they have a track record of losing in small towns because they don’t do the one-on-one, face to face.” In 2005, Felton passed the bond issue to buy the water system. RWE/California-American rejected the offer and then attempted to raise rates by more than 100 percent, according to Graham. In late 2005, RWE announced it would sell its stake in American Water; leaked board-meeting minutes cited poor financial returns and political opposition to privatization. Felton sued to take possession of the utility using eminent domain, a law that allows the government to take private property at market price for the public good. California- American agreed to a settlement right before the jury trial, and the transition to public ownership was completed in September 2008. Message in a Bottle The water bottling industry is also causing governments to reconsider the value of water. The industry has grown rapidly: in 2006 water bottlers sold 178 billion liters worldwide, up from 163 billion liters in 2005, according to Beverage Marketing, a provider of beverage industry data. Activists cite many problems with the industry, including energy consumption, emissions, and waste. But two key issues link the bottled water industry to the privatization debate. Activists say that bottling companies are profiting from public water and that the industry works to undermine public faith in municipal water. Bottled water companies can consume huge amounts of groundwater, depleting aquifers or nearby wells and harming ecosystems. “Water is a renewable resource,” says Peter Gleick, president of the Pacific Institute. “It’s a cycle. But a renewable resource by definition is a flow-limited resource.” Overextraction “affects everything around it: rivers and streams, ecosystems, groundwater levels….” In response, some U.S. states and other governments are passing laws to move groundwater into the public domain, along with surface water. At the U.S. federal level, Representative Kucinich is pushing for the government to fund improved mapping of ground and surface waters and their links. Developed-world water systems provide safe, clean drinking water, yet bottled water ads insinuate that bottled water is cleaner and safer. In fact, prominent brands like Coke’s Dasani and Pepsi’s Aquafina are actually municipal water, which is arguably better regulated. “The bottled water industry is one of the least-regulated industries in the United States,” says Food & Water Watch’s Annie Weinberg. “The EPA is responsible for tap water oversight and does lots of testing. But the bottled water industry falls under the FDA [Food and Drug Administration] and has less than one full-time staff person in charge of all bottled-water oversight.” Gigi Kellett, director of Corporate Accountability International’s “Think Outside the Bottle” campaign, says that the bottled- water industry is changing the public’s opinion about water. “Coke and Nestle and Pepsi have spent tens of millions of dollars a year really manufacturing a demand for something people already have access to for free,” she said. In 2006, the industry spent $162.8 million on advertising bottled water in the United States, according to Zenith- Optimedia. Jane Lazgin, spokeswoman for Nestlé Waters North America, defends the industry, saying its growth represents a shift from soda to water, not from the tap to bottled water. “The reality is 70 percent of what we drink in America comes in a can or a bottle,” she says. But Kellett said the industry’s work to encourage people to think of water as a commodity rather than a basic right “…helps pave the way for corporations to come in and take over public systems. It’s really important that people are making a stand to say, yes, our public water infrastructure is aging, but rather than relying on a short-term, expensive solution like bottled water, we need to support a long-term solution, which is reinvestment in our public water systems.” City, state, and country governments in the United States, Australia, Denmark, Canada, Italy, France, and the United Kingdom have passed legislation to limit bottled water use or to promote tap water, according to the Earth Policy Institute in Washington, D.C. A number of restaurants, schools, and religious groups have adopted similar policies. Ongoing Struggle The struggle over water privatization is likely to continue. “We look at it as a growth business,” said Veolia’s Baker. “We continue to look at expanding capacity. One, the concept is still relatively new in some areas. Two, there are a certain amount of politics involved with these contracts. It does take a city manager, a mayor, a council member with a determined attitude to look at running operations like a business.” For cities that don’t want to sell, Food & Water Watch is lobbying for a federal trust fund for water systems in the United States. A 2005 poll by an independent research company found that 86 percent of Americans support a national, long-term trust fund for water infrastructure. Internationally, activists are hoping for a surge in democratic participation.” Corruption is a litmus test of democracy of any country, and the drivers of corruption are the private sector who bribe public workers to win contracts,” said Africa Water Network’s Adam. “The only way to get rid of corruption is when we have real democratic participation of citizens in the management of resources, be it water or oil.” Felton FLOW’s Graham said that people around the world are developing more sensitivity about water issues and that most people believe water should be locally controlled. He said that fights such as the one he helped wage in Felton are causing companies to think twice about further investments in the water business. “There’s concern in the private water industry that increased sensitivity will be a problem for them in the future,” he said. “They aren’t as gung-ho on water as they once were.” Erica Gies is a freelance environment reporter based in San Francisco.