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The Socialist 10 December 2008

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Water - essential of life or blue gold?

FRESH WATER IS now talked of in some business circles as 'blue gold', just as oil is called 'black gold'. But while wealthy investors enrich themselves from this natural resource, lack of clean drinking water and sanitation is killing many of the 11 million children under five who die every year from disease and malnutrition. In these three articles, ROGER SHRIVES draws attention to some of the issues arising from the scandalous private exploitation of water, and calls for water supplies and sewerage to be taken out of the hands of profit-making multinationals.

T BOONE Pickens, a US billionaire who made his fortune by aggressively taking over oil and gas companies, is now into water in a big way. He has bought land in Texas that includes an enormous and ancient underwater aquifer that he hopes will soon be gushing water for sale. Pickens justified his move by saying: "There are people who will buy the water when they need it. And the people who have the water want to sell it. That's the blood, guts and feathers of the thing".

But local people are afraid that this reckless profit-seeking approach may be over-tapping the aquifer that takes many years to replenish. And there is the problem of cost. Already, before Pickens has sold any of his water, the price of water has doubled in some areas. That may not at present worry those who can afford it, but those who cannot will lose out. All these problems are in the USA, the richest country on earth.

In the world's poorer regions things can get far worse. In Bangladesh's capital Dhaka, for example, water supplies for the shanty towns are contaminated by raw sewage, exacerbated by the recent cyclone and frequent flooding. Contaminated water supplies kill 200 people every hour in the ex-colonial world. Cholera, a virulent water-borne disease, is now seen again in countries like Zimbabwe and DR Congo. Private water companies have no interest in meeting the water needs of such areas.

Fresh water is essential to life - our bodies and our survival depend on it. In theory, water is available freely in nature though 97% of all water is salt water and less than 1% of all water is accessible for consumption.

There is enough water for all the world's people but its supply needs to be planned if enough free, clean and safe, water is to be made available.

The United Nations (UN) calculates that each person needs five litres of water each day to survive and another 50 litres for cooking, bathing and sanitation. However, 1.1 billion people worldwide cannot get access to adequate, safe water supplies, 2.6 billion people have inadequate sanitation and 80% of illnesses suffered are water-related. The poor suffer the most; two-thirds of the people who lack water live on $2 or less a day.

Meanwhile water consumption in homes, industry and agriculture is rising rapidly, practically doubling in ten years. Population growth and economic development raised human water demand by six times in the last 50 years.

Where does the water go? Only 10% of water is used for drinking. Industry uses 20%. The remaining 70% is used for irrigating crops, so most money is invested there, even though some agriculture has an enormously negative impact. Farms and industry pollute the water of 100 million people.

One similarity with oil is that access to water is one of the major causes of conflict. Water reserves are shrinking in the Middle East, north China, Mexico, California and many countries in Africa, increasing the potential for conflict. The UN predicts that by 2025, two-thirds of the world's population will experience water shortages, with severe lack of water potentially hitting the lives and livelihoods of 1.8 billion people. Climate change will worsen things by making patterns of rainfall and drought far less predictable.

Threat to the environment

Caution wet floor - flooding in the centre of Gloucester, photo Chris Moore

Caution wet floor - flooding in the centre of Gloucester, photo Chris Moore

WATER PRIVATISATION is a prime example of how capitalism threatens ruin to the economy and the environment. Maintaining water supplies needs planning. Water should not depend on financial gain. Over many centuries in the older countries of capitalism, the workers' movement and social reformers have fought and laid the basis for largely public-owned systems.

In Britain, capitalist industrialisation created horrific poverty, exploitation and squalid conditions for the working class, particularly in the city slums. In the hot summer of 1858, parliament and the residences of the rich in London were hit by the 'big stink', nauseous fumes caused by bacteria living in faeces-infected water that was causing outbreaks of cholera in the slums. To replace London's overflowing cesspits, immense public works were started such as the capital's incredible sewerage system, built at public expense and at considerable cost of workers' lives.

Even in the heyday of laissez-faire capitalism, when the markets were supposed to solve everything, politicians, municipal authorities etc, knew they would wait for ever for the market's 'hidden hand' to invest in water services when profits could not be made. Water and sewerage became a responsibility of government.

In systems under a degree of public control, the priorities were keeping water clean, free from contaminants from industry and agriculture and free from disease. The aim was to prevent the possibly poisonous effects of drought and flooding, to stop wastage and leaks, to encourage industry and individuals to use water more efficiently; and where needed, to expand the sources of water available.

New problems have arisen or grown since then such as contamination by salt, or by fertiliser and pesticide residues, percolating down into aquifers. But other toxic waste, from human pathogens to arsenic, has been found in US water supplies.

About 20 million Americans have perchlorates, an ingredient of rocket fuel, as a contaminant in their water supply. This chemical can disrupt the working of the thyroid gland and cause cancers.

This year around 250,000 people in Northamptonshire and 45,000 in Gwynedd and Anglesey were told to boil tap water for drinking, after tests found the bacterium Cryptosporidium.

The priorities for maintaining pure water have never been more vital. A planned, international approach is urgently needed. However, other priorities have been reintroduced into the equation by water privatisation - those of private profit, which charges higher and higher prices for this basic necessity of life.

Capitalism is based on production for profit. Competition, which drives all companies to try to pay lower wages, also tends to lead to environmental degradation out of fear that other companies will disregard the environment and reap higher profits. This is particularly true when booms turn into slumps. What is more, as clean drinking water gets scarcer, its value as a commodity rises.

At the turn of the millennium Fortune magazine said that water is the best 'investment sector' of the century. Water has again become a capitalist commodity to be bought and sold for profit. As water problems increase, and desperate authorities have to drill a kilometre into the ground to get to water, a socialist planned approach to water, involving the ordinary people of the world, is needed more and more.

End water privatisation

IN 1989 the Thatcher government privatised water and sewerage in England and Wales, almost uniquely, transferring the whole system completely into the private sector. Before 1973 water and sanitation services in England and Wales were provided by water undertakings and sewage disposal authorities. The Water Act 1973 established ten regional bodies to regulate and maintain water utilities.

The 1988 Water Act turned these bodies into private companies owning the entire water system, including reservoirs, water and sewage treatment works etc. The Act gave them exclusive 25-year concessions for sanitation and water supply and 700,000 kilometres of mains and sewers, enough to reach to the moon and back.

These firms became, in effect, private monopolies. The water companies' debts of over 5 billion were written off before privatisation and they were given a 'green dowry' of 1.6 billion. Thatcher's government offered the companies for sale at 22% below their market value and, as an extra gift, gave special exemption from paying taxes on profits.

Keep the profits flowing

Under a public system, even under bureaucratic control, the main priorities were keeping the water flowing. Most residential areas had an inspector on call to deal with even the smallest leak. Under privatisation, the main concern was keeping the profits flowing. Directors were given huge salaries and told to treat water as a commodity and their business as maximising profit.

The privatised water companies hauled in colossal sums from this bargain basement deal; profits rose by 147% between 1990 and 1998. In that same period, consumers paid 28 billion to the water companies - 10 million of it from increased water prices. Meanwhile 9.5 billion was profit, with high dividends being distributed to shareholders. On average, prices rose by over 50% in the first four years and have continued rising ever since. The companies' operating profits accounted for almost all of this, pre-tax profits doubling in the first year of privatisation, and growing by 142% in real terms over the next eight years.

In 1994 12,500 households were disconnected from water supplies as they couldn't pay. However, a six-fold rise in cases of dysentery led to new laws in 1999 forbidding water cut-offs.

Privatisation led to job cuts of almost 25% and the bosses tried to deny their workers the pension rights won from the previous public sector employers. By 2005, Thames Water employed just 39 workers to look after all London's sewers compared to 900 in 1955. Heavy rains in 2004 flushed out 600,000 tonnes of raw sewage into the Thames, causing attacks of gastroenteritis. A profit-driven agenda is a cost-cutting agenda and fundamentally incompatible with delivering a safe affordable service.

In 2001-2002 the private water sector outperformed the Financial Times All Share Index by 58%. Water profit margins are typically three or four times as great as the margins of water companies in France, Spain, Sweden, or Hungary.

Falling investment

BEFORE PRIVATISATION, the level of capital investment in the water industry had been accelerating, but the privatised companies' capital investment levelled off or fell. The 14 smaller water-only companies became owned by multinationals, attracted by the promise of super-profits, as did half the water and sewerage companies.

Between 1993 and 1998 water mains categorised as being in "poor condition" increased from 9% to 11%. Water quality suffered, with increased levels of contaminants. Drought and floods, increasing due to global warming, also showed the privatised system's serious shortcomings.

The privatised water firms raise some of their own money but also borrow from the banks. Until the recent economic crisis, they kept on making healthy profits and dividends for their shareholders, benefiting from low interest rates and a very favourable regulatory settlement with Ofwat, the toothless water 'regulator'.

In this profit-flowing situation, and under pressure from irate customers, some water companies boast that they have started doing a little of what they promised at privatisation - investing in updating Britain's ageing water infrastructure. But who is paying for it? Midland utility Severn Trent was fined after an investigation by Ofwat showed that its management had lied about how well it had tackled leakages and then used the information to support inflated bills. Customers may have paid out about 42 million more than they should have done.

In 2006 Thames Water, the water monopolist for England's capital city was losing 200 million gallons of water each day, disappearing into the earth in huge leaks due to chronic lack of investment in the infrastructure. That summer, it imposed a hosepipe ban after increasing profits by nearly a third and distributing a fortune in dividends. Now Thames Water's website boasts of working on repairs in 450 streets a week but again the customer is paying through higher tariffs.

The feverish takeover activity in 2007 showed the water industry still had attraction for investment funds, but deepening recession and the prospect of the next Ofwat pricing review will have reduced that.

When they negotiate a prices deal with Ofwat early next year, water firms will be begging for a price that guarantees high profits. There is an increased likelihood of debt amongst water firms, that spent large amounts on acquisitions and mergers during the boom that went bust. Capital expenditure may now suffer and the firms may even go in for asset-stripping.

Bills are expected to rise even faster than expected over the next five years as the credit crunch makes it harder and dearer for companies to raise the 27 billion of investment they need to rectify the creaking water infrastructure and meet new directives on leaks from the European Union.

The danger we face is shown by the fact that Kelda, the company that owned Yorkshire Water, was bid for just over a year ago by a consortium that included Citigroup, the huge US bank which has since failed abysmally.

Don't give the water companies yet more time to fail. Privatisation of this most vital of all utilities should be reversed. Water and sewerage provision should never have been privatised in the first place. It is time to bring these industries back into public ownership but this time under the democratic control and scrutiny of the working class.

Growing opposition around the globe

PRIVATISED WATER worldwide is dominated by two hugely profitable French multinationals, Suez and Veolia (formerly Vivendi), that have been looking for international investment possibilities. They control 80% of the private water market and have around 300 million customers.

But, as one of the largest companies in this $200 billion industry, Suez has faced opposition to its operations in South Africa, the Philippines and Uruguay and had water contracts cancelled in France, the United States, Argentina and Bolivia. In 2004, Uruguay's parliament voted by a 62% majority against water privatisation. In the Netherlands in 2003, laws preventing any private company supplying water services to the public were passed. But the private water companies keep on trying.

The council in Paris is deciding whether to create a municipal water authority from 2010 to cover all water operations from production to distribution. Suez Environnement and Veolia Environnement (spun off from their massive parents) could lose as much as 89 million euros, causing jitters on the Paris stock exchange.

In South Africa, over ten million citizens have had their water shut off since the World Bank's "cost recovery programme" was imposed. Water is only provided if the water company can cover its cost and make a profit. After privatisation, in Kwazulu Natal people could no longer afford to buy water, sanitation services were shut off because of non-payment and local people drank from streams. The ensuing cholera outbreak hit over 200,000 people, killing more than 250. Since then, there have been many protests against these attacks.

In 2000, at the order of the World Bank, Bolivia's government leased its water supply to the US multinational, Bechtel, which was promised a 16% average annual return on investment. In the city of Cochabamba, the price of water rose rapidly to a third of the minimum wage.

After access to water was denied for many, a massive popular uprising to throw out Bechtel shut the city down for a week. Bolivia's government declared the contract with Bechtel void although this water multinational tried to sue, through the World Bank, for millions of dollars compensation for loss of "potential profits."

The anger shown by workers and the poor in these examples shows that a fight-back can be waged against the multinational water giants. That fight needs to be linked internationally, to create maximum pressure for water supply systems based on the needs of the majority of people worldwide, rather than on profit.

In this issue

Stop job cuts

Socialist Party NHS campaign

Save our NHS

International socialist news and analysis

Greece in widespread revolt

Queen's rep suspends Canada's parliament

Chicago workers occupy factory

Socialist Party editorial

Welfare 'reform' - fight these attacks

Crisis loans

Socialist Party campaigns

Usdaw presidential election - support Robbie!

DNA evidence - Labour's draconian laws...

Jean Charles de Menezes Coroner restricts inquest verdict

Lewisham's Greens and the BNP 'supporters list'

Education fightback

Student struggle in Spain - time of revolt

60,000 march against education cuts in Dublin

Wales - the true extent of student debt exposed

Workplace news and analysis

PCS gains steps towards settlement

Militant response needed at ex-Visteon plant to save jobs

South Wales job losses

The National Shop Stewards Network is organising a meeting for car workers and those in ancillary industries:

Unite against university attacks

Hospital trust offers pay cuts for Christmas

In brief

Environment and socialism

Water - essential of life or blue gold?

Socialist Party review

Socialism and left unity - a critique of the Socialist Workers Party


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10 December 2008