Defending the internal water empire

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PARIS — While peddling the benefits of free-market privatization abroad, France carefully guards its own borders against foreign companies, claiming water is too important to be controlled by outsiders.

In late 2002, when debt-ridden Vivendi Universal announced it would sell its shares in its water division, Vivendi Environnement, the French government was not enthusiastic about the prospect of foreigners gaining control of it. "Water supply is very much a public service, and we should pay attention that Vivendi doesn't fall into bad hands," said President Jacques Chirac, who was in the middle of his successful re-election campaign.

The finance ministry assembled a group of investors to consider taking over Vivendi Environnement. They included the state-owned power company, Electricité de France (EdF), which took 4 percent, with an option to buy another 4 percent, and the 186-year-old state bank, the Caisse des Depots et Consignations, which bought 3.2 percent with an option on another 5.6 percent.

No one seemed to be particularly put out by the arrangement. Unions and consumer groups were in accord with the wary government. "We have to be extremely vigilant about...foreign participation in French water supply," the water union of the Ile-de-France, the province surrounding Paris, warned in September 2002.

Vivendi's leading competitor seemed to agree.

"Because water is highly symbolic, water markets are always xenophobic," explained Jean-Luc Trancart, director general at Suez.

Another Suez executive, Senior Vice President Gérard Payen, said French companies were simply better at landing the 500 water tenders that come up each year in France because they have "more experience than foreigners."

"It is true that foreign companies have not been so successful up to now," Payen said. "But I am sure they will be in the future."

Of course, respect for xenophobia hasn't kept the French government from aggressively supporting the expansion of French water companies overseas.

"The behavior of French companies abroad is that of conquerors," Bernard Maris, a professor of economics at the University of Paris VIII, wrote in a French journal. "At the same time, they have enjoyed a century of protectionism, and their home market continues today to be closed to foreign competitors."

Xenophobia in French water markets hasn't benefited consumers. Within France, most waterworks are handled by three big firms — Vivendi controls nearly half of them, while Suez has nearly a quarter, and Saur, the water division of the French conglomerate Bouygues, has about 10 percent. The remaining 20 percent or so is largely in the hands of municipal governments.

A survey by the French Institute for the Environment concluded that public utilities often offer water services at a lower price than the big private firms. Municipal operators offer better services too, according to French water activists.

Despite these claims, and undeterred by civil and criminal proceedings against the French utilities, international organizations such as the World Bank, the International Monetary Fund, and the European financial bureaucracies continue to pave the way for Vivendi and Suez in Africa, Eastern Europe, Latin America, and Asia.

At a November 2001 meeting of the World Trade Organization in Doha, Qatar, the European Union, led by trade commissioner Pascal Lamy of France, inserted a clause into the final text of a resolution that called for "the reduction, or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services." This would include water services.

The EU has worked closely with the water companies to fashion its trade policies. In a May 17, 2002, letter, the European Commission, the EU's legislature, invited private water companies to inform it of "the position, and interest of, the European industry, their main market, obstacles if any to access new markets, as well as other questions you would consider relevant in this context."

In another letter, dated July 9, 2002, the commission went so far as to ask Thames Water "how is the question of access to/control/ownership of the resource, i.e. water, regulated?" By so doing, the commission implied that it could handle trade negotiations in such a way that water ownership would be a negotiable item for European companies.

"These questions are worrying, considering that Pascal Lamy has consistently claimed that the EU's request would 'only' cover 'water distribution' and not access to water resources," said Olivier Hoedeman of the Amsterdam-based watchdog group Corporate Europe Observatory.

Water companies responded with concerns about laws that restrict their access to foreign markets, Hoedeman said.

In Eastern Europe, Vivendi and Suez have obtained numerous privatization contracts with the help of the European Bank for Reconstruction and Development, or EBRD, an institution proposed by French President Francois Mitterrand in 1990 and headed by a French bureaucrat in London since then.

Countries eager to join the EU must upgrade their utilities and open them to free-market forces. However, the market often plays little part in the awarding of contracts. To assure that the French and other private European water enterprises obtain concessions, the Bank has required that, in return for loans to improve their waterworks, eastern European governments grant contracts to companies chosen by the EBRD. In several instances, the Bank has prohibited public bidding.

The EBRD mandate is to "foster the transition towards market-oriented economies and to promote private initiative...to facilitate and support private sector participation in the financing and provision of public infrastructure and services in its countries of operation." It is an ideology that fits snugly with the "French school of water management," says Olivier Orsini, a Vivendi spokesperson.

While the bank has complained about the lack of a "fair and transparent procurement process" in Eastern Europe, it has created joint funding projects with Suez and Vivendi for development in Eastern Europe that are not always transparent themselves.

In November 2000, for example, the EBRD issued a $23 million loan for the Romanian city of Timisoara to privatize and sell its water and sewage systems to "a water operator of international standing." The contract, however, was not put up for bid. Suez, which was offering $6 million for the project in partnership with the EBRD, was "selected" to get 51 percent of the water management joint venture. The remaining 49 percent is held by Aquatim, which is owned by the city of Timisoara.

Suez official Trancart said his company is only too happy to help. "Public tenders cost money and time," he told ICIJ. "If you are in a hurry, public tenders are untenable." He added: "What do you want us to do? Should we complain and say to the bank, 'No, thanks, we want to have competitors?'"

Since 1998, Vivendi and Suez have secured water concessions in at least 23 major cities and districts in Slovenia, Romania, Poland, Hungary, Estonia, the Czech Republic, Croatia, Bulgaria and Armenia. The contracts often are followed by layoffs and rate increases.

New EU-wide water regulations that go into effect in 2005 should mean fat new contracts for the water giants.

"It is clear that those new standards, deriving from France and the UK...will be harder to reach for the countries coming in 2004 and even for countries already in the EC," said Olivier Barbaroux, president and chief operating officer of Vivendi Environnement. "But that creates opportunities and demands for professional operations."

Not all cities are going private, however. The EBRD has also helped finance improvements to public utilities in Poland, Latvia, Lithuania and Russia.