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<!-- you can have any number of categories here --> [[Category:Emanuele Lobina]] [[Category:Water]] <!-- 1 URL must be followed by >= 0 Other URL and Old URL and 1 End URL.--> {{URL | url = http://www.stopcorporateabuse.org/sites/default/files/resources/cai_troubledwaters_whitepaper_webres.pdf}} <!-- {{Other URL | url = }} --> <!-- {{Old URL | url = }} --> {{End URL}} {{DES | des = "Globally, public water systems have a comparative advantage over private water systems when it comes to fulfilling cities’ mandates to ensure equitable access to water, improve public health, and benefit the local environment." | show=}} <!-- insert wiki page text here --> <!-- DPL has problems with categories that have a single quote in them. Use these explicit workarounds. --> <!-- otherwise, we would use {{Links}} and {{Quotes}} --> {{List|title=Troubled Waters: Misleading industry PR and the case for public water|links=true}} {{Quotations|title=Troubled Waters: Misleading industry PR and the case for public water|quotes=true}} {{Text | inTRODUCTiOn Globally, public water systems have a comparative advantage over private water systems when it comes to ful lling cities’ mandates to ensure equitable access to water, improve public health, and bene t the local environment.1 In the U.S., like virtually everywhere else in the world, the vast majority of water systems are still publicly owned and operated.2 Yet over the past several decades, public o cials have faced mounting pressure from the private water industry to move away from public operations and toward forms of privatization. This pressure is very problematic. In fact, there is a growing body of evidence documenting the economic, social, and nancial risk that contracting with the private water industry poses to cities.3 At the same time, public o cials and people around the globe have experienced the failures of water privatization rsthand. As a result, privatization in all of its forms is deeply unpopular among voters and key constituencies wherever it takes place,4 and the trend toward remunicipalization of private water systems (returning previously privatized systems to local, public control) is rapidly intensifying.5 The response of private water corporations to the unpopularity and failure of water privatization has been to wage a global PR campaign, in particular in the U.S., to repackage water privatization in more palatable terms. This campaign rede nes water privatization as public-private partnerships (PPPs) to make private contracting or outsourcing more appealing to mayors and other public o cials. It CORPORATE ACCOUNTABILITY INTERNATIONAL TROUBLED WATERS 2 CASe STUdy: ST. loUIS ReSIdenTS RejeCT VeolIA For nearly a year, St. Louis, MO residents made clear they rejected a proposed Veolia contract with the city’s Water Division. They packed public hearings with hundreds of people voicing their concerns over Veolia’s business practices and water privatization schemes. Yet the proposed contract stayed on the table. In the end, the mayor’s o ce tried and failed to push it through and circumvent democracy. To investigate the extent of Veolia’s political interference, Corporate Accountability International issued a request for records under the Missouri Sunshine Law to the mayor’s o ce. These records revealed a coordinated damage-control campaign involving the mayor’s sta and Veolia’s lobbyist, sta , and PR representatives.6 Veolia created an entire website and issued virtual newsletters in an attempt to undermine the grassroots coalition of concerned community members and organizations challenging its contract.7 The corporation eventually raised the ire of key public o cials, leading Veolia to withdraw its contract bid with the city rather than face pending legislative action that could have further damaged its reputation.8 also adopts a marketing narrative full of promises of private e ciency, private nance, and private expertise that some public o cials nd convincing. But it’s a narrative that remains deafeningly silent on the private sector’s failure to maintain its promises. To implement these repackaged privatization models, transnational water corporations such as Veolia and Suez (and its U.S. subsidiary, United Water) rely not only on misleading marketing materials, but also on their ability to interfere politically with public decisions at local, state, and federal levels. Public decisions on who runs water systems are critical because water supply and sanitation are essential public services, crucial for the welfare of local communities. Because water services are a natural monopoly, the e ects of these decisions are felt in the long term.9 Public o cials and community members should therefore be fully aware of the problems with water privatization, as well as the opportunities o ered by e cient and e ective public water operations.10 Drawing on international evidence, this white paper reveals the reality behind the promised panacea of water privatization in all of its repackaged terms. The comparative analysis of the U.S. and international experience with water privatization shows that: 1) Veolia and Suez, the two major water transnational corporations, behave similarly in the U.S. and overseas, and 2) problems with water privatization are systemic and not caused by local peculiarities. This white paper also exposes the private water industry’s interference with public decisions and its attempts to undermine the democratic governance of water. It provides recommendations to public o cials, calling on them to keep public water services in public hands and enhance democratic accountability, trans- parency, and public participation in decision-making. “The public must have power in decisions regarding our public water system. I would be wary of contracting with any corporation that relies on circumventing the public voice with backdoor dealings to expand its business, especially when it comes to our most vital public service.” ChRiSTinEingRASSiA | ALDERmAn,ST.LOUiS,mO CORPORATE ACCOUNTABILITY INTERNATIONAL Public water: Too important to delegate There is a reason why at least 80 percent of the largest cities in the U.S. have kept water systems under public control since the turn of the 20th century. The same reason explains why public ownership of urban water systems is predominant across other high-income countries and generally around the world. This reason is the recognition by local governments that the management of water services is too important to delegate to the private sector.11 Water systems are, by their nature, local monopolies. Delegating their operation to private corporations risks undermining their long-term sustainable management and democratic governance. No matter how the private sector frames its intentions, its legally bound priority is market development over community development, pro t maximization over welfare maximization.12 The historical problems with water privatization, and the recognition of the comparative advantage of public water operations explain why, today, public water prevails in the U.S. and globally.13 Yet the pressure on U.S. local governments to privatize their water services and involve the private sector in water service operations and nancing has mounted in the last few decades. This pressure has been exacerbated by federal scal policies, among other factors. During the 1970s and early 1980s, U.S. federal funding for the nation’s water systems constituted the largest non-military public works program since the Interstate Highway System. Since that time, the percentage the federal government has contributed to public water systems has dwindled from 75 percent to below 10 percent today. Local governments have striven to close the gap, spending an all-time annual high of $111.4 billion in 2010.14 But these governments still face the stress of budget de cits, de cient federal and state support, and an expanding need to replace aging infrastructure and extend service to a growing population. In response, private equity and water corporations are rushing to o er “solutions” in direct competition with, and to the detriment of, public water systems. These solutions promise to deepen the problem and undermine long-term sustainable management and 3 Photo Credit: Jersey Journal/Landov TROUBLED WATERS Pro t rst: United Water has a history of avoiding payments for much needed infrastructure in its New Jersey contracts, including expensive underground pipes. democratic governance of public water systems. The fact that private water corporations pursue pro t maximization under conditions of monopoly, and the interest-seeking practices they adopt to maximize their pro ts, mean that involving the private sector is a highly cost-ine ective way of investing in water systems.15 These issues had motivated U.S. local governments to gain control over water systems between the 19th and the 20th century,16 but the renewed pressures to privatize water call for renewed analysis of the arguments in favor of water privatization. The false promises of water privatization The private water industry promises greater private sector e ciency, advanced and innovative technological solutions, high-quality services, and private nance for infrastructure development.17 This industry and its supporters promise that all this will help U.S. mayors and other public o cials better pursue the public interest. As a matter of fact, both in the U.S. and internationally, the reality of privatized water operations is starkly di erent from the myths of water privatization. Chief among the arguments justifying private water contracts is that private corporations are more e cient than the public sector. In fact, Veolia’s consulting contract model—which it failed to secure in St. Louis due to challenges from public o cials and a grassroots coalition of community members and organizations—is largely based on the premise of superior private sector e ciency.18 Recent studies have either found no signi - cant di erences in e ciency or decreased e ciency—as CORPORATE ACCOUNTABILITY INTERNATIONAL TROUBLED WATERS 4 FAlSe PRoMISe: Private water corporations are more e cient than the public sector. FAlSe PRoMISe: Private water corporations perform better on technical grounds than the public sector. FAlSe PRoMISe: The private water sector will open the door to new sources of investment to nance infrastructure. was the case in the United Kingdom (UK), where water systems are predominantly private.19 Also, private corporations perform no better on economic grounds, charginghigherpricesthanpublicwaterutilities.20 In France, the home country of Veolia and Suez, the price of private water has proved 16 percent higher than public– sector–provisioned water.21 And in the UK, the great experiment in water privatization of the last two decades has resulted in price increases of 50 percent, even as operating costs have remained unchanged.22 A recent paper from the World Bank has found that for all the added e ciencies promised by the private water sector, from layo s of utility workers to increased bill collection, there is no evidence of higher private investment in water systems or prices being lowered for ratepayers.23 Suez’s United Water, which is geographically concentrated in New Jersey, has raised the ire of a ReAlITy: Studies show there is no signi cant di erence in e ciency between the private and public sector. ReAlITy: International evidence contradicts this claim. The lowest leakage rates in Europe are in the Netherlands and Germany, where the systems are nearly all run publicly. ReAlITy: Both in the U.S. and internationally, private water corporations contribute negligible amounts of private nance and actually seek opportunities to use public investment nance. number of public o cials for rate hikes in the wake of Hurricane Sandy.24 The arguments in favor of water privatization also include the expectation that private water corporations will contribute new sources of investment nance, but this expectation is unrealistic. In fact, governments usually enjoy lower costs of raising investment nance compared to the private sector. As observed in France, Italy, China, and the U.S., among other countries, private water corporations contribute negligible amounts of private nance and seek opportunities to use public investment nance.25 In France, major infrastructure upgrades are typically nanced by local governments. Similarly, United Water “avoids paying for expensive underground pipes” in many of its contracts throughout New Jersey.26 Also, because the private sector is not more e cient than public water operators and has an FIndIngS: FAlSe PRoMISeS FRoM The PRIVATe WATeR IndUSTRy VS. ReAlITy CORPORATE ACCOUNTABILITY INTERNATIONAL imperative of pro t maximization, using private contracting is a highly cost-ine ective way to deliver investments in the water sector.27 In other words, delivering the same level of investment through the private sector will cost more than through the public sector. Private corporations perform no better on technical grounds. The lowest leakage rates in Europe are in the Netherlands and Germany, where the systems are nearly all run publicly.28 Veolia deliberately allowed raw sewage into the river in Brussels as a way of putting pressure on the city to pay more for operating the treatment plant.29 In Chile, Suez has had to pay $4 million in compensation to people for the foul smells from its sewage treatment plant.30 U.S. experience with privatization mirrors that of high-income countries globally The concrete experience of U.S. cities and their sister cities in high-income countries dispels the myths of water privatization. The negative experiences of cities from Atlanta to Milwaukee and Camden to Indianapolis have been mirrored in cities in countries from France to Portugal, Italy to China, and Germany to Canada. Water privatization has resulted in the contamination of water supplies, rate hikes, a reduced quality of service, and deep costs to cities saddled with unsatisfactory but legally binding contracts. Since 2002, more than 20 U.S. municipalities have taken back control of their water systems from private water operators like Veolia and Suez, including major U.S. cities like Atlanta and Indianapolis 31—even as the corporations continue to promote these failures as success stories. Water remunicipalization in the U.S. is part of a global trend, with more than 100 cases of remunicipalization in high-, middle-, and low-income countries.32 This trend is particularly accelerating in high-income countries where 45 cases have occurred since 2000 with 28 in the last ve years alone.33 Paris, notably the international headquarters to both Veolia and Suez, has led the charge to remunicipalize, saving tens of millions of dollars since returning its water system to public control.34 The unpopularity of water privatization is such that the Netherlands has made water privatization illegal.35 In 2011, 27.6 million Italian citizens voted overwhelmingly against water privatization in a national referendum. 36 In 2013, nearly 1.9 million citizens across 28 European Union Member States signed a European Citizens’ Initiative called for putting a halt to water privatization.37 The upshot to this: U.S. public o cials should be wary to import private water “solutions” that have failed sister cities across the Global North, not to speak of 5 the even more dire failings across the Global South.38 “Water supplies and infrastructure are, fundamentally, a public service that require strong accountability, transparency, and public trust. As such, it is critical that decisions regarding water resources and infrastructure be conducted in the public sector. Privatizing public water systems carries substantial risk to the management and sustainability of water resources and infrastructure.” mAyORRALphBECkER | SALTLAkECiTy,UT Public-Private Partnerships: new packaging, still private water Given the deep-seated unpopularity of water privatization and the track record of its failure, corporations are innovating new ways to sell cities their services. Under the promise of private expertise, Veolia and other water corporations are increasingly entering into consulting projects. Even in cities like New York; Washington, D.C.; and Los Angeles, where great pride is taken in providing high quality water services under public management, public money is being spent on consulting contracts with Veolia in the name of improving operations and management. But the private water industry has a track record of poor service quality, TROUBLED WATERS CORPORATE ACCOUNTABILITY INTERNATIONAL TROUBLED WATERS 6 unjusti ed tari increases, cuts on investments, legal disputes, and contract renegotiations that tie cities to the long-term loss of precious nancial resources and the loss of public control over water management.39 This track record of unsavory business practices, which is typical of PPPs and other forms of water privatization, should cast a warning for municipal governments considering outsourcing their water services to private operators. That’s why in St. Louis, where a proposed consulting contract received deeper scrutiny from the public and local elected o cials than in prior cases, Veolia was forced to withdraw its proposed contract after facing enormous pressure from public o cials and a grassroots coalition of concerned community members and organizations.40 In addition, however innocuous they might appear to local authorities, consulting contracts are door- openers for deeper forms of privatization—from management to lease contracts and concessions. Consulting contracts have led to deeper private water management in cities like Pittsburgh, PA, and a study of Veolia’s proposed consulting contract in St. Louis revealed that the proposed contract would have made Veolia the owner of all the ideas for improving the St. Louis City Water Division, allowing it to control the division itself. It would have also allowed Veolia to deny the application of Missouri’s Sunshine Law, putting the corporation’s commercial interests ahead of the public interest in freedom of information.41 Private equity rms, like Table Rock Capital and Kohlberg Kravis Roberts (KKR), are also partnering with Veolia and with Suez’s United Water to secure lucrative concession contracts. Table Rock, in particular, is actively seeking out municipalities with laws conducive to privatization, infrastructure that will not prove costly to repair and maintain, and a population adequate to support a full return on investment.42 Table Rock’s most recent “success” has been the city of Rialto, CA. The city’s concession deal with Table Rock and Veolia was facilitated by will pay for with interest.43 Bayonne, NJ has entered a similar deal with KKR and United Water. These corporations and their equity partners are energetically promoting the PPPs in Rialto and Bayonne to public o cials before the long-term consequences of these contracts are felt by municipal governments and local communities. Policy interference: The precursor to privatization The success of private corporations to secure such deals hinges on the industry’s continued ability to in uence the rewriting of water policy to favor its own pro t interests, as well as access and in uence over public o cials outside of public scrutiny. At the U.S. federal level, Suez’s United Water and former RWE subsidiary American Water are lobbying to amend Internal Revenue Service tax code to lift caps on the issuance of tax-exempt bonds that support public nancing for private water projects.44 Congress is currently considering legislation, supported by the private water industry, in both the House of Representatives and the Senate, which would codify these industry- favoring changes into law.45 The private water industry aims to access tax-exempt bonds to subsidize corporate pro ts with public money and to weaken its greatest competitor in the U.S.: publicly controlled and managed water systems. The implementation of these changes would further destabilize the long-term nancial viability of public water systems, as their access to public funds would be restricted further. The private water industry aggressively lobbied for the passage of the Water Infrastructure Finance and Innovation Act (WIFIA), which makes cheap federal nance available to private corporations so that they can help municipal governments invest in water services. The proposal is paradoxical, since the primary cause of the di culties faced by local governments with investing in public water systems is restricted access to federal nance. In fact, in the last 40 years, U.S. municipal water operators have been subject to increasingly restrictive federal scal policies— rst with the replacement of federal grants with State Revolving Funds, and then with the reduction in the amounts of loans disbursed by the State Revolving Funds.46 a $170 million upfront investment, which ratepayers CORPORATE ACCOUNTABILITY INTERNATIONAL At the state level, corporate policy interference is limiting democratic oversight and accountability of private water projects. Nowhere is this clearer than in the state of New Jersey, where Suez’s United Water is most geographically concentrated. The corporation has lobbied against bills requiring it to notify communities when it plans to raise rates,47 to alert communities directly in the event of boil water notices,48 and to keep local governments better apprised of the status of local water supplies.49 And in 2013, Governor Christie vetoed a bill 50 that would have “establishe[d] procedures and standards regarding public service privatization contracts” and oversight to protect municipal governments from being swindled.51 Governor Christie’s close relationship with a senior partner at one of United Water’s primary lobbying rms points to the reach of the private sector’s lobbying.52 At the local level, Veolia, Suez’s United Water, and other water corporations have a long track record of attempting to secure private water concessions behind closed doors or with minimal public discourse. Access to the nation’s mayors and local public o cials often begins in forums like the U.S. Conference of Mayors and National League of Cities, where corporations pay dues that a ord the industry a high level of lobbying access and visibility outside of media and public scrutiny. Through these forums, water industry lobbyists position themselves as experts and trustworthy partners, but mayors should be cautious about relying on those marketing presentations for information on the industry’s track record. It is a marketing narrative full of appealing promises to address the complex challenges of delivering quality water services with limited access to nancial resources, but it doesn’t match the private sector’s record of failures to maintain its promises. It is forums like these that have led to instances like in Stockton, CA where OMI/Thames Water, Inc. lobbied the city council to sign a 20-year private water concession just two weeks before a ballot initiative could have required a public vote on the privatization. It took ve years of infrastructure neglect, contract non-compliance, and lengthy legal proceedings for the Stockton community to reclaim public control.53 True solutions for navigating today’s troubled waters The empirical evidence on the performance and conduct of private water corporations like Veolia and Suez in the U.S. and globally shows that water privatization is not the solution, it is the problem. In order to achieve strategically important sustainable development objectives, U.S. public o cials should instead avail themselves of the comparative advantage of the public sector. 7 ReCoMMendATIonS: The following recommendations are o ered to U.S. public o cials at federal, state, and local levels: enhance democratic accountability, transparency, and public participation in decision-making on reforming, managing, and nancing water supply and sanitation services. Lack of accountability, transparency, and participation are typical problems with water privatization.54 If a decision cannot be defended in public and receive the support of the public, it is not a decision t for a democracy. Strengthen public water operations and adopt best practices for in-house restructuring. International experience shows that the most e ective water operators are found in the public sector. As the public sector is not subject to the pro t maximization imperative, it o ers the possibility of reinvesting all the available resources for the welfare of local communities.55 expand opportunities for municipal governments and public water operators to access inexpensive and reliable public investment nance. Public nance is the least expensive way to invest in water systems.56 Public water operators enjoy the advantage of managerial exibility and democratic control.57 Using public operations and public nance is the most cost-e ective way to deliver sustainable water development objectives.58 }}
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