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News :: Globalization |
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Unlike C-U, Atlanta Resists Water Privatization |
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by NYT
(No verified email address) |
12 Feb 2003
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Last week, it was disclosed that central Illinois' water company, the Illinois American Water Company, was being purchased by a German multinational. This article addresses how other cities are dealing with loss of local control of their most vital resources. |
As Cities Move to Privatize Water, Atlanta Steps Back
February 10, 2003
By DOUGLAS JEHL
ATLANTA - Privatization has hit the water sector, which has
remained mostly the bastion of public utilities. Over the
last five years, hundreds of American communities,
including Indianapolis, Milwaukee and Gary, Ind., have
hired private companies to manage their waterworks, serving
about one in 20 Americans.
The main reason is that the cities are facing enormous
costs to repair aging sewer pipes, treatment plants and
other water infrastructure. Federal officials say the total
cost of repairs could outstrip current spending by more
than $500 billion in the next 20 years. The utilities' hope
has been that partnerships with private companies could
generate savings and provide access to capital to help
cover such staggering bills.
But a cautionary tale has emerged here in Atlanta, where
the largest water privatization deal collapsed in January.
Instead of public savings and private profit, a deal
reached in 1999 between Atlanta and United Water resulted
in bitter disappointments for all sides, not least of all
consumers. Atlanta is now retaking control of a system that
United Water was to have managed until 2019.
"This city had a motto for years, and it went something
like `Atlanta grows where water goes,' " said Jack Ravan,
the city's commissioner of watershed management. "I think
we've learned enough to know that we'd prefer to see the
city in charge of that destiny."
The decision, in many ways, takes Atlanta back to square
one. It will have a publicly controlled system that, on
paper at least, will be more costly to ratepayers than the
one it replaces. The arrangement offers no clear way to pay
for extensive water-system repairs, estimated to cost $800
million over the next five years. (A separate bill to
upgrade the city's sewers could exceed $3 billion.)
But Atlanta officials, along with customers like Gordon
Certain, the head of a local neighborhood association, say
almost any change seems preferable to existing service they
call poor, unresponsive and fraught with breakdowns,
including an epidemic of water-main breaks and occasional
"boil only" alerts caused by brown water pouring from city
taps.
"Is it possible to have private water work right?" Mr.
Certain asked. "I'm sure it is. But if you have a political
problem in your city, you can vote in a new administration.
If you have a private company with a long-term contract,
and they're the source of your problems, then it gets a lot
more difficult."
The breakup comes as the question of privatized water is
generating increased attention around the country, with
advocacy groups like Public Citizen waging campaigns
against the proposed deals. And while water privatization
advocates describe the Atlanta failure as an aberration,
all sides say that it is likely to weigh heavily in places
like Stockton, Calif., which is considering whether to go
down a similar path.
"This is a huge setback for privatization, and it's going
to have to give both cities and companies pause," said Dr.
Peter H. Gleick, president of the Pacific Institute, a
nonpartisan environmental research organization in Oakland,
Calif., that has written extensively about the risks and
benefits of water privatization.
United Water, a subsidiary of the giant French company
Suez, has acknowledged problems with its management of the
Atlanta system. But it has also said it was stuck with
trying to run a system in unexpected disrepair, while
losing at least $10 million annually under a $22
million-a-year contract that the city refused to
renegotiate.
"It was important to recognize reality in Atlanta," Michael
Chesser, United Water's chairman and chief executive, said
of his company's consenting to the breakup. Still, United
Water, one of the country's two biggest private water
companies, has contracts to operate more than 100 other
municipal systems, and Mr. Chesser said he expected that
number to grow. "This is a market with a huge potential,"
he said.
It was Atlanta's new mayor, Shirley Franklin, who forced an
end to the partnership, demanding that United Water quit or
be fired. But in announcing an end to the partnership in
Atlanta on Jan. 24, Mr. Chesser and Ms. Franklin said each
side had recognized that continuing the deal was in neither
party's interest.
Across the country, 94 percent of water systems are
publicly controlled, said William G. Reinhardt, editor of
Public Works Financing, the leading trade journal covering
the industry. Most are owned and operated by
municipalities, in what remains the most fragmented of any
American utility, divided into roughly 5,000 different
pieces.
The number of publicly owned systems that, like Atlanta's,
are operated under long-term contracts by private companies
has increased to about 1,100, from about 400 in 1997.
"It all comes down to economics," said Debra Coy, a
research analyst with Schwab Capital Markets. "In an
environment where cities are paying much more attention to
their problems with wastewater and water, you have an
industry that's coming in and telling them, hey, we can
help you do this."
A 1997 executive order helped to smooth the way for such
public-private partnerships. But in cities already strapped
for cash, the bigger factor has been the dark shadow cast
by the need for new investment, to meet the needs of
growing population or to keep aging systems in compliance
with strict environmental laws.
Some federal estimates of the need for new spending for
municipal water systems have reached as high as $1 trillion
over the next 20 years.
In Atlanta, some water pipes date from the 19th century,
and its water system has been in failing shape since the
mid-1990's, when the federal government began to assess
fines against the city for failing to meet water-safety
standards. In striking the deal with United Water in 1999,
city officials said they hoped to save as much as $20
million a year from the $42 million budgeted for the
existing, bloated public utility, and to apply those
savings to capital improvements.
But at most, Atlanta officials say, the city has managed to
achieve only $10 million in annual savings, and only at
what has been a significant political cost, with ratepayers
blaming the city for United Water's shortcomings. At the
same time, United Water said its expected profit had turned
into heavy losses as operating costs soared. Atlanta's
pipes, fire hydrants and water treatment plants turned out
to be in much worse shape than the city had let on, the
company said.
The return to public control that Atlanta has now embraced
will send the city's water costs soaring back to about $40
million a year, compared with the $22 million in direct
costs it was paying United Water, Mr. Ravan said. But he
said there would be other, less tangible savings. "What is
the cost of a `must boil' alert?" he asked.
But critics, including Hugh Jackson, a Nevada-based
researcher with Public Citizen, are using the example of
Atlanta to offer a broader indictment of a privatization
process they regard as misguided from the start.
"Obviously, water is a basic necessity, to a degree that
electricity isn't, when you get right down to it," Mr.
Jackson said. "We do not feel that it should be managed for
quarter-to-quarter returns for a corporation that is trying
to satisfy a profit demand."
Some experts, including Adrian Moore, a privatization
advocate who is a vice president at the Los Angeles-based
Reason Foundation, say the main lesson of the Atlanta
collapse is that cities and private companies needed to be
realistic about what a partnership can achieve.
"It's like a marriage," Mr. Moore said. "You've got to work
to make it work."
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