Owning the Flow

According to Fortune magazine, the escalating demand for water has made it, ‘One of the world’s greatest business opportunities. It promises to be to the 21st century what oil was to the 20th.’

But unlike oil, water is basic to our existence and cannot be replaced.

In NSW, the Government of former Premier Bob Carr laid the groundwork for a futures market in water rights, not long before Carr took up a post with Macquarie Bank. A NSW State Water media release  from July 2005  reads:

A water index futures market would provide water reliant, or water exposed businesses with an opportunity to hedge their risks to future climatic factors, particularly water availability. An ability to hedge future risks leads to better informed investment decisions and in turn stimulates economic activity, creating jobs and more certain profits for businesses. The establishment of a futures market would enable financial service organisations to develop simple yet effective products for the rural community designed to reduce the impact of drought or flood.

‘Financial service organisations’ exist to make profit and they will profit by selling water to farmers, who are ultimately the only real market in rural Australia. Notice the press release doesn’t mention environmental concerns, or any limitations on the activities of overseas ‘investors’ or local speculators.

It comes as no surprise that consortiums led by Macquarie Bank acquired a US water utility, Aquarion, for $860 million in February last year and have invested in a wholesale private equity vehicle in Europe targeting investments in infrastructure and related assets including, among other things, water and sewerage.

With the recent announcement of the Federal Government’s $10 billion water plan and in the lead up to March’s NSW State election, every voter should now demand answers from our political leaders about current and future ownership and control of water in this country. We have had lots of hype, lots of spin, and lots of handwringing, but real answers are long overdue.

In the early 1990s, Australia began restructuring its water industry, farming out contracts to international companies such as Vivendi, Thames and Suez Lyonnaise des Eaux. By 2000, about 50 significant water contracts had been awarded to the private sector. By mid-2001, an estimated 25 per cent of Australia’s drinking water was provided by foreign multinationals, with Adelaide handing over the entire management and operation of its drinking water and waste water systems to a private company: United Water International (UWI).

There are cases where service and access has improved under private management management, I emphasise, not ownership but the more common outcome worldwide, as demonstrated in countries from the UK to Bolivia, is that privatisation has led to rising costs, disconnections for poor people and companies pulling out of contracts when they can’t make enough profit.

The Australian experience to date is far from promising.

For two months in 1998, more than three million residents of Sydney were forced to boil their contaminated drinking water to kill parasites. The cause of the contamination was never established, but a government-commissioned probe raised questions about whether the operational practices of a private water company, which critics accused of cost-cutting, had risked the safety of the water supply.

When UWI gained control of Adelaide’s water, it failed to provide many of the promised benefits. In June 2002, South Australian Premier Mike Rann, who was in Opposition when the water deal was signed, said, ‘The public was not told the truth about the nature of the contract [by the Government].’

Fifteen months after the contract was signed, Adelaide was engulfed in a powerful sewage smell, which became known as the ‘Big Pong.’ A government-funded investigation revealed that the pong was caused by equipment failures and inadequate monitoring that led to raw sewage being flushed directly into settling lagoons.

Our Prime Minister recently announced the appointment of Malcolm Turnbull as Environment and Water Minister. Turnbull’s website fails to mention that he was Chair and Managing Director of Goldman Sachs Australia from 1997 to 2001, and a partner with the company from 1998 to 2001. Goldman Sachs’s water-related activities have included, amongst other things, overseeing some of Thames Water’s international business transactions.

Now, as head of the Environment and Water Resources portfolio, Turnbull has begun the push for more private water infrastructure ‘investment’ to help solve the nation’s water shortages and fix ailing infrastructure. The Minister’s website displays the full text of the Prime Minister’s $10 billion water plan,   including snippets like:

The Commonwealth will contribute roughly $3 billion to this phase of our plan, with irrigation companies expected to contribute about $750 million. Fifty per cent of water savings will be retained by irrigators and 50 per cent held by the Commonwealth will go to enhancing water security and to sustaining river systems and wetlands.

Doesn’t that translate as the Government (that is, taxpayers) contributing 80 per cent of the funding and irrigation companies 20 per cent; while the profit is split 50/50 between Government and the irrigators? Would Turnbull invest his own money on that basis? I suspect he would as an irrigator, but not as a government. What is going on?

We seem to be heading towards complete privatisation of water in Australia simply on the assumption that private is better than public ownership. But this is happening by stealth there has been no public debate about the pros and cons, and the our governments habve not explianed how this is in the long-term best interests of all Australians. We need to ask the right questions, we need to ask them now and we need honest answers. Here’s a start:

Why shouldn’t all negotiations and contracts between governments and water companies be made public? Why do we need elaborate ‘commercial in confidence’ clauses in contracts when the subject is the provision of an essential public service, at our cost? Why shouldn’t we know what we are paying for?

Who owns the water companies? What is the real percentage of foreign ownership? How much tax do they pay in Australia? How much of their profit leaves Australia?

How much do the companies make under their original contracts? How much do they end up being funded by taxpayers when improvements need to be made to existing taxpayer owned infrastructure?

Who pays for government investigations, and damages for breaches of contract, if things go pear-shaped?

Of the $10 billion allocated to the Federal Government’s water plan, how much of it will be given to or benefit foreign-owned agribusinesses? Or Australian private interests?

John Howard makes reference to metering bores in the Murray-Darling basin. This suggests that the Federal Government wants total control of all water in that area rather than just the water taken from the rivers. What exactly is the long-term plan?

What guarantees are in place to ensure that water is affordable and available to all citizens?

Will recycled water and its infrastructure have been privatised by the time it becomes our primary source of drinking water?

Similar issues arise at State level. NSW farmers have had various water management initiatives imposed on them for years, but in 2000 the Carr Government introduced the Water Management Act. The most significant change was that one did not have to be the owner or occupier of land to hold a water access licence. Theoretically, they can be held by anyone, including a passive investor.

The alleged objective of access licence dealings is to maximise the social and economic benefits of water to the community while being consistent with the maintenance of long-term productivity of land. But who is the community? Who really benefits? Is a transfer of water rights to financial institutions and speculators something that is going to maximise the social and economic benefits to the rural community? Does gambling in water prices by water traders achieve this? Do the regulators care about the social or environmental effects of allowing water values to increase?

And where’s the State Government? The section of Premier Morris Iemma’s much-touted State Plan dealing with ‘Securing our supply of water and energy’ spruiks an increase in water recycling both in Sydney and regional centres. But when confronted with Queensland Premier Peter Beattie’s lead in moving to recycled drinking water, Iemma’s Water Utilities Minister David Campbell said this week ‘It’s not in our strategy,’ and that it would be up to local councils in regional towns to decide whether to introduce recycled drinking water.

The real question raised by the water debate is whether some services that are central to human existence shouldn’t remain within the ownership and control of all of us, rather than be privatised.

If we already own the infrastructure, surely government ownership with direct Ministerial responsibility and effective management by the private sector, if that is really more efficient will provide us with a reliable supply of water more cheaply than handing it over to free market profiteers.

Before ownership is permitted to devolve to the private sector, whether in whole or in part, we need full disclosure by governments, we need much more information, and we need to be satisfied that all significant social and other issues have been addressed.