28 Feb 2009


Aquadoc's review of Blue Gold attracted an interesting comment:
Mike, I am compelled to answer your hypothetical question of Maude Barlow: "why is privatization of our water so bad?"

While designing and constructing water delivery sources by experts make sense, the delivery of water is not a highly specialized technology and therefore is quite suitable for delivery by municipalities. And here are the reasons it doesn't make sense for private companies to sell us our water:
  1. Private companies must make a profit on their goods and services for their stockholders because that's what they are in business to do. Most investment firms will tell you that the prospect looks great for water investments because the industry as a whole commands 15% to 20% return.
  2. With private corporations, there is no transparency of operations.
  3. Financing for private corporations is 2 to 3% higher than municipal financing because they are not eligible for municipal, tax-free bonds. They also must pay property and income taxes from which public utility districts are exempt.
  4. Profits generated by the private water company generally leave the community it serves. The majority of U.S. privately-run companies are European multinational corporations such as Veolia (Wilsonville's operator) and Suez.
  5. Water conservation is contra-indicated when a company's profits are dependent upon water volume.
And you expressed concern about the monopolistic nature of publicly-run water utilities. What do you think a private company with a 10-year contract to deliver water to ratepayers is?

By the way, Paris, France, where Veolia's parent company was founded in the 1800's to deliver the king's water to his castle, de-privatized its water delivery last June.

Nancy Matela
Northwest Organizer
Food & Water Watch
To this, I responded with
Hi Nancy,

Michael sent me your post, and I have a few comments:
  1. Private companies can STILL deliver water at competitive prices if they are more efficient, which they are. They are NOT more costly, per se.
  2. The same is true about "public" companies. My colleague needed to file a FOIA to get "public" information from a certain large, public company...
  3. That subsidy costs "us" more elsewhere, and such "unfair competition" should be/can be offered to private companies that are providing the same "public" service...
  4. Public companies return ZERO to their communities, since they run as "non-profits." For profit companies move profits to shareholders, who then reinvest the $$ where the benefits (opportunities) are greatest. That's capitalism -- and why we enjoy this lifestyle.
  5. The same is true for public companies (i.e., they raise prices after people conserve because they need to sell water to break even.
Overall, I fear that your basic argument (like Maude's) is based on fear of/discrimination against for-profit companies. That's a pity, since the REAL problem is not public or private companies, but the lack of community oversight of monopolies (in any ownership form).
Bottom Line: There are costs and benefits of every ownership structure -- non-profit, for-profit, corporate, partnership, etc. If that were not true, every company would have the same structure. Since it is true, we have to pay attention to when they work -- and when they do not!

1 comment:

Damian said...

"Financing for private corporations is 2 to 3% higher ... They also must pay property taxes ...from which public utility districts are exempt."

This is true. It just means that some people (I dont know who) decided that public districts ought to be exempt from prop taxes, and that we ought to subsidize their borrowing costs. Treat them both equally, I say. Don't subsidize one type or another.

Given that we do subsidize, its important to know who pays the subsidy. We all do because we all pay federal and state income taxes, for which the interest income is exempt.

Similarly for property taxes. As an example, the city of Berkeley is always in a struggle with UCB because they can buy property and remove it from the tax rolls of the city, and the city makes up that revenue by either taxing something else or raising rates on the rest of us.

So in both cases, someone is paying the true cost, although its hard to see who actually pays when public agencies do it because they are subsidized by entire populations rather than getting their funds directly from the population served.

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