Water — still for fighting over

he link to this article showed up in the Brown & Caldwell California Water Newsletter the other day.  When I looked at the original publication date — November/December, 2002, I was inclined to wonder why this was being published now.  Be that as it may, the article paints a dim picture of the results of turning something as precious as a city’s water over to private enterprise.

Contamination, riots, rate increases, scandals. From Atlanta to Manila, cities are confronting the true cost of water privatization.

….

Atlanta’s water service had never been without its critics; there had always been complaints about slow repairs and erroneous water bills. But the problems intensified three years ago, says Certain, after one of the world’s largest private water companies took over the municipal system and promised to turn it into an “international showcase” for public-private partnerships. Instead of ushering in a new era of trouble-free drinking water, Atlanta’s experiment with privatization has brought a host of new problems. This year there have been five boil-water alerts, indicating unsafe contaminants might be present. Fire hydrants have been useless for months. Leaking water mains have gone unrepaired for weeks. Despite all of this, the city’s contractor — United Water, a subsidiary of French-based multinational Suez — has lobbied the City Council to add millions more to its $21-million-a-year contract.

Dismal, ain’t it?

Well, as you will have noticed if you followed the link (or just moused over it), the article comes from Mother Jones Magazine, which is not known to be a fan of capitalism.  Let’s look at what they have to say about Atlanta:

“Atlanta was going to be the industry’s shining example of how great privatization is,” says Public Citizen’s Jackson. “And now it’s turned into our shining example about how it maybe isn’t so great an idea after all.”

On a cloudy August day that brought a welcome bit of drizzle to drought-parched Atlanta, Mayor Shirley Franklin lugged a seven-pound bound volume off a shelf and heaved it onto a table in her office. The report, prepared by a committee she appointed shortly after taking office last January, contained the city’s case against United Water. It detailed violations of federal drinking-water standards, including one instance in which levels of chlorine rose to six times the level the company agreed to in its contract. The report also listed a string of maintenance problems ranging from broken security cameras and gates to open manholes and water-main leaks that went unrepaired for weeks. Some residents had to wait months for basic repairs, even though the company’s contract specifies that some repairs must be made within 15 days. In fact, United failed to complete more than half of all required repairs in 2001, and it allowed rust and debris to build up, so that when the boil-water alerts forced the company to flush the system, brown water flowed from the taps.

Finally, the report noted, instead of improving collections of unpaid water bills as promised, United actually allowed collection rates to drop from 98 to 94 percent, costing the city millions of dollars.

United has succeeded at one thing, according to the city: cutting its own oper-ating costs, chiefly by reducing the water- works staff by 25 percent even as demand for water in burgeoning Atlanta keeps rising. Staff reductions were partly responsible for the company’s service troubles, the report indicated, as were higher-than-expected repair expenses: Last year United demanded that the city provide an additional $80 million for unanticipated maintenance costs. The increase was blocked when a lone City Council member refused to sign the revised contract.

As it happens, there is a perspective from the other side available.  The Reason Public Policy Institute has an analysis of what went wrong, and right.

 …in the past few months several issues have arisen in Atlanta regarding the performance of the water system, contractor payments or change orders, and the status of the system before the contract was entered into. Ultimately, while not perfect, the Atlanta water privatization presents a valuable opportunity from which to learn—if nothing else, it teaches us what not to do.

This is a lengthy analysis, drawing on a number of sources. It’s interesting to compare the RPPI account of what happened with Mother Jones’.  Among other things, we read that some of these problems may not have arrived with United Water.

Before privatization operating costs ran about $50 million a year with poor service and a major need for modernization. Then Mayor Bill Campbell decided to privatize water operations as a way out, although he did not generally support privatization. In general, there was not much initial public support for the proposal. However, it went forward and United Water was eventually selected with a winning bid of $22 million.

Entering the contract negotiations phase the city had little idea of the exact location of water mains in the city, or their condition. The city did know that a high percentage of treated water was not billed, and probably leaked out between the treatment plant and meters. United Water (UW) insisted that the city make warranties on the system, but ultimately the city held firm and none were made.[15]

….

Fast forward to this summer [of 2003 -- KL], Mayor Shirley Franklin issued formal notice to contractor UW that they were not in full compliance with the terms of the 20-year contract reached in 1997. She noted that problems included: staffing levels, bill collection, and meter installation and repair. This came as UW was seeking an additional $80 million dollars for services they claim were provided outside of the contract.

….

UW was given 90 days to “cure” complaints in four key areas: insufficient maintenance, poor bill collection,[16] tardy meter installation, and an improper letter of credit. As of October 31, 2002 , the city reported that performance had improved but more improvement was needed. A scorecard will be used to evaluate the performance, which both sides agreed to, since it will be measuring actual outputs and outcomes rather than subjective measures.

….

Still at issue in Atlanta is whether or not UW deserves more than the $21 million a year they are paid. UW is contending that the city grossly underestimated basic repairs and maintenance. Assumptions were built into UW’s fee proposal. For example: that 1,171 water meters per year would break, requiring repairs—but in reality, 11,108 broke; another was that 101 main breaks would occur in a year—actual equaled 279; and yet another was that 734 fire hydrants would require repair—when 1,633 needed it. Essentially UW assumed that the system would require one level of repair, when a different much higher level of repair was needed.

Ultimately the problem resulted from poor data, or in some cases no record keeping. The city did not have good records to establish a baseline—either data wasn’t kept, wasn’t kept accurately, or existed but was understated due to bureaucratic malfeasance. However, some of the blame must fall on UW. All of the bidders knew about the lack or quality of data ahead of time before they bid. Furthermore, UW has a lot of experience running old systems (older and larger than Atlanta ’s) and they should have built that expertise into their proposal.

Blame falls on both sides. However, Mother Jones doesn’t stop at tearing apart the Atlanta privatization experiment. She generalizes:

Atlanta’s experience has become Exhibit A in a heated controversy over the push by a rapidly growing global water industry to take over public water systems. At the heart of the debate are two questions: Should water, a basic necessity for human survival, be controlled by for-profit interests? And can multinational companies actually deliver on what they promise — better service and safe, affordable water?

The obvious conclusion in the article: No.

Such incidents point to a fundamental problem with allowing private companies to take over public water systems, says the Pacific Institute’s Gleick. In attempting to make attractive bids for long-term contracts, companies often underestimate the cost of maintaining a water system, and so are forced to either skimp on staffing or demand more money to keep turning a profit. “At least when you have public utilities, the money they take in stays in the community,” Gleick says. “With the private companies, the profits are going to go out of your community, out of your state, and probably out of your country.”

RPPI, on the other hand, begs to differ.

Atlanta’s experience with water privatization is not typical. Satisfaction with water and wastewater privatization has been very high, with over 90 percent of communities choosing to continue privatization at renewal time.

RPPI would advocate fixing the problems with the 10% that don’t meet the standards, and staying with the 90% of the cases that do.  Mother Jones would junk the whole system.  But then, MJ is not a fan of private enterprise.

In the end, the debate is about more than money. Taking responsibility for a community’s water, Muller argues, is simply not the same as running a sports stadium or a cable franchise. “Water is the worst thing to privatize,” she says. “It’s what we need to live. I think that’s key to the whole debate — are we going to lose control over functions that are essential to life?”

What would they ask for next? Government-run grocery stores?

Update:  Over the weekend, the link to the Mother Jones piece seems to have disappeared.  I guess someone realized the end of 2002 can’t  really be considered “current” in April of 2007.

Nevertheless, I’m leaving this up, both because I did a lot of work on it, and because the same newsletter had a link to a piece at alternet.org railing against privatization.  I think this post can be an antidote to the hysterical tone there, as much as anywhere.

This entry was posted on Sunday, April 29th, 2007 at 12:34 pm and is filed under Vox Populi. You can follow any responses to this entry through the RSS 2.0 feed. | 9 views | Trackback | Print this page |

| More from Karl Lembke