Water Privatization

Overview & History

The interest in the privatization of New Orleans water and waste water services came from concerns over the dramatic rate increases that could be incurred by customers of the SWB due to federal mandates to upgrade New Orleans’ aging water facilities. The Bureau of Governmental Research sums up the consent decree of 1998 between the U.S. Environmental Protection Agency and the City Of New Orleans:

“In 1998, the SWB settled a lawsuit filed by the U.S. Environmental Protection Agency to force the city’s sewer system to comply with pollution control regulations. The settlement, in the form of an enforceable federal consent decree, started a 13-year process that will require about $455 million to fix New Orleans’ aging sewer system. Federal grants are possible (but not guaranteed) for up to $100 million of this; the balance must be raised locally (1).”

Ostensibly to protect citizens from the rate increases, the Morial administration began the process in February of 2001 of receiving bids from water management companies. The RFP/RFQ process was initially on a fast track of 10 days for public comment. Ultimately the Morial administration’s plans were stymied by Morial’s loss of political capital, efforts by then Councilmember Singleton to make any water privatization proposal a referendum item to be voted on, and a critical analysis of the process by the Bureau of Governmental Research in June of 2002 which was extensively reported in the media.

Newly elected Mayor Nagin, who was critical of the bid process as managed by his predecessor, has elected to move the decision making process forward. The decision of the SWB will be influenced by his concerns as he is president of the board, but the board is also made up of many Morial appointees (2).

Bidders will be making presentations to the Sewerage & Water Board on September 16 on the privatization of the operations of the Sewerage & Water Board. The suitors include the Managed Competition Employee Committee, USFilter and United Water. The board will hold a special meeting to render its decision on privatization of the SWB for 20 years on September 23. A referendum for voters is likely in October or November of this year. Editor’s note: As of September 11, 2002 13:23, the Urban Conservancy has been informed that due to the delayed schedule of SWB hearings, the earliest date for a referendum is likely April 5, 2003.

Get Involved

The Urban Conservancy will be sharing information about organizations actively involved in the issue of privatization. Send an e-mail to water@ucno.org to get more information.

Footnotes

Bureau of Governmental Research, “Privatization of Sewerage and Water Board Operations,” April 2000
Times-Picayune, “N.O. water plan may come to a boil soon,” June 14, 2002
Public Citizen, “Enron’s Failure in Water Ventures Highlights Dangers of Privatization to Consumers, Taxpayers,” April 2, 2002
Fortune Magazine, Quoted in The Nation, “Who Owns Water?,” September 2, 2002
Urban Conservancy, “Is Atlanta’s Loss New Orleans’ Opportunity?,” August 7, 2002
World Bank, Presentation at Water Forum 2002, May 6, 2002
United Water, “Why privatize the Sewerage and Water Board?,” swbprivatization.org, 2000.
Bureau of Governmental Research, “Privatization of Water and Wastewater Systems in New Orleans,” June 15, 2001
New Orleans CityBusiness, “Water privatization Not Bonanza Atlanta Expected,” March 4, 2002
Public Citizen, “Enron’s Failure in Water Ventures Highlights Dangers of Privatization to Consumers, Taxpayers,” April 2, 2002
US Department of Justice Press Release, “Water Company Ordered To Pay $3 Million Fine For Bribing New Orleans Water Authority Member,” December 2001
Albuquerque Weekly Alibi, “Intel Outside,” April 27, 1998
The Nation, “Water Apartheid,” September 2, 2002
World Wildlife Fund UK, “Message In A Bottle,” June 19, 2002

Issues

In its analysis of the issue of privatization, Public Citizen writes: “ï¿½the World Bank has predicted that by 2025, two-thirds of the world’s population would run short of potable water. With 85 percent of the U.S. population being served currently by public providers, corporate proponents of privatization are salivating over the prospect of huge profits in the years ahead. Enron was only one of many multinational corporations seeking to profit from the scarcity of water (3).”

One of New Orleans’ key assets is at stake in any decision that is made. Water, termed the “oil of the 21st Century,” (4) is a key component in coming real estate trends in the US (5) and will be of great importance in coming years as the world’s supply of fresh water grows increasingly scarce (6).

Supporters of privatization identify its benefits as:

A savings to consumers through “cost control” measures.
The most efficient provision of water and wastewater utility service (7).
Improvements in customer service and billing and collections.

Critics of privatization cite:

The fact that water rates in New Orleans, some of the lowest in the Southern US — have not been increased since 1990 (8) and are likely to rise regardless of privatization.
The mounting evidence that the much touted savings for similar privatization projects in Atlanta have failed to materialize (9).
Potential deterioration in customer service due to extreme cost cutting measures.
The continued weakening of government oversight of essential services.
Limited success of privatization in the US and the world (10).
A flawed bid process up to this point, including prosecution of an early bidder for bribing a member of the SWB (11).
No guarantee that unexpected costs will not be passed on to consumers, negating any type of potential savings.

The Bidders

The Managed Competition Employee Committee is made up of current S&WB staff members who hope to provide a publicly accountable alternative to a full-blown privatization.

United Water is a subsidiary of Paris-based Suez, a global services company that provides infrastructure services in the fields of energy, waste services, communications and water. The local representative of Suez is Troy Henry. United Water is the water company involved in Atlanta’s controversial privatization program. Prior to his work for United Water, Mr. Henry worked for Enron Energy Services.

U.S. Filter is a subsidiary of Vivendi Environnement, which is a subsidiary of Vivendi Universal, the media conglomerate based in Paris. Vivendi Environnement manages water and wastewater treatment facilities as well as passenger transportation services in Europe. The debt laden Vivendi Universal is currently in talks to sell off portions of Vivendi Environnement and USFilter not directly related to its water business.

Analysis

As the economies of communities change, so do their perceptions of their assets. For example, through a combination of luck, government neglect, and the work of many individuals and groups, neighborhoods that would have been considered eyesores worthy of destruction were instead treated as diamonds in the rough. Spared the “benefits” of urban renewal programs, the French Quarter is now the crown jewel of New Orleans’ tourism economy — although at the expense of some of its residential heritage. Many other neighborhoods were not so lucky. In the name of progress (or the lack of powerful residents), many communities were bulldozed or otherwise destroyed. These were assets squandered to realize immediate gains. The city continues to pay the price for these decisions, decades later.

An affliction of New Orleans government for some time has been the notion that because we are such a poor city, we have to take any offer of outside assistance. What we see when this “we can’t do better” mentality takes hold is that government officials that should be protecting the public interest become significantly weaker and beholden to outside organizations that are eager to manage essential services that were once the responsibility of the government. These companies often have no connection or loyalty to the community. Their only loyalty is to their shareholders. The potential for mismanagement is great.

The river and the water production facilities of New Orleans are likely one of our city’s least recognized resources. Through improvements in infrastructure, management and mandated upgrades, New Orleans is likely to continue to have more water, potable and otherwise, than it can consume. This is likely to be an extremely valuable item for New Orleans to offer to the world, depending on how it is managed. Two scenarios can be imagined, both with compelling economic benefits.

Using Water To Attract New Business and Residents

Water can be a tool for bringing new business to New Orleans. From a recent Urban Conservancy editorial: “Water will be a major concern in many major US cities in the coming years. The lack of water will place serious strains on the growth of many heretofore “booming” cities. Las Vegas and Phoenix are listed as most at riskï¿½Atlanta and several of its neighbors are locked in struggles for the Chattahoochee watershed, and Florida’s growth is being seriously tested by saltwater contamination into its already low reserves.” Intel’s chip manufacturing operations in Rio Rancho, New Mexico employ thousands of locals, paying millions in taxes and even buying schools for the city. This occurs as residents in nearby Corrales protest Intel’s rapid draining of the city’s parched aquifer (12).

Retail sales of water

Currently, South Africa is the only country to guarantee access to fresh water in its constitution (13). Even in countries where drinking water is plentiful, ounce for ounce, bottled water is sometimes more expensive than gasoline (14). The demand for bottled water in the US and Europe is still experiencing strong growth. This does not consider developing countries that have been struggling with scarce supplies of water, from the Americas to Asia. In fact, at the world summit on Sustainable Development in Johannesburg, the United Nations Economic and Social Commission identified the lack of fresh water and poor sanitation as the biggest killer of children in Asia. Clearly, the world needs something that New Orleans has. According to representatives of the Managed Competition Employee Committee, New Orleans has the capacity to produce 220 million gallons of water per day out of its East Bank facility and today we are using only approximately 110 million gallons per day, leaving us with 110 million gallons per day surplus capacity.

Recommendations

The Urban Conservancy believes that privatization of the city’s water services is not in the best interest of the citizens of New Orleans. While any proposal to overhaul the city’s water services is a complex issue, we are encouraged that voters will be given the opportunity to weigh in on the matter. If an outside company is selected to take control of the city’s water and waste services, there is likely to be a sophisticated campaign to sway voters, either by representing the changes as consumer-driven, or to convince voters that the issue is too complex to understand, causing apathy and a sense of disempowerment. Because of the lack of consideration for the value of a natural asset of the community, and the attempts of the previous administration to sidestep the democratic process, the Urban Conservancy urges readers to scrutinize closely any plan for privatization of water services in the city, learn more about the issue of privatization, get involved, and of course, vote.

Learn More

Atlanta leaders unhappy with United Water so far
Austin Chronicle Gambit Reprints Project Censored’s List of Censored News, 2000
The Big Greedy [PDF]
BGR Report: Sewerage & Water Board Privatization at a Critical Stage [PDF]
Bulk Water Sales
City To Tax Rainwater (thanks to Joel for the link)
CityBusiness Report: Water privatization not bonanza Atlanta expected
CityBusiness Report: Nailing down savings from sewer and water bids proves tricky
The Coming Water Crisis
EPA Analysis of Louisiana Water Supplies
Enron’s Failure in Water Ventures Highlights Dangers of Privatization to Consumers, Taxpayers
Gambit Reprints Project Censored’s List of Censored News, 2001
Hightower Audio On Privatization
Hightower Commentary: The Water Profiteers
In drought-stricken New Mexico, battle brewing over water in Rio Grande
Is Atlanta’s Loss New Orleans’ Opportunity?
Nagin wants water plan done in 90 days
S&WB panel cancels bid-review session
Sewerage and Water Privatization (front site for United Water)
Suburban Sprawl Blocks Water, Worsens U.S. Drought
US Department of Justice: Water Company Ordered To Pay $3 Million Fine For Bribing New Orleans Water Authority Member
United Water and Atlanta soon will find out whether they’re meant to be together
Water Works: Who Owns The Country’s Drinking Water?

Latest News

1/1/03
SWB Poised To Revisit Options

12/14/02
Council OKs Nagin Picks For Several N.O. Agencies, Including SWB
“Nagin, who was on the losing side of the vote, said he would consider reviving an altered version of the privatization proposal once new board members are in place.”

10/26/02
Mayor Nagin removes SWB members who voted to reject bids and is said to be considering either starting the privatization process over again, or reengineering.

10/17/02
In a surprise vote and an unexpected victory for privatization foes, the SWB votes to reject all bids.

9/18/02
Public Citizen releases an update on the bidders vying for control of New Orleans’ water, “Two For The Road.”

9/17/02
The September 16 meeting of the members of the Sewerage and Water Board to review proposals by privatization bidders was cancelled due to the Yom Kippur holiday. The bidder presentations have been rescheduled for September 23 at the Municipal Training Academy (same location as before).

It is likely that the time and schedule will be the same: Start time 9:00 AM, bidder order: The Managed Competition Employee Committee, US Filter, United Water. Each bidder will have a 1 hour presentation followed by questions from the Board for 1 hour. Public comments and questions will be at the end of the day. The meeting will be rebroadcast on public access TV.

9/16/02
The Urban Conservancy recently presented an overview of the issues on WTIX radio on September 16. One fact that was discussed is the commonly held perception that the SWB is responsible for cleaning the catch basins in the city. The Urban Conservancy has learned that this function is solely the domain of the City Public Works Department. For problems with catch basins, contact public works on the web or at (504) 658-CITY (2489). You can also “contact your City Councilmember online

9/16/02
The September 16 meeting of the members of the Sewerage and Water Board to review proposals by privatization bidders was cancelled due to the Yom Kippur holiday.

9/13/02
A rally to urge the Sewerage and Water Board to deny privatization of New Orleans’ water is scheduled for September 16 at 12:30 PM. The location will be the Municipal Training Academy (the site of the SWB meeting), 401 City Park Ave.