Big Banks will soon be Buying up Your Public Water Systems!!

    By Jo-Shing Yang, AlterNet March 28, 2009

              Water is the new oil for global financial powerhouses and water is being commoditized and
              traded in global stock exchanges.

              Today in addition to being able to buy water rights and purchase lakes on private land, an
              individual or a corporation can invest in water-targeted hedge funds, index funds and
              exchange-traded funds (EFTs), water certificates, shares of water engineering and
              technology companies, shares of multinational private water utilities, shares of multinational
              banks and investment banks that own water companies, and a host of other newfangled
              water investments in this U.S.$425 billion industry which is expected to become a U.S.$1
              trillion industry within five years. And if one happens to be a tycoon, one can also create
              his or her own private water districts and water utilities.

              The recent media coverage on water has centered on individual corporations and
              super-investors seeking to control water by buying up water rights and water utilities. But
              paradoxically the hidden story is a far more complicated one. The real story of the global
              water sector is a convoluted one involving "interlocking globalized capital": Wall Street and
              global investment firms, banks, and other elite private-equity firms -- often transcending
              national boundaries to partner with each other, with banks and hedge funds, with
              technology corporations and insurance giants, with regional public-sector pension funds,
              and with sovereign wealth funds -- are moving rapidly into the water sector to buy up not
              only water rights and water-treatment technologies, but also to privatize public water
              utilities and infrastructure.

              "Water" and "water sector" are used broadly to refer to water rights (i.e., the right to tap
              groundwater, aquifers, and rivers), land with bodies of water on it or under it (i.e., lakes,
              ponds, and natural springs on the surface, or groundwater underneath), water-purification
              and treatment technologies (e.g., desalination, treatment chemicals and equipment),
              irrigation and well-drilling technologies, water and sanitation services and utilities, water
              infrastructure maintenance and construction (from pipes and distribution to all scales of
              treatment plants for residential, commercial, industrial, and municipal uses), water
              engineering services (e.g., those involved in the design and construction of water-related
              facilities), and retail water sector (such as those involved in the production, operation, and
              sales of bottled water, water vending machines, bottled water subscription and delivery
              services, water trucks, and water tankers).

              The story is multifaceted: In the midst of a recessionary economy with a blistering financial
              and economic crisis, declining employment, and a shrinking tax base, many financially
              strapped and debt-ridden local governments are beginning to relinquish public
              infrastructure (including water) and municipal services (including water and sewage utilities)
              to privatization by Wall Street and other global investors.

              At the same time, Wall Street and multinational banks are seeing water, food, energy, and
              public infrastructure as safe investment havens with stable returns and financially liquid
              assets. Simultaneously, they are waking up to the golden opportunity presented by the
              current reality of a thirstier, water-scarcer world caused by global climate change (and its
              extreme weather), rapidly depleting groundwater and aquifers, increasing water pollution,
              soaring water demand exerted by population increases, fast-rising agricultural and
              industrial uses, and crumbling water infrastructure worldwide requiring billions of dollars
              annually in maintenance and upgrade.

              Often, the picture painted by mainstream media and water-rights activists is too simple --
              that of a single corporation (such as Coca-Cola in India or Bechtel in Bolivia)
              "corporatizing water;" the real story is not just of flamboyant tycoons (such as U.S.'s
              billionaire and former oil tycoon T. Boone Pickens, or more recently, Hong Kong's
              real-estate billionaire Li Kai-shing, or Britain's magnate Vincent Tchenguiz)
              single-handedly grabbing water rights or individual corporations (e.g., Coca-Cola and
              Nestlé) sucking dry springs and groundwater to the detriment of poor subsistence farmers
              or slum-dwellers, but vastly complex global networks and partnerships of investment
              banks and private-equity firms linking together with other institutions (such as public-sector
              pension funds in Australia, Canada, and Europe; and sovereign wealth funds in the Middle
              East and Asia) and multinational corporations elsewhere to buy up and control water

              Not only are individual corporations buying up water but a deluge of globalized capital are
              also rapidly buying up water and consolidating their foothold in the water sector; these
              capital entities are investment powerhouses such as Goldman Sachs, JPMorgan Chase,
              Merrill Lynch (before it was sold to Bank of America), Citigroup, Morgan Stanley,
              Deutsche Bank, Credit Suisse, Macquarie Bank, Allianz SE, UBS AG, HSBC Bank,
              Alinda Capital, The Carlyle Group, Barclays Bank, Nomura Holdings, and many
              others. In fact, Wall Street and their global banking and corporate partners are
              aggressively buying up water all over the world.

              Given this recent liquid-gold rush by private (also several public pension-funds) capital, it
              will be extremely difficult for environmental activists and human rights advocates who
              called water a basic human right and a public good which should be under public control
              to reverse this privatization trend. Naturally, when governments are financially strained by
              revenue shortfalls and tightening municipal-bond markets, calls for privatization of existing
              public infrastructure and utilities will be louder and harder to resist.

              These banks and investment funds are aggressively entering the water sector, and they
              have raised billions of dollars for their water and infrastructure specialty investment funds
              (i.e., index funds, hedge funds) -- and they can recruit more money (in euro, pound
              sterling, dollar, RMB/yuan, yen, Australian or Canadian dollar, and whatever currency
              needed) within a short period of time from anywhere in the world, transcending all
              boundaries (whether national, ideological, political, linguistic, religious).

              All this water-market reshaping is occurring in the midst of a global frenzy over
              privatization of public infrastructure -- considered to be low-risk investments -- such as
              roads, bridges, tunnels, ports, airports, gas, and water and sewage treatment. Water is one
              of the critical infrastructures, and Wall Street knows it. For Wall Street and global capital,
              water is also so much more -- it is the new petroleum of this century, an essential
              commodity to be invested, owned, controlled, and speculated upon to maximize profit.

              Unfortunately, for water users everywhere, a likely consequence of Wall Street and
              multinational corporations' ownership and control of water in the midst of a global financial
              and economic crisis is that they will attempt to recapture their massive losses in their risky
              investments in the financial and housing/real estate sectors and elsewhere at the expense of
              water users.

              For example, U.K. water customers are being squeezed by their private water utilities, to
              the tune of 17.5 percent to 62.2 percent increases in water rates, and could be paying as
              much as £1,000 in annual water bill per household within five years. Predictably, when
              Merrill Lynch boasts that its ML China Water Index yields a 102.2 percent returns,
              outperforming the benchmark by 70.7 percent during a 12-month period from 2006 to
              2007, other multinational banks will also rush to invest in the water sector because they
              see it as a haven with rich rewards and expect these stratospheric returns. One possible
              outcome is the squeezing of water end-users.

              Private water utilities are monopolies and they are able to set prices at will (or exert
              monopolistic pricing) due to a lack of competition and governmental regulations.
              Additionally, water itself is an essential good without a substitute; demand for water is also
              inelastic relative to price: regardless of its cost, one must have minimal amount of
              freshwater for maintaining daily life -- for drinking, washing and hygiene, crop production,
              and food preparation. (Goldman Sachs sees water consumption doubling every 20 years.)

              If the history of U.K.'s water privatization is a guide, then water users all over the world --
              not just households, but also businesses, industries, and agriculture -- are in serious trouble
              because they will be held hostage to high prices exerted by the monopolistic private water
              corporations and water utilities, many of which are owned by multinational banks and
              investment banks, and in turn these banking institutions have their shareholders, private
              investors, and even public pension funds demanding and expecting high returns on their
              water investments.

              Water is more important than oil: it takes some 1,800 gallons to produce a barrel of crude
              oil, some 4,000 liters of water to produce a liter of ethanol, and 900 liters of water to
              make a liter of biodiesel. Several people have already made the statement about water
              being the new oil of the 21st century; recognizing its importance, Wall Street has rushed
              into global water markets to cash in on this liquid gold. The former heads of state, United
              Nations chiefs, CIA and Pentagon analysts, CEOs, tycoons, analysts with the world's
              largest investment banks and private-equity firms, and oil companies' executives have
              agreed on this.

              Multinational and Wall Street banks and investment banks often disguise their investment in
              the water sector as a part of the so-called green, sustainable, environmentally friendly,
              socially responsible, clean-technology, climate friendly or global warming-reducing
              investments. They see "rich rewards" in water and infrastructure: Indeed, the European
              Union requires an investment of between U.S.$150 billion to U.S.$215 billion in sanitation
              infrastructure; more than U.S.$700 billion (incidentally, this is also the amount just given to
              bail out Wall Street) is needed to maintain and upgrade its water and sanitation
              infrastructure in the next 20 years. In Australia, an estimated AUD$5 billion is needed just
              to replace aging water assets in cities over the next five years and that AUD$30 billion is
              required to build new water infrastructure in the next decade.

              Emerging economies such as China and India also have such serious water shortages and
              pollution problems that they both require at least a trillion dollars of investment to solve
              their respective water problems. Water-sector investment opportunities are also immense
              in Mexico, Egypt, the Middle East, Brazil, several African countries, and many other
              water-stressed nations.

              Why Water Is the "Petroleum for the 21st Century"

              Only 2.5 percent of the earth's water is freshwater -- and of that 2.5 percent, 70 percent is
              locked in the glaciers, ice caps, and aquifers, so less than 1 percent of world's freshwater
              (or 0.007 percent of world's water) is accessible and potable for humanity, to be shared
              by the world's 6.7 billion people, the myriads of wildlife and ecosystems, and humans'
              agriculture and industries.

              Back in 2001, the CIA had already estimated that by 2015, almost half of the world's
              population will live in water-stressed countries. Worldwide, 1.1 billion people lack
              adequate water and 2.6 billion people don't have adequate sanitation. By 2025, the United
              Nations forecast that 3 billion people will lack clean water. The Organization for Economic
              Corporation & Development (OECD) predicts that nearly 50 percent of the world's
              population will face severe water shortages by 2030. In China, some 360 out of 600 cities
              are facing water shortages, with 100 facing severe shortages, according to China Institute
              for Geo-Environment Monitoring. The first person to serve as China's Minister of State
              Environmental Protection Agency, Qu Geping, said, "The ideal population for China's
              limited water resources is no more than 650 million people." China's population is 1.3
              million in 2008.

              Water is often dubbed "the new oil" because of its similarity to oil: diminishing supplies and
              rapidly growing demand worldwide. The world has already seen many oil wars in the 20th
              century over supposed dwindling supplies of natural commodities and resources. This
              century, the world has already witnessed the genocide in Darfur, which was initially
              brought about by climate-induced droughts and desertification lasting more than 20 years
              (since the 1980s), which led to tribal competition over water and grazing land between
              Arab nomads and black African farmers; these small-scale resource conflicts eventually
              exploded into a full-blown genocide backed by a racist, genocidal ideology.

              Indeed, lobbying group Justice Africa told BBC in July 2007 that "the root cause of the
              conflict is resources -- drought and desertification in North Darfur." In June 2007, UN
              Environmental Programme (UNEP) said that peace in Darfur is nearly impossible unless
              the issues of environmental destruction were addressed.

              Water is the basis of agriculture -- not just in growing food, but also in processing food.
              Water is the foundation of modern cities and urban sanitation systems -- from our indoor
              plumbing to centralized wastewater-treatment plants. Water is the basis of industries and
              manufacturing. Water is also used to generate electricity. Water sustains nature and
              wildlife. In essence, humanity can live without oil -- albeit more primitively -- but humanity
              cannot survive without water.

              Simply put, without water, there's no agriculture and food production, no industries, no
              viable ecosystems, and no life. Major multinational banks and corporations around the
              world are waking up to the reality of water's emerging scarcity, which can disrupt national
              economies and lead to social and political chaos. In the midst of global climate change
              which brings extreme droughts and in the midst of a chaotic global financial and economic
              environment, water is a commodity likened to gold: it is liquid gold that sustains life. Hence,
              in the recent few years we have witnessed a mad rush by Wall Street and multinational
              banks and super-investors elsewhere to buy up and control this commodity.

              In the past few years, multinational and Wall Street investment firms and banks have
              launched water-targeted investment funds. Several well-known specialized water funds
              include Pictet Water Fund, SAM Sustainable Water Fund, Sarasin Sustainable Water
              Fund, Swisscanto Equity Fund Water, and Tareno Waterfund. Several structured water
              products offered by major investment banks include ABN Amro Water Stocks Index
              Certificate, BKB Water Basket, ZKB Sustainable Basket Water, Wagelin Water Shares
              Certificate, UBS Water Strategy Certificate, and Certificate on Vontobel Water Index.
              There are also several water indexes and index funds, as follows:

              One often-heard reason for the investment banks' rush to control of water is that, "Utilities
              are viewed as relatively safe assets in an economic downturn so [they] are more isolated
              than most from the global credit crunch, initially sparked by concerns over U.S. subprime
              mortgages," according to a 2007 Reuters article. A London-based analyst at HSBC
              Securities told Bloomberg News that water is a good investment because, "You're buying
              something that's inflation proof and there's no threat to earnings really. It's very stable and
              you can sell it any time you want.''

              The Coming Tidal Wave of Privatization of Public Infrastructure and Municipal

              Privatization of public infrastructure -- including water utilities -- has been gaining more
              mainstream media scrutiny recently. For example, the New York Times recently reported
              on cities debating the issue of privatization of public infrastructure: Wall Street investment
              banks and investors -- such as Goldman Sachs, Morgan Stanley, Credit Suisse, Kohlberg
              Kravis Roberts, and the Carlyle Group -- are amassing an estimated U.S.$250 billion
              "war chest -- much of it raised in the last two year -- to finance a tidal wave of
              infrastructure projects in the United States and overseas," the New York Times reported.

              As the New York Times pointed out correctly, U.S. federal, state, and local governments
              are financially strained with "mounting deficits that have curbed their ability to improve
              crumbling roads, bridges and even airports with taxpayer money," hence both the voting
              public and the governments are increasingly open to the idea of privatizing public
              infrastructure; the crumbling infrastructure is estimated to require at least U.S.$1.6 trillion
              investment in the next five years to maintain and upgrade according to the American
              Society of Civil Engineers.

              Currently, approximately 8 percent of water utilities worldwide are in private hands; this
              figure is expected to double by 2015, according to several investment-banking analysts.
              As for water corporations (e.g., those in technology and engineering, materials and
              equipment, vending and private distribution via water trucks), all are in private hands.
              According to data compiled by Bloomberg, the rate of infrastructure privatization for all
              types of infrastructure almost doubled to U.S.$340 billion between 2005 and 2007.

              The New York Times also reported that many cities suffering severe financial strains after
              having been shut out of the municipal bond markets are cutting back infrastructure upgrade
              and maintenance projects. Cities are also facing revenue shortfalls attributable to
              unprecedented housing foreclosures (shrinking property-tax base), decreased employment
              base, dwindling sales taxes, and reduced funding from state and federal governments. For
              example, Athens-Clarke County in Georgia delayed a U.S.$221 million bond issue for
              upgrading its three sewage-treatment plants after Lehman Brothers filed for bankruptcy.

              Given the current state of economy in the United States and elsewhere in the world, we
              can expect more municipal infrastructure and services privatization. Goldman Sachs,
              Citigroup, the Carlyle Group, AIG Highstar Capital, Credit Suisse (also partnering with
              GE), UBS AG, JPMorgan Chase, Deutsche Bank, and other multinational banks are
              amassing "war chests" of several billions of dollars in anticipation of this "tidal wave" of
              infrastructure (including water) privatization around the world.

              Jo-Shing Yang is the author of Ecological Planning, Design, & Engineering, Solving
              Global Water Crises: New Paradigms in Wastewater and Water Treatment, Small
              and On-Site Systems for Water Self-Sufficiency and Sustainability and can be
              reached at