Tuesday, June 27, 2006

Water privatization faces obstacles, protest

Yesterday's Wall St. Journal carried a front page article on the privatization of water utilities and municipal water systems. The piece focused on the problems that some companies are experiencing with their entry into the water business.

RWE AG, the large German utility, thought that the water delivery business would be a natural complement to its electricity, gas, and waste disposal services. Now RWE plans to exit the US market as protests against its ownership of a California town's water system serves as a template for widespread outcry over corporate water buyouts.

Companies like RWE have found that regulation is never predictable. The Journal reports that RWE found itself fighting in town referendums and state legislatures across the country. The company is planning to divest its American Water subsidiary in an IPO. Similar plans are in place for the Thames Water unit, which it bought in 2000.

Suez and RWE have had to pull out of markets across the globe as problems arose. Complaints and protests over bad service, health concerns, and pricing policies have increased. Privatizations progressed at a slower rate than once thought and higher-than-expected operating costs have reduced companies' returns.