The rush to control blue gold

LONDON - When Ted Turner bought his first parcel of land in Patagonia in 1996, his ostensible motivation was getting away from it all - not to mention the fabulous fly-fishing.

A self-proclaimed ecologist, the media mogul has bought huge tracts of wilderness with the idea of managing it in a sustainable way. In the United States, he has nearly 800,000ha, compared with the 647,500ha owned by the Nature Conservancy, the largest land-conservation organisation in the US.

Of course there's a business angle - Turner's land in Patagonia happens to contain some of the most important sources of fresh water in the region. When, as a young man, he was asked what single investment he would make, he answered: "Water."

And that's where the smart money is going these days. Veteran Dallas oilman T. Boone Pickens set up a hedge fund specialising in water-related investments in 1997 and has spent more than US$50 million on water rights round his north Texan ranch, claiming to have enough water to serve 20 per cent of the Dallas-Forth Worth area.

Terrapin Asset Management, a US$50 million hedge fund investing only in water-related companies and rights, has made a return of 22 per cent since it was started in April last year.

Bloomberg boasts a World Water Index which has got investors a 35 per cent annual return in the past three years, compared with 29 for oil and gas stocks and 10 for the S&P 500. Worldwide, the water industry makes US$450 billion in revenues a year, second only to electricity and oil.

In 2000, Fortune magazine ran a special feature on the global industry, saying: "Water promises to be to the 21st century what oil was to the 20th: The precious commodity that determines the wealth of nations."

It can only become more lucrative as the population grows.

The International Food Policy Research Institute forecasts that the use of fresh water for human consumption, agriculture and industry may rise 22 per cent by 2025 compared with 1995. The UN Environment Programme estimates that a third of the world's population suffers from shortages or "water stress".

There are estimated to be 1.1 billion people without access to clean water and 2.4 billion without access to sanitation; half the world's hospital beds at any one time are believed to be taken up by people with water-borne diseases.

By mid-century, the UN reckons that seven billion people in 60 countries could be facing water scarcity. Kofi Annan, the UN Secretary-General, has forecast that, if present trends continue, two out of three people on the planet will be "water stressed" by 2025.

We are all aware of the geopolitical mayhem caused as governments and firms compete to secure the world's oil and gas resources; the "blue gold" rush is perhaps less well known but it is potentially even more far reaching. Without oil, industry dies; without water, we die. Water is already a key strategic concern for governments.

Consider the assault on southern Lebanon. Yes, the justification is defending Israel from terrorism, but Israel also depends for its water on the West Bank and the Golan Heights. It is certainly arguable that an element of "hydro-nationalism" has been present in Israel's policy towards both.

On three occasions in 1965 and 1966, for instance, Israel attacked the site of a project that, by diverting the Jordan's headwaters, would have cut the Jewish state's water capacity by 35 per cent.

In 1973, Prime Minister David Ben-Gurion said: "It is necessary that the water sources upon which the future of the land depends should not be outside the borders of the future Jewish homeland." He went on to specify that Israel should include the southern banks of the Litani River - and, in this latest conflict, Israel has warned the Lebanese to evacuate to the north of the Litani.

Countries are facing a dilemma: They want to control water as a public asset but they need billions to build the infrastructure needed to transport and treat it. Unesco says the cost of providing safe drinking water and proper sanitation to everyone in the world by 2025 will be US$111 billion to US$180 billion a year - two to three times the present investment.

With such sums, it is no wonder governments are resorting to public-private partnerships and full-scale privatisation of water, but this often puts them in conflict with the citizens.

The most notorious case is Cocha-bamba, Bolivia's third-largest city. In 1999, Bechtel of San Francisco was given a 40-year lease to take over the water system. Within weeks, it had imposed huge price rises, prompting riots, and martial law was declared.

After months of protests, the contract was terminated, after which Bechtel launched a US$25 million lawsuit against the people of Bolivia.

In Britain, the privatised water companies are under fire for excessive profits even as hose bans and drought orders are imposed in parts of the country. In the 15 years since privatisation, customers' bills have increased, on average, by 35 per cent in real terms. The water companies say this is necessary to finance the £50 billion investment they have made to upgrade the infrastructure.

On the present evidence, it seems the pendulum has swung too far in favour of the private sector, in Britain and elsewhere. Even the OECD, which tends towards economic liberalism, argues this case.

In a study on privatisations of public utilities in sub-Saharan Africa in 2004, it concluded: "In the absence of proper regulation, profit-maximising behaviour has led privatised companies to keep investments below the necessary levels, with the result that rural communities and the urban poor were further marginalised."

In the long term, a balance must be struck between investment in infrastructure, the profit motive and the public good. We are far from achieving it.


VITAL FLUID

* Worldwide, the water industry makes US$450 billion in revenues a year, second only to electricity and oil.

* Use of fresh water for drinking, agriculture and industry is likely to rise 22 per cent by 2025 compared with 1995 levels.

* The cost of safe drinking water and proper sanitation worldwide by 2025 will be US$111 billion to US$180 billion a year - two to three times greater than present investment.


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