Water business begins to stir

But many water providers still have a long way to go

May 20th 2010 | From The Economist print edition

ALTHOUGH water is a universal human requirement, the use people make of it varies hugely. The average Malian draws 4 cubic metres a year for domestic use, the average American 215. Include all uses, and the figures range from 20 cubic metres for the average Ugandan to over 5,000 for his Turkmenistani counterpart. The statistics can be misleading: in places where rain falls copiously and evenly from the skies, withdrawals will be small. Moreover, water-blessed countries have much less reason to be careful with their resources than the water-starved. Yet high use of water is not necessarily bad. It depends how it is employed, and whether it is naturally replaced.

However essential, farming is not the most lucrative use of water. Industry generates about 70 times as much value from a litre of water as agriculture, which helps to explain why industry takes the lion’s share in most rich countries. Yet the ratio of water use to GDP has declined dramatically in many rich and middle-income countries in recent decades, which suggests that industry can use water much more productively if it tries.

Unilever, a seller of soaps to soups in 170 countries, boasts that its Medusa project, formulated in Brazil in 2003, cut its total water use by 8% and reduced the load per tonne of production by 15%. SABMiller, which brews all over the world, has embarked on a programme to save a quarter of the water needed to make a litre of beer by 2015. Nestlé, which aims to be the most efficient water user among food manufacturers, has cut water withdrawals by a third since 2000 even though the volume of the foods and drinks it makes has risen by 60%. Cisco, which supplies internet routers, switches and the like, uses recycled water in its gardens and fountains in California and has installed waterless urinals and low-flow showers in its buildings.

Such measures make good financial sense and good public relations. Some of the companies at the forefront of water-saving campaigns are also acutely aware of their vulnerability to the growing scarcity of water, and to charges that they are guzzlers. Coca-Cola, for example, has been fiercely attacked in India for its dependence on groundwater and the effects on the water table. Yet even if it takes two litres of groundwater to produce a litre of bottled water, companies like Coca-Cola and PepsiCo are hardly significant users compared with farmers and even many industrial producers

PepsiCo has nevertheless become the first big company to declare its support for the human right to water. For its part, Coca-Cola is one of a consortium of companies that in 2008 formed the 2030 Water Resources Group, which strives to deal with the issue of water scarcity. Last year it commissioned a consultancy, McKinsey, to produce a report on the economics of a range of solutions.

In China, where pollution rivals scarcity as a pressing problem, large foreign companies now regularly consult a website run by the Institute of Public and Environmental Affairs, an NGO that collects government facts and statistics and publishes them online. Its maps reveal details of thousands of incidents in which companies have broken the pollution codes. Multinationals like Adidas, General Electric, Nike and Wal-Mart can now see which of their suppliers are repeat offenders, and may put pressure on them to clean up.

Not all big companies are water-conscious, though, even if they are big users. A report issued this year by Ceres, a coalition of American investors, found that “the vast majority of leading companies in water-intensive industries have weak management and disclosure of water-related risks and opportunities.” Less than half the electric-power companies surveyed even provided data on total water withdrawals.

Still, companies like Coca-Cola and Nestlé are being joined by others who are worried about being cast as villains. At the same time more and more companies are bringing forward new products and technologies designed to save water. These vary from genetically modified crop varieties that are drought-resistant to technologies that replace chemicals with eco-friendly enzymes in the making of knitwear; from low-lather detergents (which use less water) to dual-flush lavatories; from lasers that detect the amount of moisture in the air above crops to wireless devices that help reduce the water needed on golf courses (which account for 0.5% of America’s annual water use, though some must help recharge aquifers).

Desalination is the great hope. The conventional method involves boiling and then distilling water. An alternative works by reverse osmosis, in which water is forced through a semi-permeable membrane. Both methods use quite a lot of energy. New membranes now being developed need less power, and new techniques require neither evaporation nor membranes nor futuristic nanotubes (undesirable in your drinking water).

Reverse osmosis is the most favoured method, though, and in Israel and Algeria contracts have been signed for salt-free water at about 55 cents a cubic metre. Even lower prices have been cited elsewhere, but they do not usually reflect current energy costs or, increasingly, the non-energy costs of desalination. When it was mainly rich Gulf states and ocean liners that removed salt from sea water, ecological and financing concerns were generally overlooked. With desalination now favoured in places like Australia, California and Spain, those considerations have become more important. The city of Sydney, for instance, has had to install elaborate disposal systems for the briny waste of its desalination plant and use wind power in order to reduce CO2. All this is expensive.

A no-briner?

Even so, several countries are going ahead, and Spain, the European Union’s driest country, uses some desalinated seawater to irrigate high-value crops in its driest province, Almería. But its choice of desalination goes back to 2004, when it abandoned a hugely expensive and controversial scheme to divert water from the Ebro river in the north to the arid south. In general, people go for desalination when they have few other options and are able to bear the costs. That explains why both new capacity and investment in desalination plants have actually fallen since 2007, though Christopher Gasson of Global Water Intelligence expects them to rise this year. The hope is that, in the long run, solar power will make desalination economic.

In parts of Australia and America irrigation is becoming a sophisticated business in other ways. The gadgets involved may be computerised gates that control canal water, fancy flow meters or huge machines that sprinkle water sparingly from rotating pipes. And in time farmers and others everywhere should be able to take advantage of technology that measures evapotranspiration field by field.

This is already used by water-management agencies in the American West, thanks to a system developed by the Idaho state water department and the University of Idaho, which calculates the consumption of water from two Landsat satellites orbiting the Earth. Indeed, the use of sensors to take measurements from space is developing apace. The information they provide, perhaps conveyed straight to a farmer’s mobile phone, should before long enable him to take intelligent decisions about how, when and where to grow his crops, even if he is scarcely literate.

His urban counterparts, and the utilities that serve them, may seem unimportant in terms of the amounts of water they use and lose. But domestic water supplies, though relatively small in volume, are expensive both to treat and to deliver. Water losses therefore matter, even if they help to replenish aquifers. And financial losses matter, too, because they discourage investment and encourage subsidies, which tend to benefit the better off, not the poor.

The utilities’ reaction to water scarcity has been mixed. Many, including the World Bank, once believed that privatisation was the solution to the inefficient provision of water, but the new consensus, certainly in the bank, is that the crucial feature of any system is that it should be sensitive to its customers’ needs. Thus, in Africa, both Senegal and Uganda are judged to have well-run utilities, but Senegal’s is private-sector whereas Uganda’s is public. In general, Africa’s utilities work better than, say, India’s, largely because in Africa central governments are ready to give autonomy to professionals. In India water power lies with the states, often in huge, torpid, overstaffed and underfinanced bureaucracies. Vast quantities of water escape through leaking pipes; prices are unrelated to costs; meters are broken; and no effort is made to collect revenues. Accordingly, no money is available for repairs.

China has brought in private water companies on a large scale, many of them foreign, and they have prospered there. In other places they have not always been a success. Some have suffered because the incoming company has accepted responsibility for the utility’s foreign-currency debt, and then suffered exchange-rate losses that it had little choice but to pass on to customers. This happened in Cochabamba, a Bolivian town riven by water riots in 2000. It also happened to a company that took on one of two concessions in Manila, which duly foundered. The company that won the other concession, however, was largely free of exchange-rate liabilities and has proved expansively successful.

Often the provision of water ranks too low among politicians’ interests to make them do much. They would rather keep charges low or, in some places, non-existent than spend money on new pipes or treatment plants. They also see no votes in cutting the ribbon outside a new public lavatory. The result is that many utilities, especially in India, have spent so little on maintenance and new investment that the provision of water is, faute de mieux, privatised. Thus the better off sink wells or fill their cisterns with deliveries from tankers, and the poor drink water bought in bottles and wash with whatever they can find.

Luckily, there are exceptions in places like Brazil, where simple sewers built cheaply in some favelas are proving highly effective. Entrepreneurs are also coming into the market with low-tech products. In Tanzania, masons will provide a concrete slab to install above a pit latrine for $5. In Cambodia $30 should buy you a flush lavatory of sorts; and in Indonesia a range of sanitary fixtures sell for $18-90, and may even come with a warranty.

To get service from bad utilities, though, it is sometimes necessary to shame them. One way of doing this is to publicise their position in the rankings of the International Benchmarking Network for Water and Sanitation, published online. This is now causing several city governments some embarrassment—and at the same time giving hope to their ill-served customers.