[Water News] Veolia rethinks US contract ops

21 April 2011

From: Mary Grant <mgrant@fwwatch.org>

Date: April 20, 2011 10:19:23 AM EDT

To: water-news@fwwatch.org

Subject: [Water News] Veolia rethinks US contract ops

Because of public opposition, Veolia Water North America is shifting its water privatization strategy again. This time to narrow contracts (for example, metering contracts, deals to manage capital improvement plans; and management but not operation contracts).

Background:

In the late 1990s, it targeted big cities.

In the early to mid 2000s, after public opposition and major failures, it shifted its sights to smaller and medium-sized communities.

In the late 2000s, it shift back to larger cities hoping to take advantage of the fiscal crisis.

Now, because of continued public resistance to privatization, it is pursuing smaller-scope contracts with large cities.

This is a victory — the company apparently no longer thinks its viable to target leases and long-term contracts of entire water and sewer systems in the United States.

Note 1: This differs sharply from the company’s global water strategy, which is still focused on getting long-term concessions (per its latest presentation to investors); but, as our new report notes, the company hasn’t been very successful at getting these types of deals anywhere in the world, so it may eventually refocus its international water efforts on these more circumscribed contracts.

Note 2: Veolia is also focused on industrial market – oil, gas, automotive clients. This month, it got a contract with Southern Pacific Resources to treat produced water in Northern Alberta’s dirty tar sands.

http://www.globalwaterintel.com/archive/12/4/general/veolia-rethinks-us-contract-ops.html

Veolia rethinks US contract ops

• From: Vol 12, Issue 4 (April 2011)
• Category: General
• Region: Americas
• Country: United States
• Related Companies: Veolia Water North America

Small community contracts aren’t giving the French giant the kind of growth it needs in the US market. Is the solution to target bigger cities with a new kind of more restricted, performance-based contract?

Veolia Water North America is looking towards new contracting models as a means of squeezing more growth out of the US outsourced municipal operations sector. GWI’s annual survey of the top six contract operations companies shows that the total value of the market grew by 4.6% to $1.69 billion in 2010. This figure includes the impact of American Water’s acquisition of EMC; without it the growth rate would have been in the region of 1%. With growth of just 1.7% acheived in 2009, it is clear that the contract operations market is struggling to keep ahead of inflation.

Veolia Water North America CEO Laurent Auguste believes that the problem is that customers find it difficult to understand how private operators add value. “The challenge of water outsourcing and publicprivate partnerships in the US has been the lack of recognition of what the private sector can bring. Very often we go for the full outsourcing which is a black box. It does not give recognition of what we do,” he explains. He believes Veolia should slice up its proposition, to offer individual services where the value to the client is clear for all to see.

“We need a performance-based approach and that is what we are trying to promote. It is about being able to commit on performance and being rewarded for the actual performance. It is not about just being advisors and getting a fee but getting a share of the value that we can get for the client. That proposition should make it easier to engage the public sector.”

The first example of the new type of contract Veolia Water North America is looking to pursue is expected to be agreed within the next few weeks. The Chicagobased company will work alongside the existing utility staff to manage the capital programme and operations. There will be no staff transfer, but Veolia will get a share of the benefits if the cooperation exceeds its targets. “We are completely aligned with them. It is a different model which retains public control, while enabling the utility to tap into the dynamism of the private sector.

“I hope that this will be something that will enable use to launch a new approach to the market in North America.”

Until 2002 Veolia Water North America’s predecessor company, US Filter, maintained a large business development team targeting big cities. After the city of New Orleans rejected plans to outsource water and sewer services in 2002, the company downgraded its market development activities, tacitly accepting that there were not going to be any more big city outsourcing contracts. Instead the focus moved to smaller communities grappling with high operating costs. However these make for thin pickings and can require as much political work as big cities before they get the go-ahead. By taking on contracts with a narrower scope for larger cities, Auguste hopes to increase the growth rate.

“For mayors, it is difficult to say that ‘we will bring a private company to run our water, and transfer our staff’. There is also the misunderstanding about acquiring the water resources. We need to make it easier for mayors to go for the right deals. We do not always need to be the operator to share with them some of the best practices.”

Overall Auguste is confident that the experience of running water utilities all over the world in a competitive environment means that the Veolia can add value to any aspect of utility operations. The challenge is to package this expertise in such a way that US municipal water utilities can take advantage of them. “There are huge and growing needs and I am convinced that we are part of the solution. But how do we match the needs and the solution?” The Growing Blue inititiative (see opposite) is also part of the strategy of helping mayors think creatively about solutions to their water problems.

________________________

Mary Grant

Researcher

Food & Water Watch

1616 P Street NW, Suite 300

Washington, DC 20036

V: (202) 683-2497

F: (202) 683-2498

mgrant@fwwatch.org

www.foodandwaterwatch.org

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