The 'environmentally insolvent' business model
The clear and present danger of privatized utilities
vol. 5 issue 9
Why do private and foreign investors in public utilities have the “right” to run companies that are expressly designed to pollute and create harm?
Greetings,
The UK is facing a future of incomprehensible levels of sewage in their water, both the drinking and the recreational kind. Water. All of it. And the problems all began with the privatization of their water utilities thirty years ago.
To wit, the amount of raw sewage spilled by private water companies into Britain’s drinking supply is now thought by officials there to have exceeded a two thousand percent increase in the last five years alone. This month, the Thames Water Co. was fined 3.3 million pounds for dumping so much sewage into the Gatwick Stream it killed at least 1,400 fish.
And to cover the remediation of these ills, naturally, the companies are telling Parliament that British water customers (not British citizens, which is what they actually are, and so have a right to clean water regardless of their status as customers) will need to absorb rate hikes.
Water rights in the desert
It got me thinking about something I covered here in 2019, namely that the California water shortage is perpetually commented upon publicly with virtually no mention of the fact — the fact — that in 2016, nearly 20% of the water supply there was controlled by Saudi Arabian interests.
At this point, Saudi control of the California water supply might be more or less, but I am not attempting an investigative piece here, so much as posing a valid, theoretical question. It is hard to know the full story anyway, given that private equity is the overlording shell game of opacity that infects this planet, hiding the truth of who owns what at any given time.
Still, I did do some digging to see if there had been any movement on the issue overall. The answer is yes, but obliquely.
And that is what bemuses me.
Sounds insane because it is
At issue is how the world's largest vertically integrated1 dairy operation, the Saudi State-owned Almarai, is able to own so much of California's water supply, use it profligately, all while water-scarce Californians are debating desalination...using technology developed by Saudia Arabia.
In other words, our frenimies in Saudia Arabia own and use so much water in California, they are compounding chronic water shortages in that state, so California’s governor wants to use Saudi Arabian desalination technology to help make the Pacific drinkable instead of just limiting the amount of fresh water Saudis own the rights to use in California.
Yes, that does sound insane, because patently, it is.
No one in public policy circles or the media seems to be calling attention to this obviously demented situation, but maybe I missed it. Help me if I am wrong.
Here's some of what I wrote in April 2019:
The Saudis need to buy the water to grow alfalfa to feed Saudi cows. Cows, in the desert. Almarai is one of the world’s largest dairy farming operations, and according to its Wiki page, the largest vertically integrated one. Let that sink in. Cows. Desert. Biggest dairy operation on planet. Almarai alone (it’s one of several such dairies in the desert) has upwards of 150,000 head of cattle alone. Air conditioned cows? Of course. Desert. 150 liters of water per cow to drink, per day. Desert. You get the idea.
Alfalfa is water-intensive. Saudi Arabia is a desert (you knew that). In 2016, the SA Kingdom outlawed alfalfa farming because it was depleting their water supplies.
They bought up rights to our water instead. Water that flows through a drought-stricken desert valley. Water we allow to be used without limit because unlike the Saudis, we haven’t imposed restrictions on it, and given the political pull of the big agricultural insterests — including Almarai’s, which includes 16% of all water rights in the Palo Verde Irrigation District — restrictions are not coming any time soon, if ever.
The PVID is the modern day benficiary of a first-come, first-served prize of a claim to the river in California, purchased from the U.S. federal government by an 1800s San Francisco-based prospector named Thomas Blythe. Blythe paid for exclusive rights to the river for mining and farming, and now, because it was historically the first claim in the state on the river’s waters, whoever owns it still gets unlimited, first dibs on the water. [ed: presumably because the Manifest Destiny-infected thinking at the time was that the water would never be scarce.]
That means members of the PVID pay about $75 more or less per acre for access to the water. As the Guardian points out, this arrangement does nothing to discourage profligate use of the water, since the rate is the same no matter how much is used.
The only thing farmers in the valley are required to pay is overhead for making the water available.
Dumb vs. boondoggle
In my research to update the story, I discovered that, despite enormous pressure to find ways to ease the drinking water shortage in their state, in May of last year, the California Coastal Commission unanimously rejected construction of a desalination plant in Huntington Beach, citing environmental concerns.
Most intriguing to me about this development were two things. The first was the reaction to the vote by California Democrat Governor Gavin Newsom, who called the decision a "big mistake" because shrinking water supplies were only going to get tighter. He also said people who didn’t support desalanation were “dumb”.
The second was the claims of activists who called the intended plant a “boondoggle”, to quote the LA Times.
Let’s look at the activists’ claims first. They vociferously denounced what they saw as an initiative to privatize public water supplies for profit, not public good. Given that the project was to be built by a Canadian company who had yet to secure any actual orders from municipalities for the intended water supply, was funded by mystery money, ie private equity, and under the publicly stated assumption that they would immediately start to increase water rates to cover construction costs, the activists’ claims seem likely.
No. Scratch that: their claims seem probable.
Here's some more from my 2019 piece:
Almarai has its fans in the Palo Verde Valley. It’s a major employer in the area, offering benefits like healthcare plans and vacation, and it buys alfalfa from other farms, too. Here’s a quote from the Guardian article
“The Saudis, they’re here buying up at a good price,” [the assistant manager of the Palo Verde Irrigation District] explained. “They’re just the same as everyone else. They buy local. It’s a shot in the arm for the economy.”
What does ‘investment’ actually mean?
This attitude of anyone who makes an "investment" in something that affects an entire community is a do-gooder, even if they are making a profit off of their investment, is lazy at best, but probably moreso it’s pernicious.
As to the former, it supposes that the concept of "investment" means the same thing to all parties involved. It doesn't. But does anyone with the authority to do so, conduct and publicize the necessary research and ask what an entity means by “investment” when they promise you the moon and stars? The evidence points to “no”.
And pernicious because none of the persons in power who should know better, like the governor of California, do in fact seem to know better; or if they do, they don’t clarify that for the public, which is problematic, as we shall see.
Roughly 30 years ago, when the UK privatized its water supply, the public was sold on the idea that by bringing in private capital, there would be that much more investment available to update their creaky Victorian sewer system. Because it would be finance-savvy people doing it, the services would be not just improved, but cheaper, so went the story.
So, the Brits did away with their previous model of publicly funded water utilities, the ones which could be financed cheaply since governments always get the best borrowing rates because they are good for the money because they can always raise it via taxation. Instead, they handed over the water supply to all those super smart finance guys flying high on the wings of investment.
And now, the entire UK water “industry” is in the, um, crapper.
The cost to correct their spillage as an industry is, according to Parliament, about 260 billion pounds.
The polluting Thames Water Company, which serves about 15 million customers, last month begged the UK government to help it dig out of a 14 billion pound hole. They are not alone.
Nearly every single UK water company is asking for a bail out. Which is rich, since a detailed study conducted by the University of Greenwhich concluded in 2021 that the only reason these companies can’t find the resources to upgrade their systems and stop spilling shit into the rivers and streams is because they have too much debt service to cover thanks to overleveraging themselves to pay shareholder dividends.
The industry’s lobbying group, Water UK, refutes the paper, but offers no evidence to the contrary.
Now that the water companies have created substantial amounts of pollution, do not have the funds to clean up their mess, and want the tax payers to bail them out, it seems the notion of "investment" should be reviewed.
If it had been the public's money financed at a low rate, then any profit from delivering water would have gone to service the low interest on the debt but primarily, would have been spent on improving the infrastructure. In other words, there would have been investment in the service.
Instead, in the private model, the water was besides the point. It was simply the commodity -- not the public necessity -- used to raise capital that was then divided and distributed to share holders, even though the public was lulled into thinking it was to be the other way around where "investment" was to improve water services.
Unless something remarkable happens, which I suppose is entirely possible, Parliament will remain in its inertia and seek a solution to “save the water industry”, similar to how in 2007 we in the US bailed out not the sinking home owners, but the investment banks that created the crash that sank the home owners (and paved the way to those same banks and private equity funds now owning a majority of the homes forclosed upon and becoming wealthy, wealthy landlords to struggling former home owners…)
‘Environmental insolvency’
But since the tone in Parliament seems to be that business as usual is just fine with them, Sheffield University Professor Richard J. Murphy, a chartered accountant, researcher, and director of the Corporate Accountability Network has suggested that its time to take back the water and nationalize it, Ayn Rand fans be damned.
According to Murphy, the private water companies have failed because they are “environmentally insolvent”.
In other words, the UK water industry’s current business model is expressly designed to pollute, and at a profit.
Which brings me back to California.
Water whores
While Governor Newsom used the time-tested (and so often, highly effective) techniques of fear and loathing in an attempt to distract people from the looming threat of a private, foreign investor taking over distribution of the water supply -- a clear and present danger to a necessity for life -- the activists were demonstrating they are in fact not “dumb”.
Does the governor know the actual impact of foreign owernship on California’s water supply? If not, why not? It makes calling his constituents “dumb” not only rude, but ironic. If he does know, but fails to call it out, as he has so far, it suggests that being a Democrat, and so of the party that claims superiority on environmental issues, is irrelevant, and points to how politics are never the end game, but amassing and keeping power is.
To be fair, Governor Newsom is only easy to pick on here because he acted offensively by insulting concerned citizens. Plenty of governors and state legislators and even voters have preceeded him in opening their legs to the whoring that is the water rights industry in California.
Challenging Saudi interests in California water would be to commit political suicide, or worse. Clearly this is so, or it would have been done by now.
Moral insolvency
Perhaps then, along with a better understanding of the word “investment”, what is needed in the debate over sovereign water rights is clarification of the word “rights”.
It’s something I pointed out in my original piece:
Almarai owns still more water rights in Arizona, and even more in Argentina, which also has its own water challenges. And although the Saudis deny it, they’ve been accused of some serious human rights violations in pursuit of water in places like Ethiopia.
And while no one has declared human rights violations are at play in California, not publicly anyway, the American Journal of Public Health reports that mental health concerns directly related to drought fears are real and on the rise …
These factors are germane because they are manifestations of the deeper faultline in the argument: do we value the right to profit over the right to live?
The focus should be on how we define the word “right”.
Once the billionaire Saudi prince established food “sustainability”, however dubious, in his homeland, he went on to build his company into the world’s largest and most profitable dairies — with water Californians are now fighting over because Californians sold it to his company.
Why did he have the “right” to ask to buy that water, and why did Californians have a “right” to sell it? Does anyone have the right to profit exponentially while others are fighting to surivive now that access to the source of those profits is cut off or drastically limited? Would it be a violation of anyone’s rights if officals at the PVID only sold water rights to organizations that demonstrated committment to sustainable water management practices?
These are the real questions we need to address not just in California, but as a nation. How we answer them will determine whether we achieve effective policy making around access to resources, or whether we continue to make ourselves crazy.
For all the so-called benign investment the Saudi-backed Amarai is making with all its jobs and healthcare in drought-stricken California, could this also be viewed as leveraging the governor’s apparent ignorance for the sake of an investment that for Saudis and their private equity backers has many returns, but at the expense of Californian-Americans who are increasingly depressed and anxious over their dwindling water supplies?
This seems like a national security threat if you think about it: selling out your own people, making them go crazy over the threat of losing access to life-giving water in order to sustain a relationship with a foreign power that may or may not be our ally.
It might be seen as both environmental and moral insolvency.
Peace,
Whitney
Here’s the original article, still fresh, since not much has changed:
‘Vertically integrated’ means that all steps in the manufacturing process are owned by the same company. There could be reams written here about how that stifles any economy, but leave it for another day. Or, just spend 5 minutes contemplating how Amazon owns the entire supply chain it also is the marketplace for…and if your head doesn’t explode…
I remember reading a similar story a few years ago about the Saudis buying up water in Arizona, too -- and look, here it is tonight on the home page of the Washington Post. To those who study planetary cycles, these stories are right on schedule. Water shortages -- and who deserves to control these precious resources -- would be expected to be in the news at this time. https://www.washingtonpost.com/politics/2023/07/16/fondomonte-arizona-drought-saudi-farm-water/
This is astonishing, Whitney! The water situation is bad in the UK but I had no idea that the Saudis owned Californian water... or that they owned massive dairies in the desert. I used to live in Kuwait as a child, there was no fresh milk then, because as you point out, cows are not native to the desert. This is not progress. It is all about profit. Or rather, greed, which is, as always, destructive. Btw we have had two weeks of torrential rain here in Ireland but our water supplies are in a terrible state because they are not maintained adequately. 🤷♀️