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Letter to Suez

June 27,    2005

Jean-Louis Chaussade
Chief Executive Officer
Suez Environment
1 rue d’Astorg
75383 Paris Cedex 08
France

Monsieur Chaussade,

We look forward to your letter responding to the concerns we have identified regarding your company’s performance and behavior in Argentina, Bolivia, the Philippines, Atlanta, Laredo, New Orleans, Milwaukee, Halifax, etc. Due to space considerations, our details about some of those communities, particularly those in the U.S. were not set out in our letter, and we invite you to examine our concerns about those cities in our enclosed report on privatization in the U.S.

Also, though we did not mention it specifically in our letter, could you be so kind as to explain what happened in Puerto Rico? At $4 billion over ten years, that was the world’s largest privatization contract, and losing it less than two years into the deal must have really smarted. We know that your company’s subsidiary claimed that the government had been less than forthcoming about system conditions, and so you asked for more money, the government balked and the contract was terminated.

Do we see a pattern? We’ve noticed that Suez has made nearly identical arguments – blaming government – while exiting early from contracts elsewhere – for instance, in Laredo and Atlanta.  Were we among, as you say, the “thousands of shareholders from throughout the world” expecting “a reasonable reward” for our investment, we might be getting suspicious about your company’s ability to competently perform due diligence prior to signing on the bottom line.

There also seems to be a growing pattern in Latin America of social upheaval and community protest in response to the policies and practices of your company.   For example, your contract in La Paz and El Alto, Bolivia appears to have contributed to massive social unrest including street protest and hunger strikes demanding that the contract be terminated.  It is not surprising that these communities are so upset. Our partner organizations in Bolivia report that there are approximately 200,000 people in El Alto that your company (Suez is the major shareholder of Aguas de Illimani) considers “outside of the service area” and therefore not eligible for water service.  It is extremely difficult to believe your company’s commitment to “facilitate water access for the poorest” when, under your contract in Bolivia, the price of a new water and sewerage connection has been raised to the equivalent of $445, in a country where the minimum wage is $60 a month, that is for the 30% who have a job in the formal economy. Due to excessive hikes to the cost of services since privatization, our partner organization, Federación de Juntas Vecinales (Federation of Neighborhood Associations), reports that around 70,000 people (who are lucky enough to live within the served area) cannot afford to pay for your water services.  Now that the government of Bolivia has, following the massive protests, agreed to terminate your contract, your company is threatening the government with lawsuits.

In the province of Santa Fe, Argentina, there has been peaceful citizen protest asking for your company to leave – including a citizen organized plebiscite on the issue of contract termination.   Reports from consumer organizations show that Aguas Provinciales de Santa Fe (major shareholder – Suez) has refused to comply with contracts, denying many residents access to water and sanitation. Consumer groups assess that Aguas Provinciales owes residents 114.3 million pesos in undone maintenance work during the 2nd, 3rd and 4th years of the contract.  During the eight years of the concession, Aguas Provinciales has never met the basic water quality parameters. Even though your company finally appears to be negotiating an exit, Suez continues to threaten the government with million dollar lawsuits in a World Bank arbitration court.

Perhaps the most egregious situation is in the Philippines where in February 2005 contaminated tap water was blamed for a probable typhoid outbreak in Pasay City in metropolitan Manila.  To date, some 41 people have been diagnosed with fever, and of these, 2 have tested positive for typhoid.  Recall also that in October - November of 2003, an outbreak of gastroenteritis and cholera in urban poor communities in Tondo (Manila) was also traced to contaminated water.  The outbreak claimed seven lives and health officials placed at 725 the total number of those affected. Your company has been quick to blame others for the deaths and illnesses caused, but it would be hard to argue that Suez (Maynilad) does not bear some responsibility.

In your letter you write so eloquently about your company’s “human rights values” and “culture and goals of excellence in providing services that are essential for life.” You also write that Suez has “the staying power to meet local needs and to bring economic growth to communities.” It is easy to write such laudable values and goals on a piece of paper, but we do not see these values or commitments demonstrated in the communities described above where our partner organizations struggle daily for access to clean and affordable water.

We have no doubt that thousands of Suez employees are very dedicated professionals who hold the values and goals you describe. But when Suez exits contracts, oftentimes in the context of social upheaval and citizen protest, and then complains that they were effectively outsmarted at the outset by sneaky government officials who failed to lay all their cards on the table, well, it doesn’t sound as if those professionals “working energetically to bring safe, affordable water to all people – rich and poor alike” are in fact wielding much influence in the corporate decision-making process.

In fact, we are wondering if, rather than relying on your letter as a testament to the Suez corporate culture, we should look elsewhere: say, the company’s refocused mission on increased profitability and reduced risk so strongly emphasized in the much-ballyhooed 2003-2004 action plan. It was that plan, after all, and not the impassioned desire to make the world a better place, that was sited by the company when it announced its withdrawal from the Puerto Rico contract. “The decision to terminate the Ondeo de Puerto Rico contract underlines the Group’s determination to renegotiate or dissolve contracts if their economic balance cannot be sustained in a durable manner,” your company said.

Again, we eagerly await your promised follow-up letter addressing our concerns. Meantime, as you suggest, we will post your initial letter, along with this one, on our website.

Cordially,

Wenonah Hauter
Director, Critical mass Energy and Environment Program

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