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Companies Vying for New Orleans? Water and Sewer Systems Linked to Criminal Behavior, Corruption, Poor Service

Sept. 7, 2001

Companies Vying for New Orleans? Water and Sewer Systems Linked to Criminal Behavior, Corruption, Poor Service

Records Collectively Include Bribery, Environmental Violations, Substandard Maintenance, Broken Promises and Questionable Ties to Government Officials

WASHINGTON, D.C.? The top three corporations competing to take over the city of New Orleans? water and sewer systems have tarnished records that, combined, include connections to criminal wrongdoing, suspect relationships with government officials, infliction of environmental damage, failures to maintain equipment, and the delivery of substandard customer service, a Public Citizen report reveals.

The report, The Big Greedy, details the unseemly histories of three multinational corporations likely to submit bids to operate the water and sewage systems for nearly half a million people in New Orleans, in what would be the largest public works privatization in U.S. history. The winning company, expected to be chosen next spring, will run the system for up to 20 years and take in an estimated $1 billion in revenues. All three corporations are either subsidiaries of or maintain intimate business relationships with foreign-based conglomerates that are aggressively acquiring water and other utility services throughout the world.

“Giving a precious public resource to private interests is distasteful to begin with, but handing over New Orleans? entire water system to one of these companies would set a new standard for governmental negligence,” said Wenonah Hauter, director of Public Citizen?s Critical Mass Energy and Environment Program. “City officials need to seriously reevaluate their actions   particularly because multinational corporations hold the interests of their overseas shareholders above the interests of local communities.”

Public Citizen does not believe that New Orleans residents would benefit from privatization of their water and wastewater systems. Evidence indicates that private operation or ownership of such systems fosters corruption and often results in rate hikes, poor customer service and a loss of local control and accountability.

Following an emerging trend among local governments, the New Orleans Sewerage & Water Board (S&WB) decided last year to hire a private company to operate the city?s water and sewage systems. A team of financial analysts concluded that a corporation could do a better job than the city of minimizing rate increases that will result from $1.3 billion worth of necessary repairs to the systems. The S&WB will continue to set water and sewer rates, but the system otherwise will be privatized.

Though no formal bids have been submitted to run the systems? which include 1,610 miles of water pipes, 1,450 miles of sewer pipes, 105 pumping stations and two treatment plants? representatives from three corporations, including U.S. Filter, which already operates the city?s sewer system, have toured the facilities. The track records of all three corporations have been sullied by various misdeeds:

  OMI Inc. of Greenwood, Colo.? Last year, the City Council of Biddeford, Maine, withheld payment from OMI until the company fixed a chronic odor problem at the city?s sewage treatment plant. This year, the county executive of Bergen County, N.J., was accused of trying to privatize the county?s wastewater system to pay back his campaign contributors, which included OMI, its parent company and its law firm. OMI is planning to submit its bid with Thames Water, a British water giant recently acquired by German energy giant RWE.

  United Water Resources of Harrington Park, N. J.? In 1996, a top executive of United Water?s parent company, Suez Lyonnaise des Eaux of France, was sent to prison, along with government officials in Grenoble, for bribery in connection with a contract award. Last year, United Water executives from several states donated more than $10,000 to the brother of Atlanta Mayor Bill Campbell, who was running for state auditor of North Carolina. It was just two years earlier that United Water won a $21 million contract in Atlanta, where local officials and residents have since complained about broken fire hydrants, slow service and brown water with flecks of debris.

  U.S. Filter of Warrendale, Penn.? In 1997, executives of U.S. Filter?s parent company, Vivendi Environnement of France, were convicted of bribing the mayor of St-Denis to obtain a water concession. Last year, U.S. Filter shareholders took Vivendi to court over allegedly illegal payments made to U.S Filter executives to win support for Vivendi?s takeover of the company. Last month, an electrical fire at one of the sewage treatment plants that U.S. Filter operates in New Orleans caused raw sewage to be dumped into the Mississippi River for two hours. According to a City Council member, the company was aware of the problems that led to the fire but didn?t address them.

“If these shenanigans don?t make elected officials in New Orleans run as fast as they can in the opposite direction, they aren?t thinking straight,” Hauter said. “The water supply of New Orleans should not be entrusted to these companies.”

The conduct of these corporations aside, the privatization process itself has been questioned by local civic organizations and leaders. Among the criticisms, the S&WB gave local residents just 10 days to file comments on the bidding documents when they were released in February. In response to a public outcry, the board eventually extended the comment period to four months.

Additionally, the New Orleans Bureau of Governmental Research (BGR) said the bidding documents were flawed because certain protocols were missing, bidders were not required to disclose campaign contributions or reveal potential conflicts of interest, and certain provisions encouraged patronage. Some of the disputed provisions made their way into the final draft of the bidding documents. The BGR also expressed concern that the city?s financial advisors did not conduct apples-to-apples comparisons between the New Orleans situation and privatization cases elsewhere. And, the BGR found that analysts provided no specific evidence that the city would really save money through privatization.