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Plight of Vivendi Demonstrates Risks of Water Privatization

July 26, 2002

Plight of Vivendi Demonstrates Risks of Water Privatization

Statement of Jane Kelly, California Director of Public Citizen

Vivendi Universal?s financial woes, which have been well-publicized in recent weeks, are troubling to those who monitor the growing trend toward the privatization of public water systems. That is because one company linked closely to Vivendi Universal ? USFilter ? is the largest water service company operating in the United States and is bidding to operate the water and sewage works in communities across the country, including Stockton, Calif., and New Orleans.

While USFilter appears to be financially sound, Vivendi Universal clearly is not, and we are concerned that Vivendi Universal could siphon money from the more profitable company. Communities whose water systems are USFilter-operated could face deterioration of service quality and grapple with aging infrastructure not receiving needed repairs. (Vivendi Universal owns 40 percent of Vivendi Environnement. USFilter is a wholly owned subsidiary of Vivendi Environnement.)

It wouldn?t be the first time Vivendi Universal has used a subsidiary to obtain much-needed cash. In June, news reports said that USFilter was selling its distribution business to generate cash for Vivendi Universal. The beleaguered French parent company is a media and entertainment giant that has amassed a $33 billion debt during an ambitious acquisition drive. The debt was recently downgraded to “junk bond” status on fears that the company lacks enough cash to make payments on it. More than a third of the debt belongs to Vivendi Environnement. In June, Vivendi Universal reduced its stake in the environment subsidiary from 65 to 40 percent to get the subsidiary?s debt off its books.

Given its parent company?s problems, the future ability of USFilter to meet its current contract obligations is uncertain. It would be foolhardy to transfer the responsibility of providing water and wastewater services to a company with an enormous debt and a questionable future.

Our local governments should continue to own and operate their water and sewer systems. If improvements are necessary, the answer is not to hand over public resources to private interests but instead to make a commitment to increase efficiency and introduce savings within the framework of municipal operation. Communities should be aware that the companies taking over water systems promise cost savings and better service but rarely explain the risks of privatization, such as hidden costs, inadequate maintenance and service lapses. Only public utilities, when run well, can ensure that everyone has access to safe and affordable drinking water.