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Stockton Citizens Stand to Lose in Proposed Privatization Deal

Feb. 11, 2003

Stockton Citizens Stand to Lose in Proposed Privatization Deal

Report Reveals How Corporations Profit and Consumers Lose With Water Privatization

STOCKTON, Calif. – Public Citizen warned the City Council today that allowing OMI-Thames to take control of Stockton’s public water system will violate consumers’ rights and endanger the environment. The for-profit corporate partnership is negotiating a contract with the city.

Thames Water, the British-based and German-owned global water giant, plans to use the Stockton deal to pay off its multibillion-dollar debt and further its reach in the United States, according to a new report by Public Citizen. The report expands on a report Public Citizen issued last year about Thames’ dismal environmental performance, raising additional questions about the company’s unacceptable water maintenance record, the potentially negative ramifications for citizens, the parent corporation’s crushing debt and other issues.

“California residents are going to pay for the company’s risky business plan,” said Juliette Beck, senior organizer of Public Citizen’s “Water for All” campaign in Stockton. “When cities sell out to private corporations, water prices often skyrocket and the quality of service plummets. The combination of OMI and Thames Water in Stockton does not bode well for the city.”

Other cities’ experiences with these two companies suggest a high probability of cost overruns, environmental damage, poor service and rising rates. The partnership has publicly stated that it plans to cut staff and services. The companies’ performances elsewhere, from England to East Cleveland, resulted in more accidents, more leakage and poorer service.

“Both OMI and Thames have a history of environmental damage as an acceptable cost of doing business, and as for-profit corporations, they have no incentive and no plans to encourage conservation of this scarce resource, water,” said Hugh Jackson, a policy analyst and research with Public Citizen’s Critical Mass Energy and Environment Program.

Public Citizen’s analysis of OMI-Thames will be released at today’s 5:30 p.m. meeting of the Stockton City Council. Council members are scheduled to vote on the water privatization plan on Feb. 19, despite protests by local residents.

Last fall, Stockton residents submitted a petition containing signatures of more than 18,000 people demanding an opportunity to vote on the privatization issue. That ballot initiative has qualified for the March 4 special election. However, in a move to circumvent the voters, Stockton mayor Gary Podesto has scheduled a Feb. 19 City Council vote on the 20-year, $600 million deal.

“The mayor is trying to subvert the democratic process,” Beck said. “He thinks private enterprise can save the city money, yet the deal with OMI-Thames would place a heavy financial burden on Stockton. The corporation would be using the revenues from this contract to leverage its debt and pay for its U.S. growth and expansion. Meanwhile, it plans to reduce personnel and cut back emergency water services.”

According to the report, Double Trouble: Thames Water and OMI – Two Companies Stockton Could Do Without:

  • RWE AG, the German utilities conglomerate that owns Thames, has racked up nearly $27 billion in debt.
  • The price Thames paid to buy American Water Works (AWW), the largest investor-owned water company in the United States, was too high, according to financial analysts. The $7.6 billion purchase in September 2001 was part of Thames’ aggressive pursuit of the U.S. water market.
  • Thames has indicated that AWW’s customers won’t be stuck with the high premium that Thames paid for these regulated utilities because this debt will be paid off by new U.S. contracts, starting with the 20-year, $600 million contract now being negotiated in Stockton. So far, only 15 percent of U.S. water delivery utilities and only 5 percent of wastewater utilities have been privatized — and the company views the public sector as ripe for takeover.
  • Cities from Atlanta and East Cleveland in the United States to London and Adelaide, Australia, have had disastrous experiences with water privatization. Problems include rate hikes, bad service, increases in emergency response time and environmental pollution. Thames has a history of paying fines for pollution as “an acceptable cost of doing business.” OMI-Thames already has proposed significant cutbacks in staffing and service in Stockton. Under tremendous pressure to fatten a bottom line for its debt-choked corporate parent, signing a contract with Thames could be a recipe for corner-cutting and customer-gouging in Stockton.

Click here to view Public Citizen’s report on OMI-Thames.