Water, water, everywhere!

“Water, water, everywhere, nor any drop to drink” (The Rime of the Ancient Mariner – ST Coleridge)

How many of us have shared the same sense of discouragement with the never-ending rainfall seen in recent months? The spring of 2013 will go down as being the wettest since 1959 and the coldest since 1987. This was nevertheless good news for the farming sector as the constant rainfall at least helped to restore ground water levels that have been regularly damaged by urbanisation and intensive farming.

Preserving water resources is a major challenge for this century, with increasing population levels and higher living standards prompting rising needs for drinking water. Chinese inhabitants now consume 90 litres of water per person per day (1), catching up with French consumers (150 litres/jour) although still way behind US consumers at 580 litres a day. At this pace, water extraction volumes in the world, which have tripled since the 1950s, are set to increase a further 40% by 2030 (2).

Up against restrictions of this sort, technological solutions to increase water supply are multiplying, in particular using desalination techniques and streamlining demand thanks to water savers and more efficient distribution networks. The sector is promising and the water market is estimated at $1000bn a year out to 2020.

However, on the stockmarket, the rush for “blue gold” seems to be more of a mirage than the promised Eldorado! For the past five years, shareholders in SUEZ ENVIRONNEMENT (-46%) and VEOLIA (-75%), the French champions in the water treatment sector, have had a painful experience.

Water utilities groups seem to be struggling to balance their business models since water is not a commodity like any other! For the majority, it remains a common asset that does not readily rhyme with market profit and economy. In 2010, the United Nations even made sacred the right to drinking water, which has become a human right (3). The OECD estimates that water bills should not exceed 3% of household income. France is well off this limit since water costs in the country represent 0.8% of household spending, or around €1 a day per household.

This fairly disadvantageous political and regulatory backdrop for free enterprise means hefty capital investments are struggling to find the right remuneration. The paradox in this fixed cost economy is that when water sales fall the average price per cubic metre should increase in order for operators to balance their spending. In other words, the more subscribers save water, the higher their bill could become.
As investors, it is therefore no simple matter to participate in improving the quality of networks and guaranteeing a better quality of water.

Prices per cubic meter of water (between $0.5$/m3 in Hong-Kong and $9/m3 in Copenhagen) are not so easy to manipulate as oil or gold prices. A number of less visible players such as Dutch group ARCADIS (specialist in infrastructure projects), Finnish group KEMIRA (chemical water purifying additives), and Austrian group ANDRITZ active in waste water treatment, have understood that the focus needs to be placed on the long term. By trusting them and agreeing to be patient, we can therefore also help fulfil every person’s elementary need for drinking water.

Who said that finance and water could not live together happily?

Didier Le Menestrel
with the king help of Marie-Christine Korniloff

1 2009 study by Water Resources Group 2030 “Perparing the future of  water – an economic reference framework for aiding decision”
2 2010 study by SAM Sustainabilty Investing: “Water: a market of the future”.
3 UN general meeting of 28/07/2010 (
http://www.un.org/News/fr-press/docs/2010/AG10967.doc.htm