October 4, 2006
At a time when so many Canadian municipalities are facing problems with their water and sewage systems, it might seem ironic – even annoying – that the Canada Pension Plan should be contributing $1-billion to the proposed acquisition of a private water utility in the U.K.
As reported in yesterday’s Post, the CPP and three other investors have set up a company, Osprey Acquisitions Ltd., to mount a friendly $4.6-billion bid for AWG PLC, which provides water to 5.4 million British households. Would that Canada had such investment opportunities.
There are severe problems in Canada’s water infrastructure, which is estimated to need tens of billions of dollars of investment, but it certainly doesn’t spring from the lack of potential investors. The main problem is that water infrastructure in Canada remains overwhelmingly public and thoroughly politicized. Indeed, that is one reason for the CPP – the rationale for whose existence is dubious, not least because it must be on constant guard against political looters – to steer clear of the sector.
Leaky and rusty municipal systems are failing consumers and polluting the environment across the country, but there remains enormous resistance to public-private partnerships, let alone outright privatization. This is largely due to a campaign of lies run by the Canadian Union of Public Employees and other of the usual nationalist, leftist suspects. For example, one of CUPE’s frequent claims is that British water privatization has been a disaster.
By any objective standards, the privatization of British water has been a great success. Capital investment has surged without a corresponding surge in bills. Water quality, environmental performance, regulation and customer service have all measurably improved.
Mistakes were inevitably made, but the great point about a system run by private companies under public regulation is that errors are eagerly pointed out and rapidly addressed.
Before privatization began in 1988, the system in England and Wales was a soggy mess. The path to privatization was far from smooth. There was inevitably initial resentment at the "fat" salaries of utility executives and at the companies’ generous dividends. Tony Blair’s Labour party imposed windfall profits taxes and rolled back prices, which sent the pendulum in the opposite direction, but the fact that foreign investors such as the CPP are beating down the doors to acquire British utilities suggests that a better balance has now been reached. Institutions can look to a well-run business with a reliable stream of income. Investors and consumers are both winners.
CUPE’s flapdoodle about the U.K. experience has been matched by its anti-privatization propaganda in Canada. For example, as Environment Probe‘s Elizabeth Brubaker, one of the leading experts on Canada’s water infrastructure, has documented, the Internet is thoroughly infected with the notion that the Walkerton tragedy – in which seven died and thousands were made ill by tainted water – arose from privatization. Nothing could be farther from the truth. Walkerton –as a subsequent public inquiry clearly established – was based in the incompetence of public authorities and a failure of public oversight. Significantly, Walkerton’s water is now operated by a private company under a five-year contract, and a number of other Ontario municipalities have also handed their water systems over to private operators.
The other glaring recent example of publicly run water systems falling apart is on native reserves. In particular, last year’s crisis at Kashechewan demonstrated both a mismanaged system and a hysterical political response. Millions of dollars were wasted in addressing the alleged problem, most spectacularly by staging a mass evacuation. Also, a 10-tonne reverse osmosis water purification unit – complete with a squadron of the Armed Forces’ finest – was very conspicuously dispatched. The unit arrived shortly after the local system had been fixed by a single technician from a small, private water-treatment firm. Like Walkerton, Kashechewan has now gone with a private operator.
There are other – but too few – examples of successful private investment in water utilities, for example, the under-budget and well-functioning filtration system in Moncton, N.B.
Having private companies operate water utilities offers an improvement over public operation. However, since the infrastructure itself remains public, this means continued underinvestment and the perpetuation of a grey area ripe for finger-pointing whenever problems arise.
In fact, there have been considerable improvements in Canada’s water systems over the past 15 years, significantly due to the level-headed activism of groups such as Ms. Brubaker’s Environment Probe.
Ms. Brubaker has been a powerful, if at times lonely, bastion against disinformation. She and her colleagues have worked tirelessly to improve water quality by pressing for the need for more accountability and expertise, as well as for more stringent regulation and market pricing. Much more could be achieved if water utilities were to be privatized, but as Ms. Brubaker points out, for the moment it isn’t going to happen. After all, if Canadians subscribed to the bracing effects of privatization and weren’t in thrall to the objectively dubious notion that government was there to look after them, there wouldn’t be a Canada Pension Plan to invest in well-run, private British water companies.