As a soldier, Napoleon III, the nephew of Napoleon Bonaparte, was pretty much a dud. He started the Franco-Prussian War and was captured in the Battle of Sedan in 1870, a catastrophe that brought his long reign as France's emperor to a swift and inglorious end. But as a social engineer, Napoleon III was something of a whiz. His civic planner, Baron Haussmann, rebuilt Paris. The medieval slums were cleared and replaced with grand boulevards. Parks and sewage systems were created. The rail network was vastly expanded.
Biographies rarely mention Napoleon III's other accomplishment in social engineering: He is the father of privatized water.
In 1853, Compagnie Générale des Eaux was founded by imperial decree. Its first contract was to supply water to the city of Lyons. In 1860, it was awarded a 50-year contract to supply water to Paris.
Today, it is called Veolia Eau, a division of Veolia Environnement (known as Vivendi Environnement until 2003, when saner heads prevailed and hived it off from Vivendi Universal, the Hollywood studio and sewage conglomerate). Veolia is the biggest privatized water company in the world. Its chief rival is Suez, the Franco-Belgian industrial giant whose most famous project was the epic construction of the Suez Canal in the 1860s, and which counts Montreal's Desmarais family among its biggest shareholders.
Privatized water has been an on-again, off-again trend in parts of the world for a century or more. In the United States, private water companies were common in the last half of the 1800s. They disappeared when allegations of unfair profiteering gave municipalities the consumer-sanctioned opportunity to take them over.
Privatization has always been contentious because water is an essential good socially as well as economically. The anti-privatization crowd, which holds that access to safe water should be declared a human right, argues that transferring water into private hands means the public—particularly the poor—cannot be protected.
But it can be done. Napoleon III found the right formula to protect the seller and the buyer. More than a century later, Margaret Thatcher, who delivered England's water utilities to the stock market, did not. In the early years of England's privatized water history, regulatory oversight was low, complaints high. After years of shoddy service, the regulations had to be tightened up. Customer whining has diminished somewhat, but arguing whether privatization was a good or bad thing is still a hot debate among older Brits.
The genius of Napoleon III's water strategy was its fine political and economic balancing act, says Philippe Rohner, the manager of the Swiss Pictet Group's ¤3.5-billion PF Water Fund, the biggest of its kind. At the time, France was urbanizing quickly but couldn't afford the infrastructure to deliver reliable, safe water to the masses and to industry. Since water had been a free and essential good since the beginning of time, the challenge was to devise a water-delivery system that could attract capital but whose pricing would not trigger riots. "Water is a commodity—yes—but one that is also a basic service that comes with a health-warning label on it," Rohner says.
The solution was water concessions—in effect, local water monopolies. Only the service itself would be privatized; the water and the pipes would remain under public ownership (Thatcher's model differed in that the pipes were privatized too). Since the concessions came with stewardship responsibilities, France's new water managers had to keep the infrastructure in good nick. The tariffs were linked to the cost of the service, which included maintenance and capital improvements.
France's privatized water system has worked fairly well—strict government regulation has been an essential ingredient of the success story—and the French have earned a reputation for fine water (and waste water) engineering and innovation. As the biggest players, Veolia and Suez generally have the first call on the industry's best engineers.
Customer satisfaction rates are fairly high, thanks in part to robust delivery networks. One important performance measure is leakage rates. In Paris, some 20% of the water disappears from the web of pipes and pumps between the water source and the house tap. It sounds high, but in London, the figure is almost double.
