At last – a new business model for private water

Insight from Christopher Gasson, GWI publisher

It is ten years since the Argentine peso devaluation wiped out the international private water market as we knew it. Only now are we seeing the beginnings of a new business model to replace it.

This thought came to me after interviewing Suez Environnement boss Jean-Louis Chaussade in London last night (you will be able to read the whole story in this month’s GWI). I asked him about the new service businesses that Suez has launched. At last month’s half-year results, they were reported to be growing at a rate of 15% a year. They are still relatively small in terms of the overall Suez Environnement group – around 5% of revenues in the European water operations segment – but Chaussade expects to grow them to 15% of revenues and roll them out globally.

The new service businesses are essentially monoline offerings such as smart metering, non-revenue water management and energy recovery, which bring clear and direct benefits to utilities without the need for full concessions. They seem to be selling like hot cakes.
It is very much the kind of growth story the industry needs. In the 1990s, people invested in private water companies because their story about recycling the cashflows from mature European utilities into high-growth emerging market utilities seemed to make sense. What they didn’t realise is that none of the contractual protection against currency devaluation was worth the paper it was written on.

Since then, the water operations sector has been a low-growth market. Although there may have been some action in the Middle East and China, these markets did little more than off-set the maturity of the European market, and in the past couple of years neither China nor the Middle East has offered much in the way of new opportunities.

The new monoline service model reverses the situation. Suddenly the whole world is a potential market for private water services: not just those countries with privatisation-minded governments. Suez Environnement is not the only one to spot this opportunity. Veolia, too, is opening the “black box” and looking to market services on a monoline or performance basis (althought it has taken longer to move on this than Suez). What is interesting to me is that it took so long for these companies to address the problems in their core markets. Without the recession in Europe and the clear swing to the left in French politics, it seems unlikely that they would have bothered to come up with this politically neutral business proposition.