Loïc Fauchon has been in the water business since 1991, when he was appointed general director of the Societe des Eaux des Marseilles (SEM), becoming managing director in 1997 of the 16-company group with 2,500 employees. In January 2005, Fauchon also assumed the duties of chairman of the Marseilles-headquartered World Water Council – a “voice of water” established in 1995, which represents nearly 350 member organisations in more than 70 countries. In this capacity, Fauchon helped organise World Water Forums in Marrakech (1997), The Hague (2000), Kyoto (2003), Mexico City (2006), and Istanbul (2009).

He is well-versed in just how big the world’s water problems are – and what’s causing them. “Demographics, pollution, urbanisation,” he says. “Global warming is coming, but today’s problems are not due to global warming. That’s the fault of man. In the past we had only to satisfy the demands of agriculture, industry, domestic use; now we have to change our strategy and implementation because of demographic change.”

To wit: the developing world, with its 21st-century patina over Third World daily life. “The water (reserves) in the Beijing region is going down nearly four million barrels a year. What will happen in 10 to 20 years? The Chinese government is obliged to bring water from south to north. We can say this is probably not good ecologically speaking, but what can they do if they have no water?”

And it’s not just a problem for the developing world. “The governor of California (Arnold Schwarzenegger) was explaining in June how Californians’ water consumption will have to decelerate in the next two years” due to the state’s huge population growth compared with the continuing demands from agriculture. “We are at a crossroad in the history of water – much as we are in terms of energy. We must be sustainable.”

Transporting water is expensive. With utility privatisation in Europe and publicly-traded utilities in the US, the water treatment sector has been one for the value investor, willing to trade high returns for steady performance.

The multinationals (for example, Veolia) have a role to play in providing water throughout the world, but in terms of policy, Fauchon says, “the best solution is ‘water pays for water.’ The public sector has to pay, though we can use private companies to create, maintain, and operate water infrastructure.”

This, of course, raises questions of where the money comes from to pay for cleaning and distributing this natural, God-given resource. Options under discussion so far include paying for consumption (a developed world method) and paying for (or better yet, subsidising) distribution – something developing countries are more concerned about.

But who sets the tariffs and how? And how long do we have to wait before getting started? The problem of providing water is increasing faster than our ability to pay for it, especially in a recession when tax revenues are much lower, yet the demands on the public purse are increasing. “This is certainly one of the most important questions,” concurs Fauchon. “And it is up to governments to set the tariffs and the regulatory frameworks.” This will not be an easy or inexpensive task.

OECD research suggests the UK and France will have to increase the share of GDP spent on water by two per cent in the next decade, just to maintain today’s service levels; in Japan and Korea, that figure is 40 per cent .The World Health Organisation warns that in the next five years, developing countries will need $18 billion a year to extend existing water facilities – double the current amount, and that does not including maintenance or modernisation of existing systems.

“These developing countries have to decide now what their priorities will be; what level of priority will they give to water and sanitation? I try to tell them ‘taps before guns,’ but the military budget still increases far more than the domestic budget.”

In the industrial world, the current economic crisis, with its stimulus packages and private-public backing, could fund at least some of the necessary water infrastructure, and both the US and China have included water maintenance projects in their stimulus packages.

Various government estimates suggest that each million dollars invested in water projects yields as many as 22 jobs, increases economic output by more than $2.5 million, and raises GDP by as much as $1.5 million.

In the developing world, water issues may mean business for multinationals, but smaller local companies can benefit as well. “The problem of water is global, but the solutions are always local,” says Fauchon. “But local public governments can be supported by private companies – and not only the majors. The water problems in Morocco are different from those in France or the UK, and they will require different solutions.”

Fauchon says the recession and today’s emphasis on sustainability has actually warmed up government discussions about water. “I’m much more optimistic than I was 10 years ago. All the political organisations – G8 and so on – are now discussing water, sanitation, environmental issues. Also, technology is progressing very fast. New technology is not so expensive and can be put to use on water issues. Yes, I’m very optimistic.”

 

Loïc Fauchon was a speaker at the OECD Forum 2009, held in Paris June 23-24.