German giant taking over American water supply


MONTARA, California (AP) - The influence of foreign business can be seen across America, with consumers cheerfully buying Japanese cars, South Korean TVs and clothing made in China. 

But many Americans aren't so happy about foreigners controlling their water supply. 

A recently completed $8.6 billion takeover of American Water Works by German-based industrial giant RWE has led to a backlash from a handful of cities across America. 

The deal covers more than 800 water systems serving 15 million people in 27 states and three Canadian provinces. 

"As soon as people find out their water service is being bought by a German company, they are up in arms about it,'' said Juliette Beck, a senior organizer for Public Citizen, a Ralph Nader-backed group that has been rallying resistance to the RWE takeover. 

The misgivings are driving community efforts to buy out RWE and regain control of local water systems in two Northern California communities, Montara (30 kilometers south of San Francisco) and Felton; in Peoria and Pekin, Illinois; and in Lexington, Kentucky. 

Charleston, West Virginia, is considering a bid for its water system, while the Southern California city of Thousand Oaks is trying a different tactic, urging state regulators to reverse their previous approval of RWE's takeover. 

Much of the opposition to the RWE deal has been orchestrated by Public Citizen, a critic of corporations inside and outside America. 

The objections have ranged from concerns about whether the foreign-owned conglomerate will weaken U.S. environmental practices to worries that RWE's enormous debt load will lead to higher water bills. 

Few issues are as prickly as RWE's German heritage. 

"That really bothered a lot of people, especially older folks,'' said Kathryn Slater-Carter, a Montara resident since 1979. 

"Memories of World War II are still very strong.'' 

Officials from American Water and the water industry say the backlash against RWE is misguided. 

"Public Citizen is doing a pretty good job of fanning the flames and playing on people's xenophobia,'' spokesman Tom Thoren said. 

Supporters of the takeover say RWE's financial clout and expertise will help pay for much-needed improvements in local water systems and provide better protections against possible terrorist attacks on water supplies. 

RWE isn't the only foreigner buying into the U.S. water industry; French companies Vivendi Environnment and Suez also have bought local water systems within the past few years. 

Vivendi entered the U.S. market in 1999 with a $7.9 billion takeover of USFilter. The French company provides water and wastewater service to 110 million people in 100 countries, generating about $12 billion in annual revenue from the division. 

Besides running the Culligan bottled water service, USFilter, of Palm Desert, California delivers water to about 13 million people in 600 communities. 

Suez, which collects about $8.5 billion in water revenue from 110 million people in 130 countries, entered the U.S. in 2000 with a $1 billion purchase of United Water Resources, based in Harrington Park, New Jersey, and a provider of water service to about 12.5 million people. 

Before coming to America, RWE expanded beyond its primary business as a power utility by buying England's Thames Water for $9.8 billion in 2000. 

The money provided by RWE and other foreign companies will pay to replace aging pipes and strengthen security - the kind of improvements many cash-strapped communities can't afford, said Peter Cook, executive director for the National Association of Water Companies, a trade group. 

Thames, which will oversee RWE's newly acquired U.S. water systems, has invested $6 billion in service improvements, mostly in Britain, since 1998. 

The opposition to RWE's U.S. expansion is "so much hokum and jingoism,'' Cook said. "Foreign ownership can bring many benefits to a community.'' 

Critics fear RWE and Thames mostly will bring trouble. Thames, for instance, has been fined repeatedly in England for environmental violations that included allowing raw sewage to flow into the streets and onto people's lawns. 

RWE's debt-heavy balance sheet has convinced many customers their water rates will have to go up to pay back the loans. 

RWE is buying American Water for nearly three times the company's book value _ equivalent to paying $1 million for a house worth about $333,000. 

The German company ended 2002 with an estimated debt totaling about $28 billion. 

Management wants to reduce the debt to about $26 billion by the end of this year as part of a debt diet that will continue through at least 2005. 

RWE has repeatedly assured regulators it can repay its debt by expanding into new U.S. markets instead of raising rates in the systems picked up in the American Water deal.  

And in some states, such as California, RWE has even consented to rate freezes. 

Still, some critics think RWE is on the same perilous path as Enron, the once-powerful energy merchant that collapsed in 2001 after bingeing on debt to finance years of rapid expansion. 

"There are a lot of serious warning signs building up at RWE,'' said Richard Hierstein, city manager for Pekin, Illinois.RWE's rising debt prompted Moody's Investor Service to lower the company's credit rating last year. 

Critics believe the hefty debt also contributed to RWE's decision to replace its longtime chief executive officer, Dietmar Kuhnt, who oversaw the company's recent shopping spree. Former Royal Dutch/Shell Group executive Harry Roels is to become RWE's new CEO March. - AP 

For more foreign business news click here

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3
   

Did you find this article insightful?

Yes
No

Next In Business News

TDM posts net profit of RM21.75mil on improved sales
Iconic’s 2Q net profit surges to RM3mil
TM posts improved earnings in Q3
Notion VTec posts turnaround in 4Q, upbeat on outlook
Bursa swings higher on vaccine news, crude oil prices
Inflation falls for eighth month in October
MyEG's 9M results beat CGS-CIMB Research's forecast
Positive long-term outlook for Leong Hup Industries, AmInvest Research says
Ringgit opens higher amid firmer oil price
Quick take: D&O shares fall despite earnings beat

Stories You'll Enjoy