A Thirst for Growth

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Another problem is national politics. Early last year, Argentina's government terminated a contract with a Suez-led consortium that was providing water services to Buenos Aires. The company also lost its contract to provide water to El Alto and La Paz, Bolivia, after massive protests beginning in 2003 over limited access for poor families. The leader of those protests, Abel Mamani, is the Minister of Water in the government of Evo Morales.

But the water companies have deep pockets, and and they have learned to hold their breath. They've waited out wars and revolutions; a bit of bother in the outre-mer hardly fazes them. Both firms were built around water concessions first granted in the 19th century. The Compagnie Générale des Eaux, which evolved into Veolia, was born in 1853 when the progressive councilors of Emperor Napoleon III granted a group of investors the concession to provide water to the city of Lyon. It was such a hit on the Paris stock market that the company soon spun off its own bank, Société Générale. Competing bank Crédit Lyonnais parried in 1880 with the creation of Lyonnaise des Eaux, which is the core of Suez's water business today. Though the direct links to those banks no longer exist, both companies have been key players in the roiling waters of French business and government ever since.

Suez, of course, built the Suez Canal, but after the seaway was nationalized by Egypt in 1956, the company became largely a financial operator. It was nationalized in turn by the Socialist government of François Mitterrand in 1982, a disastrous move that was reversed in 1987, one year before the company got a big piece of Belgium's electricity industry through a merger with the Société Générale de Belgique. Lyonnaise, for its part, had been shorn of its gas and electricity assets by France's nationalization efforts in 1946. The two merged completely in 1997 and took the common name Suez in 2001.

Veolia's history is no less complicated. After 1994 chairman Jean-Marie Messier moved Compagnie Générale des Eaux full steam into the media business, but his empire cracked after a high-gloss purchase of Seagram to form Vivendi Universal. After Messier's ignominious fall in 2002 in a morass of debt, the environmental-services businesses spun off and dropped the tainted name Vivendi to become Veolia.

And so both companies are alert to historic opportunity--otherwise known as China. The Chinese have awakened to the ongoing train wreck between highly polluted rivers and aquifers and booming cities. "Every year, there are 20 million new urban Chinese," says Frérot. "The authorities have decided to commit as quickly as possible to improving their water and wastewater infrastructures." Veolia has 19 joint ventures in China, and Frérot says the company's short-term prospects there "look better than they do in the U.S." Suez has 21 ventures there after signing a deal to distribute water in Chongqing, China's fourth-largest city, with 32 million inhabitants.

China is just part of the global explosion of demand for water. In absolute terms water isn't any scarcer. The cycle of precipitation and evaporation may be undergoing changes, some of them disturbing-- like the melting of the ice caps and the prospect of significantly higher sea levels. But in per capita terms, water has become scarce. While world population has doubled in the past 50 years, water consumption has tripled. More efficient appliances and toilets have helped push down per capita consumption in the developed world--from 200 L a day 25 years ago to 135 today in France, for instance.

But more frequent droughts, overpopulation and intensified irrigation are pressing water engineers to devise new approaches. And some of them will take some getting used to. Despite a five-year drought widely considered the worst in Australia's recorded history, the residents of Toowoomba in Queensland last year resoundingly rejected an offer from the national government to fund a program to recycle purified sewage water back into the system. Scientific evidence and taste tests couldn't prevail against the yuck factor.

Since then Queensland Premier Peter Beattie declared such recycling mandatory. It's already standard practice in Namibia and Singapore and in cities like London, which draw much of their water from rivers where treated sewage has been dumped upstream. Queasiness is a luxury no one can either afford or justify, since purification technology can handle stuff the coddled minds of suburbia cannot. "Even wastewater is at least 99% water," says Bruce Durham, Veolia's alternative-resources manager. "What matters isn't its history but its quality."

And quality has its price, which is the reason Veolia and Suez can afford to be patient. "Those who advocate free water are wrong," says Suez's Chaussade. "We need to charge for water to avoid waste and deterioration of our natural resources. But this doesn't mean that everyone should pay the same price." The French giants of the industry can shrug and point out that it is not their task to set that price. That's up to markets and governments that want to regulate them to provide access to the poor, subsidize farmers or soak the rich. But Suez and Veolia can take quiet satisfaction from one crystal-clear certainty: over the next 150 years of their business, demand for water isn't going down the drain.