Vivendi’s Empire-building

Not to be out-done by the oft-repeated fashion-house phrase ‘blah, blah is the new black’, big business has turned neophiliac too. ‘Water is the new oil’ they say. And they are right. According to the World Bank, the water markets of the world are worth up to $800 billion, which makes them comparable in scale to the fossil fuel markets. And what better way to gain access to these markets than through the world’s increasingly GATS (General Agreement on Trade in Services)-friendly governments. This is despite the 2003 World Water Forum’s conclusion that privatisation models haven’t proved their worth and that the debate over them 'has not been resolved'…1 The Forum brought together hundreds of groups concerned about the use of the world’s water reserves – from those who want to conserve them (Bangladesh Unnayan Parishad) to those who want to sell them (World Bank).

February 2003 saw the announcement that French company Vivendi (one of the big three water conglomerates – the other two being Suez and RWE AG) did what Monsieur Tony Blair just last year refused it; namely, increasing its foothold in the UK water industry. Together with the Royal Bank of Scotland, Vivendi has been allowed to acquire a 19.9% stake in Southern Water with the option to increase it to 25%.2 This is in addition to its existing ownership of the Three Valleys, Folkestone and Dover and Tendring Hundred water companies, and gives Vivendi a 10% share of the UK’s £6bn water market. Vivendi’s patchy history makes this an especially worrying development.

Vivendi has been bribing its home country’s government for concessions since the 1980s.3 It now controls 50% of the 80% privatised French water market. In 1985, France’s federal comptroller found that the Paris Mayor’s office had signed a contract with Compagnie Generale des Eaux (Vivendi) that allowed it to indulge in fraudulent accounting to hide enormous profits. Separate judicial enquiries have also alleged that in a 'pact of corruption', Vivendi financed Jacques Chirac’s party through illegal commissions in exchange for public contracts ranging from elevator maintenance to water concessions. One of these inquiries, which opened in June 1997 and is still ongoing, found that the companies colluded with civil servants by paying illegal commissions - primarily to Chirac’s party (the RPR). Between 1989 and 1995, the pact was involved with public contracts worth $3.3 billion with up to $86 million being funnelled to the RPR. Both company officials and party executives have admitted the companies agreed to pay 2% to 3% of the cost of each contract to political parties. Several party executives are awaiting sentancing with Vivendi refusing to comment as the cases are still before the courts.

In 1991, Andre Fougerousse, the mayor of Ostwald, on the outskirts of Strasbourg, and municipal councillor of Strasbourg, resigned from his post after being accused of receiving illegal payments from Vivendi, Suez and Saur. Fougerousse did not deny the allegations but claimed they were normal, arguing that other elected city officials enjoyed similar favours. He wasn’t lying.

In 1996, Vivendi’s deputy director general, Jean-Dominique Deschamps, was sentenced to 18 months in prison and fined $27, 000 after being found guilty of paying illegal commissions to political parties in exchange for obtaining water contracts in approximately 70 French cities. A year later the former mayor of Angouleme, Jean-Michel Boucheron, was sentenced to two years in prison and fined $172, 000 for taking a $55, 000 bribe from Vivendi. In return for Boucheron’s approval of a water distribution contract, Vivendi put him on its payroll for a job that did not exist.

Apparently not satisfied with its influence over one ‘democratic’ government, the Vivendi octopus attached a sucker to Italy. In 2001, Italian judges sentenced former Milan city council president, Massimo De Carolis, to nearly three years in jail for taking bribes from a Vivendi subsidiary during 1998 bidding on a $100 million contract. Alain Maetz, the manager who paid the $2 million bribe, got a year and 10 months.

That Vivendi has no qualms about seeking to control governments is not really surprising given that it employs more people than some governments – 295, 000 world-wide. The Vivendi Universal empire is composed of two major divisions, Vivendi Environment and Vivendi Communications. Vivendi Universal created Vivendi Environment in 2000 to consolidate its water, waste (Onyx), energy (Dalkia) and transportation (Connex) units under a single - and presumably large - banner (subsidiaries range from processing Novartis’ waste to ferrying Renault employees to work).

In 2002, the conglomerate barely staved off bankruptcy as it struggled to cope with billions of debt, a collapsing share price, boardroom infighting and no clear strategy. Earnings were hit by hefty depreciation in the value of Vivendi''s assets and led to the sacking of chairman Jean-Marie Messier last July.

Another sacked employee, Anne Brassens, who worked at Vivendi’s finance office during the same period, explained the problem in an April 2003 interview.4 She said that Vivendi had lacked enough cash at the holding company level to fund an acquisition spree by ex-chief executive Jean-Marie Messier. Brassens said Messier had been driven by a ‘logic of Napoleonic expansion’ and accused the former banker of having no idea about the value of assets he was buying as he turned the water company into a media colossus, owning Universal Studios and Universal Music Group. ‘So we found ourselves with 20bn euros of debts and not a single penny in cashflow,’ said Brassens. Asked why in that case Vivendi had continued to pay out dividends, she was reported as saying: ‘To give the market the illusion of good health.’ Vivendi's balance sheet was a ‘facade bearing no relation to reality,’ she said.

Since the introduction of new chief executive, Jean-Rene Fourtou, Vivendi Universal hasn’t done much better. In fact, March 2003 revealed a loss of 23.3 billion euros ($25.6 billion) in 2002, the largest in French corporate history.5 It now looks like Vivendi Communications (which includes the world’s biggest music company, Universal Music Group, as well as Universal film studios, and various Internet and cable networks) will be sold off.

This by no means entails the end of Vivendi Environment. Quite the contrary. Vivendi Environment’s water-related revenue increased from $5 billion in 1990 to $12 billion in 2002, and in January 2000, Vivendi unloaded its entire debt onto its environment division and its lucrative water companies, so that its communications division could go debt free.6 In other words, Vivendi Water holds the key to the empire’s future.
Vivendi Universal’s marketing strategy is therefore based on buying up privatised water services and securing water concessions all over the world. Through its subsidiaries, Vivendi Environnement supplies water-related services to 110 million people in more than 100 countries. Since 1999 alone, Vivendi has successfully acquired an impressive array of long-term water contracts with cities in Asia (Tianjin, China; Inchon, South Korea; Calcutta, India), the Middle East (Tangiers and Tetouan, Morocco; Beirut, Lebanon), eastern Europe (Szeged, Hungary; Prague, Czech Republic), Europe (Berlin, Germany, with RWE), Africa (Nairobi, Kenya; the entire country of Niger; and Chad); and Latin America (Monteria, Colombia). After purchasing U.S. Filter in May 1999, Vivendi also secured a series of concessions in the U.S. and Canada (Onondaga County, New York; Wilsonville, Oregon; Goderich, Ontario; Floyd River, Kentucky; Plymouth, Massachusetts). As the largest water and wastewater company in the U.S. with a market 14 times larger than its nearest competitor, U.S. Filter promises to be a key player in Vivendi’s future water expansion plans.7
And it doesn’t stop there. Everyone seems to want to help them. Leaked documents and email communications from the European Union (EU) reveal that they have asked 72 countries to open up their water markets to private water companies. Trade Representatives of the European Commission met and communicated regularly with representatives from various large water companies in the run-up to the 2001 round of World Trade Organisation (WTO) negotiations. The new negotiations involved WTO members making it easier for services and the companies that provide them to move from one country to another. Members would list services for which they guaranteed access to foreign suppliers and then request that a member open up markets for which it had not made commitments; foreign companies could then offer to supply these services. Prior to these negotiations, Vivendi, amongst others, was asked by the European Commission which regulations and other barriers would need removing in order for it to gain foreign-market access. Further reassurance came in the form of an email from Ulrike Hauer of the European Commission’s Trade Division stating: “We would like to re-iterate the importance we attach to receiving input from your company on the issues we discussed.”8

At the March World Water Forum, the Asian Development Bank and the UN committed themselves to creating a program to build the capacity of Asian cities to secure and manage pro-poor investments.9 They intend to halve, by 2015, the proportion of people without safe drinking water and basic sanitation. You can count on a certain French company 'helping' them.

Regarding Vivendi Environment’s Asian operations, Vivendi Environment chairman, Henri Proglio, said that the company aims to continue doubling profits every two years thanks to massive demand in China and a decision by Japan to open up its market to foreigners. Asia currently represents a mere 2% of the 30 billion Euros generated in 2002.

Is this too cynical? Could Vivendi really want to quench the poor’s thirst? Sadly not. Yves Picard, managing director of Vivendi in South Africa, said his company is not interested in concessions in southern Africa unless the World Bank or other institutions finance the capital costs. Otherwise, there is no payback for the company because people are too poor to pay the high water rates private company’s charge to cover their capital costs.10

Luckily for Vivendi the World Bank does want to help, bless ‘em. A study of the 276 World Bank water supply loans from 1990 to 2002 revealed that 30% required privatization. In one case, the Bank not only helped finance a privatization in Buenos Aires, but also took, through one of its branches, a 7% stake in the specially formed company, Aguas Argentinas (a consortium controlled by Vivendi and Suez). The Bank also loaned one of its senior managers to negotiate large water rate increases with the Argentine government. The same manager then proceeded to head a World Bank team that gave a $30 million loan to Argentina.11 Aguas Argentinas promised to reduce water rates and to improve and expand water and sewage services. Soon after, the privatization was declared an overwhelming success and made a model for privatizations of water that followed in the Philippines, Indonesia, Australia and South Africa.

Within a year of winning its 30 year concession, Aguas Argentinas wanted to renegotiate its contract, claiming financial problems (despite shareholders earning profits of as much as 25%). Over the next eight years, important initial contractual commitments, including promises to extend water and sewerage to millions living in poor districts, remained mysteriously unfulfilled. This led the government agency created to regulate Aguas Argentinas, Ente Tripartito de Obras y Servicios Sanitarios (ETOSS), to levy $16 million in fines against the company which, also mysteriously, weren’t paid. The government later cancelled $10 million of the fines as part of a new contract.12

If Britain is relying on Vivendi only ripping-off poor nations, it should to look to Australia for a telling lesson in corporate morality. In 1997, some fifteen months after signing a contract turning over its waterworks to a private consortium involving Vivendi, the city of Adelaide was engulfed in a powerful sewage smell, known locally as ‘the big pong.’13 The smell lasted three months and was attributed by officials to weather patterns preventing normal urban sewage odours from dissipating. The populace, who complained of mood swings, nausea, sinus problems, asthma, headaches and sleeping disorders, weren’t convinced. A study led by the University of Queensland’s water treatment expert Ken Hartley, found that weather conditions at the time of the pong were no different from those of previous years. The problem was eventually traced to the largest of Adelaide’s four wastewater treatment plants where it was discovered that equipment failures and inadequate monitoring had allowed raw sewage to be flushed directly into settling lagoons. ‘It was dollars driving everything,’ said Hartley. ‘The big emphasis was on minimizing costs. The incident is an illustration of what can happen when things like monitoring and maintenance are cut to the bone.’ The fact that Vivendi need to sell another $7.7 billion in assets this year just to find its feet means we can expect lots more attempts to ‘minimize costs’.14

And, finally, if you become unable to locate Vivendi Environment it’s not because of happy bankruptcy. It’s because they’ve changed their name. An April 2003 press release proposes that Veolia Environnement would be much nicer. And who said corporations don’t care about their reputation?

1 World Water Forum Press Release 22.03.03, available from http://www.world.water-forum3.com/2003/eng/press/pressrelease/press0323-01.html

2 Gow, D. (2003) RBS in £2bn water deal, The Guardian, 06.02.03.

3 The Center for Public Integrity (2003) Water and Power: The French Connection, 04.02.03, available from: http://www.icij.org/dtaweb/water/default.aspx?SECTION=ARTICLE&AID=4

4 Reuters (2003) Ex-employee: Vivendi ‘misled market’, 25.04.04, available from: http://news.zdnet.co.uk/story/0,,t269-s2133886,00.html

5 Arab World Search Engine (2003), Vivendi posts record loss, 08.03.03, available from: http://news.awse.com/08-Mar-2003/Business/18137.htm

6 Barlow & Clarke (2003) Blue Gold, Ottowa: Octopus

8 Politi (2003) Privatizing Water: What the European Commission Doesn’t Want You to Kno

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