Forum Speakers Rate Water Market Outlook as "Good to Great"

By Dawn Kristof

WWEMA's 30th Washington Forum held on May 7-9 offered representatives from the water and wastewater industry a comprehensive look at the industry from domestic priorities to overseas opportunities.

On the domestic front, the directors of the two EPA offices responsible for administering the Clean Water Act and the Safe Drinking Water Act served to remind the audience that this remains a regulatory-driven market. The acronyms of new regulations coming down the pipeline spanned the alphabet.

It was reassuring to also learn that coming down the pipeline to help pay for the needs generated by these regulations will be approximately $4.6 billion annually in loans, at 2.5% average interest rates, available through the clean water and drinking water state revolving funds (SRFs). Legislative, regulatory and industry analysts alike all agreed that the SRF programs will remain the primary funding vehicle to serve this industry, and that any hope for new federal grants programs or creation of a water trust fund similar to that serving the transportation industry was a 'pipe dream' (pardon the pun).

The chief economist with the Associated General Contractors of America, Kenneth Simonson, confirmed that water and sewer construction demand will remain strong, thanks to lots of new housing and federal environmental and homeland security requirements. He noted that low interest rates and a good reception at election polls for bond issues may keep the supply of bond money for these projects flowing, in spite of the plunge in tax receipts.

With regard to water supply construction, state and local spending set a record in 2002 of $7.3 billion, 1.6% higher than in 2001. The prospects for the near term look equally positive, with all categories of state and local water supply construction in the first quarter of 2003 having moved up sharply compared to last year's first quarter, he observed.

State and local sewage and waste construction did not set a record in 2002 but it did reverse a three-year slide, rising 6.7% to $9.3 billion. So far in 2003, state and local sewage and waste disposal is off by 5.4%, he reported.

Knowing that the real growth for this industry is in the international market, WWEMA took the occasion of its 30th Washington Forum to sign a Memorandum of Understanding with the U.S. Department of Commerce's International Trade Administration. Linda Conlin, Assistant Secretary of Commerce for Trade Development, and Bob Wimmer, Chairman-Elect of WWEMA, took part in a formal signing ceremony and committed their organizations to working in closer partnership to increase exports in the water and wastewater sector.

The opportunities for exporting water and wastewater products and services continue to expand across the globe, as presented by a panel of industry trade specialists that spoke at this year's Washington Forum. From the launching of the Chilean water privatization program to the race for European Union membership requiring enormous environmental investments by Central and Eastern European countries, there remains ample opportunity for all companies to become active in the global market.

China, in particular, holds huge potential for investments in water and wastewater equipment. The leader of the U.S. Department of Commerce's China Team, Peter Hale, reported that China's commitment to dismantle its trade barriers as part of its accession to the World Trade Organization continues on track, and that his office will ensure that U.S. companies benefit fully from the market openings obtained during the accession negotiations.

Afghanistan and Iraq are two new geographic sectors where demand for water and wastewater products and services will evolve due to post-war reconstruction efforts which are underway. The attendees at this year's WWEMA Washington Forum had the privilege of being the first private-sector group to be briefed by Jay Brandes, the Director of the Afghanistan and Iraq Reconstruction Task Force for the Commerce Department. He provided the audience with a thorough understanding of the formidable obstacles facing these two countries as they advance from war to reconstruction and the process by which U.S. companies can access opportunities in the rehabilitation of these countries' infrastructures.

One of the liveliest discussions that took place during this year's Washington Forum was during the panel session on public procurement. Invited to address this topic were Paul Marchetti, Executive Director of the Pennsylvania Infrastructure Investment Authority, and Gary Morgan, Assistant Administrator of the Rural Utilities Services at the U.S. Department of Agriculture. The audience benefited from hearing how one state official and one federal official view their roles in governing competition when public dollars are being used to fund water and wastewater projects. The speakers, in turn, heard from the audience how these procurement policies, particularly those of the USDA, stifle innovation, encourage bid shopping, result in substandard product offerings, and ultimately hurt the community that they were designed to protect. This debate will resume in future dialogues with these officials.

The Washington Forum concluded with a panel of industry officials offering their predictions on the market outlook for the water and wastewater industry. Debra Coy, an environmental policy and water analyst with Schwab Capital Markets, predicted that merger and acquisition activity will continue to grow in the equipment sector among such players as Danaher, GE and ITT.

Andrew Chapman, President of New Jersey - American Water Works Company, views the fragmented U.S. market as primed for continued growth, with a huge role for new technologies.

Rick Thoesen, Deputy General Manager of the Loudoun County (VA) Sanitation Authority, sees an increased role for public-private partnerships to accommodate new growth whereby developers would build clustered systems and turn them over to a public authority to own and operate.

Larry Jaworski, a principal with Greeley and Hansen, noted that the more difficult challenges lie ahead in dealing with non-point source pollution, storm water runoffs, and complex contaminants that can now be measured at extremely low levels.

The panelists were asked, as their final question, how they would respond to the theme of this year's Forum, that being "It is the best of times . . . it is the worst of times". Three out of four answered that it is the "Best" of times for the water and wastewater industry, with the fourth giving it a "Good" mark. By all indications, good times lie ahead for companies serving this industry.