Security Concerns Impact Water Industry Business

By Dawn Kristoff

WWEMA's 93rd Annual Meeting, held Nov. 8-10 in Destin, Florida, provided leaders in the water and wastewater equipment manufacturing community a timely forum to share their perspectives on the aftermath of September 11 and its likely impact on their businesses and the industry they serve. As F-15s flew overhead (Destin happens to border Eglin Air Force Base), WWEMA members expressed concerns about the future. They generally agreed that business activity had already begun to take a turn for the worse in the second and third quarters of this year, with 9-11 only serving to exacerbate a weakening economy.

On a macro level, the participants observed that the need to invest in security-related measures would likely cut into scheduled capital expenditure plans of the nation's water and wastewater utilities, especially if the U.S. government issues new, unfunded federal mandates governing security of critical infrastructure. On the flip side, a growing interest in redundant systems as a means of minimizing the impact of any terrorist attack on these facilities could spur demand for new capital spending. Greater reliance on ground water systems as compared to vulnerable surface water systems was also predicted by the attendees.

From an equipment manufacturer perspective, the tragedies of September 11 will likely heighten demand for a variety of technologies to reduce vulnerabilities and deter, detect and respond to a wide variety of threats on the part of our nation's municipal and industrial facilities. Demand for security specialists to conduct vulnerability assessments currently outweighs supply. Detection devices, such as real-time soil and water chemical sensors that can measure the presence of a wider range of contaminants in minute concentrations will be in great demand. Barriers to prevent access to terrorists, such as video cameras, padlocks, fences, barbed wire and covers, will be employed.

Chemical destruction or barrier technologies will be needed to prevent an undesirable chemical that was released from spreading in the water distribution system. Correspondingly, chlorine and other hazardous chemicals used in the water treatment process could be susceptible to attack by explosives. This may drive utilities to consider other means of treatment, such as ultraviolet disinfection, ozonation and membrane technologies, though chlorine will continue to play a critical role as a residual disinfectant. Mobile treatment systems will also be increasingly used as either standby units in response to an attack, or to provide redundancy to limit the impact of an attack. Many communities already have redundant water systems, with alternative pipelines and tanks in case main sources are disrupted.

Heightened security measures will likely call for equipment manufacturers to modify existing product designs to make units more tamper proof or leak proof. Companies which export products sold to water and wastewater utilities - such as valves, pumps and fittings — may face increased scrutiny by the Bureau of Export Administration if such products can be used in the production of nuclear, biological or chemical weaponry.

Outlook: Slow but Steady GrowthThough the events of September 11 will stimulate demand for new types of technologies for use in the war against terrorism, there remains a need to invest in the nation's water and wastewater infrastructure to ensure continued delivery of services. The general sense of the WWEMA membership was that the industry would continue to move forth with these needed investments, though at a slower pace than recent past. Two factors contributing to this confidence were interest rate drops which make access to capital more affordable on the part of municipalities, and a robust housing market which drives demand for water and wastewater infrastructure.

At press time, an announcement came out that Texas voters had approved a state constitutional amendment authorizing the Texas Water Development Board to issue up to $2 billion in general obligation bonds to improve water and wastewater infrastructure. The Board will use the bond proceeds to issue low-interest loans to communities to expand or upgrade their facilities.

The Metropolitan Water District of Southern California announced that it will sell $200 million in water revenue bonds to finance a long-term, multibillion-dollar capital investment program to meet the region's water needs, including retrofitting its water treatment plants. WWEMA members expect communities to continue to take the necessary measures to ensure adequate provision of water and sewerage services.

On the housing side, Frank Raines, CEO of Fannie Mae, just announced at a U.S. Chamber of Commerce event that investment in housing is expected to double from $11 trillion today to $22 trillion by 2010. In the coming year, he predicted that original housing loans (excluding refinancing) will amount to $2.1 trillion in 2002 as compared to $1.9 trillion this year. Within the next decade, home ownership will increase from 68% to 71%. This is not surprising given the population growth trends. The world's population stood at one billion in 1830, two billion in 1930 and stands at six billion today. Estimates are we will double or come close to doubling the world's population in the next 50 to 90 years.

This population explosion will continue to drive demand for new housing, place further strains on the fresh water supply, and ensure a robust market for providers of water and wastewater technologies for years to come. The member companies of WWEMA stand ready to meet these challenges in partnership with our utility clients. WW/

About the author: Dawn Kristof is president of the Water and Wastewater Equipment Manufacturers Association. WWEMA member companies are among the world's leading producers of technology to the water and wastewater industry, employing 43,000 workers with collective sales nearing $6 billion (USD) worldwide.