Multi-utility synergy benefit to environment

Pamela Wolfe, Managing Editor

Vivendi Environnement will remain safely in French control following Vivendi Universal's decision to sell one half of its shares in the world's largest water company to a group of French investors for about US$ 1.85 billion (¤1.86 billion). Consequently, the move should even strengthen Vivendi Environnement's future prospects as a multi-utility that provides electricity, water and waste management to municipal and industrial clients worldwide. But how will this multi-utility benefit from the synergies created by integrating energy, water and waste services? Or how can this multi-utility improve the environment through its global resources and technology?

Electricité de France (EdF), the giant state-owned energy company, and a group of French banks and institutions agreed to purchase approximately 20% of Vivendi Environnement in late November. This energy company is one of Europe's biggest companies, providing electricity to the French and international markets. Vivendi Environnement's international activities should also further strengthen the global expansion of EdF into developing countries, where the demand for electricity is rising three times the rate in Europe and promises higher rates of return.

Vivendi Universal's former chairman Jean-Marie Messier transformed the water company, Générale des Eaux. established 149 years ago in Paris, into an international media and entertainment conglomerate. Having incurred some US$ 19 billion in debt, Vivendi Universal's current chairman Jean-René Fourtou decided to sell half of its 40% share of Vivendi Environnement. Fortunately for French interests, local and national political ties formed by the solid and stable Générale des Eaux for many years helped rally investors to form a protective group of core shareholders to prevent the company from being taken over by foreign investors.

Once free from Vivendi Universal, Vivendi Environnement may actually benefit by separating from its parent's troubled financial situation and widely divergent agenda of music, publishing, TV and film, telecoms and internet, according to Industry Analyst Matthew Barker of Frost & Sullivan. In contrast to its parent company, Vivendi Environment posted a healthy 4.5% rise in its nine-month turnover to ¤22.162 billion and forecasted sustained growth for the rest of 2002. Focusing on the core business of water and waste, the company is in a better position to compete with two other giant multi-utilities - RWE of Germany and Suez of France.

However, are multi-utilities overrated? Do multi-utilities offer any more opportunities for cost-reducing synergies than other strategically diversified companies? The multi-utility concept is being promoted as a particularly advantageous strategy since it can reduce administrative and operational costs in addition to other benefits. However this applies more often in the case of a multi-utility that would operate at least two utilities - water and electricity, for example - in one municipality. The likelihood of a foreign-based company operating the water, electricity and waste services of a municipality in another country seems unlikely for political reasons. More likely, municipal and industrial clients certainly can benefit significantly from the strong financial and technological resources of a multi-utility with worldwide experience.

RWE, Germany's largest water and electricity provider, became the third largest provider of water and wastewater services worldwide when it merged with the UK-based Thames Water. Currently, RWE is acquiring American Water Works (AWW), the largest water supplier in the United States through Thames Water. RWE sees cross-utility value potential from pooling functions, sharing sales channels, customer-focused product bundles and a common electronic marketplace.

More interestingly, multi-utilities could draw from their vast pool of resources to research and develop renewable energy resources to make innovative and bold changes in the industry. Enormous resources could be saved by strategically linking energy production and wastewater treatment. For example, farmers with livestock in Germany not only produce food; they produce energy from manure alone. The direct treatment of human manure combined with biowaste or gas could save fossil energy and contribute to global sustainability, according to Christine Nicklas, Dipl.-Ing of the Centre for Technology Assessment in Stuttgart during the 12th Stockholm Water Symposium held last August. As a result, multi-utilities could use their potential synergies not only to just reduce costs, but also to make the energy, water and waste industries environmentally sustainable.