Private Water Utilities: Trading Places for Long-Term Growth

Serving over 280 million people across 24 countries, the world’s largest private water utilities are estimated to have generated over $53 billion in annual revenue. Facing increasing populations and climate change, will the utility model look different in the future?

By Keith Hays

The private sector’s role in water utilities continues to be debated. In developing countries there is the promise of closing water infrastructure gaps, while in some mature markets governments are buying-back water systems.

At the same time, access to water supplies is increasingly threatened by climate change and inadequate public investment in infrastructure. These factors contribute to a challenging competitive environment, with the result being a significant shake-up in global private water utility rankings.

In 2014, the world’s 50 largest private water utilities served over 280 million people in 24 countries and generated over $53 billion in annual revenue on a net equity basis, according to a report recently released by Bluefield. Entitled Private Water Utilities: Global Rankings & Company Strategies, the report is based on Bluefield Research’s ongoing tracking of over 100 private water utilities.

France, the UK, USA, and Brazil host the largest private water utilities. Yet an increasing number of new players appear in Bluefield’s rankings of population served and water produced from regions where private participation in the water sector is on the rise including Southeast Asia, Latin America, and Africa.

Private participants are placing an increased emphasis on a diverse set of countries, with the US, Brazil, Chile, Italy, and Spain topping Bluefield’s 2015 market attractiveness ranking for private participation.

Between 2013 and 2014, a total of 11 companies moved up in the global top 35 consolidated rankings by revenues, reflecting changes in company strategies, M&A activity, and macroeconomic conditions.

Key ranking moves among the top five largest groups globally, on a revenue basis, were Suez surpassing Veolia for the top ranking and Thames Water overtaking American Water in the 4th position.

Brazil’s SABESP retained its 3rd place ranking and remains the top ranked private national water utility based on population served and volume of water produced annually.

Drivers for growth include a combination of M&A, rate increases and concession awards that reflect a unique time in which players seek incremental growth abroad while defending their positions in more mature home markets.

Choppy macroeconomic growth, shifting risk profiles in countries such as Brazil, along with improving track records of markets such as the Philippines, present a complex environment for new project selection in a hyper-local industry.

Portfolio investors’ success in finding assets, such as Japanese trading houses, will challenge international leaders like Veolia and Suez going forward as they adjust their business models.

Now is a unique time to take a second look at markets with lowering competitive barriers and more pressing needs for private investments.

Keith Hays is director of Bluefield’s Private Water Insight Service. For more information on Private Water Utilities: Global Rankings & Company, visit: www.bluefieldresearch.com