Water

Wall Street to roll out water futures as privatization spreads global thirst

Wall Street water futures privatization thirst

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October 27, 2020

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Published:

October 27, 2020

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Investors in US markets will soon be able to speculate on water prices, opening the way for an artificial jump in costs for households, farmers and other users. Climate change and the privatization of natural resources are fueling conflicts around the world, raising risks for us to become thirsty and exposed to infections. Can anyone own water or is it a public good?

Several states in Latin America are among the best historical examples of how not to manage water. Chile allowed the privatization of the resource already four decades ago and the population has been suffering the consequences until today. Amid the sale of waterworks systems and other utilities and as beverage producers are being allowed to run water resources, drinking water is becoming more precious in cities and areas in countries like Ecuador, Brazil and Guatemala.

Financial derivative allowing painful price hikes

As the spread between water demand and supply widens, mechanisms to control deliveries are springing up in the market, usually at the expense of the poorer groups. In line with the trend, stock and commodity market operators CME and Nasdaq announced last month that by the end of the year they would include futures contracts tied to a California water price index.

Buyers of the new futures won’t trade in physical water, but the possible price turbulence would easily spill over to expenses in real life

The indicator tracks the value according to contracts for immediate delivery, as water usage rights are already being traded in the wealthy and most populous US state, as in some other places. But the introduction of futures means investors will be able to make wagers on prices and that potential volatility would likely spill over to costs paid by ordinary people.

Indirect effect on distribution

Farms and local authorities won’t get water as private property. They can only earn, in theory, on price changes and use the funds to buy real water.

Price indexes, ownership of land with water resources, exploitation rights and other tools are increasing the barriers for equal distribution of water. It happens even in places where no one can legally own a lake or underground reserves. However, the real question is whether water, with related riverbeds and natural reservoirs, can be anyone’s property.


Futures holders will buy a commodities or electricity at a predetermined price when their contract expires. In the meantime, they can sell the securities to others. An investor buys the said financial contract if they believe the good’s price at settlement day will be higher than they are obligated to pay. There are also futures tied to stock market indices, bonds or other products. In this case, it is a California water price index and futures owners will cash in or lose the difference between the contract and the current market price at a set date.


Water doesn’t belong to suppliers, beverage producers

Paying for bottled, hot or tap water is not disputable. But the beverage maker, district heating plant or the waterworks didn’t produce the liquid – they only provide services like treatment, transport and distribution. By the way, the construction of long pipelines like the ones in California multiplies the price and so does desalination.

It’s obvious that privatization limits access to water for local inhabitants. Will poorer people become more thirsty and exposed to infections – and hungry as they won’t be able to water their fields and gardens?

Will bathing become a luxury? Watter suppliers in the United Kingdom, Canada, Australia and other developed countries have for many years now been urging users to cut shower time to four minutes, especially during hot waves.

It is in the interest of businesspeople to, for instance, take water from a place with lower incomes to a richer country, where they will earn more. Let’s consider whether they should be allowed to do it without the local community’s consent, even when they hold a concession or another contract.

Role of water in starting wars

Water conflicts are known to have occurred since the dawn of history, but now they are seen every day. Geopolitical analysts point to the drought factor in the leadup to wars like the one in Syria, which started a decade ago.

Throughout Africa and in India, local clashes and rising up against authorities and private suppliers have become common. Ethiopia prompted a major dispute with Egypt and Sudan when it decided in 2011 to build the Grand Ethiopian Renaissance Dam or GERD to house a 6.45 GW hydropower plant.

US President Donald Trump recently added fuel to the fire by saying Egypt wouldn’t be able to handle the water shortage and that it would eventually “blow up the dam.” However, the three African countries are just restarting negotiations after a three-month suspension.

Fires worsen California water crisis

Disputes aren’t rare even in the developed world. California is actually faced with a great risk of thirst, and recent wildfires, the largest in scope so far, will have consequences that are yet to be determined. Fire destroyed or damaged infrastructure and equipment as well as private property. Toxic substances reached the waterworks.

Twenty years from now, according to United Nations estimates, five billion people could suffer from water shortages. Mining, industry and agriculture worsen them, and so do corruption and the lack of capacity for wastewater treatment.

Access to water is basic human right in Slovenia

Slovenia declared access to drinking water a basic human right in 2016. Conversely, for people in Zrenjanin in Serbia it hasn’t been safe to drink water from the tap since at least 2004, even though a private company built a purification plant in the meantime. This year the facility got a new owner and it took over the responsibility for water supply again.

Aging equipment and rusty water pipes put the population in danger also in other areas.

Local authorities elsewhere in Serbia still haven’t sold their waterworks or sewage, but a third of water resources are in private hands. Producer of mineral water and beverages Knjaz Miloš switched ownership several times already. Since last year it is run by Mattoni and PepsiCo. It was the first company in its sector to be privatized in the country, in 2004.

Struggle for mountain rivers, springs

The Defend the Rivers of Stara Planina movement is the most active in the fight for water in Serbia. The group has for years been trying to stop diverting mountain rivers into pipelines for small hydropower plants and warning about the catastrophic impact on nature and that local population is losing access to water.

Almost all wastewater in Serbia goes directly into rivers and lakes

There are almost three thousand hydropower plant projects in Southeastern Europe. Many investors breach regulations and don’t allow an optimal flow for the preservation of river ecosystems, and an increasing number of cases are reaching regional and European institutions.

Conflicts have become more frequent between the directly affected population and environmentalists on the one side and private firms and municipal governments on the other. The Center for Environment and the Coalition for the Protection of Rivers of Bosnia and Herzegovina are among the most prominent organizations in the struggle in that country.

Green Home and Ozon in Montenegro, Pishtarët in Kosovo*, EcoAlbania in Albania and Eko-svest, Front 21/42 and the Green Front against Small Hydropower Plants in North Macedonia are also defending access to water and making efforts for the issues to reach headlines.

Hungary, Serbia and Romania will never forget the cyanide spill in 2000 near Baia Mare

Canadian companies developing gold mines in Bulgaria and Greece have met resistance over pollution, the takeover of water resources and the danger of chemical contamination.

Hungary, Serbia and Romania will never forget the cyanide spill into the Someș river which reached Tisza and the Danube. The dam at the chemicals pond at the gold mine near the city of Baia Mare burst in January 2000. The incident resulted in an unseen fish kill, the suspension of water supply for millions of inhabitants and a long-term land contamination. It endangered all plant and animal species dependent on the Tisza.

Long wait for wastewater treatment in Serbia

A third of households in Serbia aren’t connected to sewage, so they use cesspools. The practice is risky as it can lead to pollution of water wells and groundwater and health hazards. However, almost all wastewater is directed without treatment into rivers and lakes anyway. Nongovernmental organizations and locals often alarm the public about pollution with different toxic substances downstream from factories.

Belgrade still has literally no wastewater treatment. Every year the city releases wastewater into its rivers that would fit 60,000 Olympic-size swimming pools.

So who owns our water?

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