Suez Environnement

Last edited by tallenvt on February 9, 2010 - 8:41am

Profile editor:

Phil Mattera

Company Snapshot:

Suez Environnement is one of a handful of global companies that dominate the contentious business of providing drinking water and waste collection services on a for-profit basis. Operating in about 30 countries, it provides water services to some 76 million people and trash services to 51 million. Suez Environnement was previously a part of the French services conglomerate Suez but was spun off in 2008 when Suez merged with Gaz de France to form GDF Suez, which retains a 35 percent holding in Suez Environnement.

Ownership status:

Publicly traded

Number of employees worldwide:

65,000

Chief executive officer:

Jean-Louis Chaussade

Website:

http://www.suez-environnement.com/

Tel:

+33 1 58 18 50 00

Net Income:

US$751 million

Total revenue:

US$17.4 billion

Corporate accountability

Accountability overview:

One of Suez Environnement’s two core businesses—privatized drinking water distribution—is among the most controversial industries in the world. Many critics challenge the very idea that water should be distributed on a for-profit basis, while others point to the dubious track record of actual privatization deals. The following is a summary of the key water controversies involving Suez Environnement and its former parent companies Lyonnaise des Eaux, Suez Lyonnaise, and Suez.

UNITED STATES. Suez faced various controversies in connection with the 20-year contract that United Water Services, a joint venture of Suez Lyonnaise and United Water Resources, received in 1998 to operate the water system of Atlanta, the largest such contract that had been awarded in the United States. (In 1999 Suez Lyonnaise acquired the 67 percent of United Water Resources it did not already own.)

After a couple of years, residents and public officials in Atlanta were growing frustrated with the performance of United Water, which seriously miscalculated the cost of maintaining and operating the city’s system. Complaints mounted over delays in meter installations, low pressure and brown water in some parts of the city, and inefficient bill collection (Atlanta Journal Constitution, January 19, 2003). In 2003 the city dissolved the contract, and took back control of the system.

In 2006 prosecutors in a corruption trial of former Atlanta mayor Bill Campbell devoted much attention to a $12,000 trip to Paris by Campbell and his mistress in 1999 that was paid for by United Water. Campbell was convicted of tax evasion and spent more than two years in prison.

In 2003 Local 1-2 of the Utility Workers Union of America accused United Water of ordering its workers in New Rochelle, New York, to falsify their time sheets to justify a post-September 11 federal bioterrorism grant by making it seem as if they did security assessment work.

ARGENTINA. In a 1993 deal promoted by the World Bank, the Aguas Argentinas consortium led by Suez predecessor company Lyonnaise des Eaux was allowed to take over the water system of Buenos Aires. The operation initially prospered, but the currency crisis of the early 2000s squeezed the consortium’s finances, sparking rate increases and a deterioration in service. Aguas Argentinas reneged on a commitment to build a new sewage treatment plant and protested when it had difficulty getting permission for additional rate hikes. In 2006 the government of President Nestor Kirschner, charging the company with repeated non-compliance, rescinded the contract with Aguas Argentinas.

INDONESIA. During the 1990s Suez Lyonnaise and Britain’s Thames Water — along with companies linked to relatives and cronies of Indonesian dictator Suharto — won lucrative contracts to take over Jakarta’s water system. The Asian financial crisis and the forced resignation of Suharto compelled Suez to buy out its local partner, but the French company still faced protests over inadequate service to poor neighborhoods and water quality issues. In renegotiating its contract in 2001, it made sure to provide for regular rate increases. The water workers union kept up pressure to return the system to public control.

PHILIPPINES. In the late 1990s Maynilad Water Services, a joint venture of Suez Lyonnaise and the Filipino company Benpres Holdings, using financing from the European Investment Bank, won a contract to supply water and sewer services in the western half of Manila. When a currency crisis hit the country, the venture responded by seeking a series of rate increases. When this failed to solve its financial problems, Maynilad abandoned the concession in 2003 and sought compensation for its investment.

TURKEY. In 1996, as a condition of a World Bank loan, the Turkish city of Antalya awarded a contract to a subsidiary of Lyonnaise des Eaux. The company, which dismissed half the existing workforce, ended up in a dispute with municipal officials over rate increases. In 2002 the firm declared bankruptcy and abandoned the contract.

PUERTO RICO. In 2002 the Ondeo division of Suez Lyonnaise won a 10-year contract to operate the water system of Puerto Rico. After less than two years—during which time there was a high level of customer complaints over issues such as excessive billing and service interruptions—the company and the island’s government agreed to terminate the agreement, and the operation returned to public control.

BOLIVIA. In 2005, five years after terminating a water privatization contract with a subsidiary of U.S. engineering giant Bechtel, the Bolivian government took a similar step with regard to an affiliate of Suez Lyonnaise called Aguas del Illimani. The move followed protests and strikes against the company in the city of El Alto near the capital La Paz. Protesters charged that the company had failed to live up to commitments to extend service to tens of thousands of poor residents.

Environment and product safety:

In many of the situations described above, the performance problems exhibited by Suez and its affiliates and predecessor companies included damage to the environment from poor handling of sewage. These are not the only such cases. For example, during the ten years that Suez subsidiary United Water operated the water system of Milwaukee, billions of gallons of sewage were improperly released into Lake Michigan and other waterways. When the company’s contract expired in 2008, the city decided to dump United Water and go with another private operator.

Anti-competitive and consumer protection:

In November 2007 the Italian Competition Authority fined Suez Environnement 3 million euros for engaging in an anti-competitive arrangement relating to the water services industry with the Italian company ACEA.

Political influence (national and international):

Corruption. Suez Environnement’s former parents Suez and Lyonnaise des Eaux often found themselves at the center of scandals over bid-rigging and payoffs to public officials. For example, in 1994 a French magistrate caused a stir by publishing the Black Book of Corruption, which strongly implied that Lyonnaise des Eaux and its rival Compagnie Générale des Eaux (later Vivendi and then Veolia) were responsible for some 80 percent of corruption in France (The Guardian, July 2, 1994).

In 1995 Lyonnaise des Eaux executives were implicated in an investigation into questionable payments made to Grenoble Mayor Alain Carignon in connection with a water contract awarded to Lyonnaise subsidiary COGESE. Carignon, who also served as France’s communications minister, was convicted on corruption charges and sentenced to several years in prison. Several COGESE executives were also convicted, but the parent company’s chief executive, Jérôme Monod, escaped prosecution despite accusations that he was central to the corruption scheme. The Lyonnaise subsidiary was later stripped of the Grenoble contract and forced to refund fees it had received from the city.

History

Suez Environnement had its origins in Lyonnaise des Eaux et de l’Eclairage, a company established in 1880 to handle water and gas distribution for municipalities in France, where private sector management of such public services was the norm. It later diversified into electricity distribution. In the early 20th century it moved abroad, especially into French colonies in Africa.

In the 1980s it expanded into the United Kingdom, Spain and the United States, and it entered the media business by purchasing television channels and cable networks in France. In 1990 it merged with the construction firm Dumez to become Lyonnaise des Eaux-Dumez.

In 1997 Lyonnaise des Eaux-Dumez merged with Compagnie de Suez—formed in 1858 to build and manage the Suez Canal and later became a major force in finance and then utilities—thus creating Suez Lyonnaise des Eaux. Like its rival Vivendi (later Veolia Environnement), the company positioned itself to take advantage of the worldwide trend toward privatization of municipal water systems. It won contracts from cities including Buenos Aires, Manila, Jakarta and Casablanca.

Viewing the United States as a major new frontier, Suez Lyonnaise purchased water services company United Water Resources and water treatment companies Calgon and Nalco Chemical (which were merged and later divested). In 2001 the company, which shortened its name to Suez, combined its water operations into a single division called ONDEO. The following year the division, including waste management operations, was renamed Suez Environnement. Shortly thereafter, Suez subsidiary United Water purchased rival North American water services company U.S. Water LLC.

In 2003 Suez embarked on a major restructuring and debt-reduction effort that included a decision to stop expanding its water management activities in developing countries such as Vietnam. The company decided to focus more on investments in Europe and North America, though in 2003 it lost an important water treatment contract in Halifax, Nova Scotia.

In 2006 the Suez parent company announced plans to merge with Gaz de France. To receive regulatory approval for the deal, the companies had to spin off most of Suez Environnement. The merger, which took effect in July 2008, resulted in the creation of a massive energy company called GDF Suez, which retained a 35.5 percent holding in Suez Environnement, whose other shares began trading on stock exchanges in Paris and Brussels.

In 2009 Suez Environnement took full control of Aguas de Barcelona (AGBAR), the leading water services company in Spain.

Financial information

Stock ticker symbol:

SEV (Paris and Brussels)

Fiscal year:

2008

Fiscal year:

2008

Major lines of business/segments:

Water Europe (31 percent of 2008 revenue) – Operating mainly through its Lyonnaise des Eaux and AGBAR divisions, Suez Environnement provides water treatment and distribution services in countries such as France (where Lyonnaise serves 19 percent of the population), Spain, Italy, Germany and Hungary.

Waste Europe (46 percent) – Operating through subsidiaries such as SITA, Suez Environnement provides municipal waste collection and recycling services in countries such as France, Britain, Sweden, Finland, Czech Republic and Poland.

International (22 percent) – Suez Environnement provides water and waste services in numerous countries outside Europe, including the United States (through United Water, which has operations in 26 states, including 240 municipal water systems), Mexico, Chile, Saudi Arabia, China, Australia and Indonesia. Its Degrémont subsidiary builds, designs and maintains water treatment plants in 70 countries. Its Ondeo Industrial Solutions unit provides water and wastewater services for a variety of industries.

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