<<back
THE fifth estate: Dead in the Water
California> Printer Version
Broadcast
March 31, 2004
CALIFORNIA: ENRON AND THE DOT COM
BUBBLE THAT BURST
|
|
The San Joaquin Valley, located in the central valley of
California, is one of the world’s most productive agricultural regions.
This prosperous farmland is only possible because of irrigation. The clear
spring water from the Sierra Nevada Mountains to the east is controlled
by dams, and diverted through canals so that every drop of water is used
to produce things like almonds, grapes, alfalfa, cotton.
From the northern part of the state, where there is no shortage of water,
manmade waterways bring more of the essential resource to the crops of
the San Joaquin Valley and further south to Los Angeles to feed the needs
of the bustling city.
ENRON IN THE WATER BUSINESS
In 1998, Enron entered the global water business. Enron had been an aggressive
energy trader since 1985, and at its peak was earning more than a $100
billion a year. They got into the water business by purchasing a successful
British Water Company called Wessex Water for over $2 billion dollars.
By taking over Wessex, they purchased the employees and the know-how to
compete on the international market.
|
|
The marketing idea was simple: to create a cyber market, where people could buy and sell water, and make money off prospects. Instead of investing money in IBM or Nortel, people could invest in water that was sitting under a ranch in California. The web site was called www.water2water.com.
MADERA RANCH
But how internet water trading was going to actually work was complicated
and controversial. It involved buying the Madera Ranch- a 52-square kilometre
property in the heart of the San Joaquin Valley. The Madera Ranch sat
atop an aquifer that could absorb up to 480 billion litres of water, enough
water to supply 1.6 million people for a year. Azurix was going to sell
storage space under the ranch. A water bank.
The ranch is close to the Mendota Pool, a body of water that is a junction of rivers, canals, and aqueducts. During months or years when there was a surplus of water, clients could ask Azurix to pump their water out of the Mendota Pool and up a canal to percolate under their ranch. During drought years, when water was needed by farmers, or cities, Azurix would send the commodity back to the pool.
From here, a group of farmers in the region could use that
water. And they wouldn’t have to get their water from the northern
part of the state, something they had been doing for decades. This government-allocated
water was now unaccounted for and could be sold to the highest bidder.
|
|
Chris Wasden was a managing director
at Azurix and the brain behind the water trading web site: And
so in wet years what we would do is we would sell storage to farmers.
So we’d go to a farmer and say okay, it's a wet year this year,
you’re getting more water than you need and than you normally plan
on. We will sell you storage in our aquifer for periods of time. If you
want one year storage, two year storage, three year storage. And then
they would then pay us a fee for that storage. And so the way that water
trading works is that you’re really not trading the actual molecule
of water that you own with someone else’s water molecule. So I have
this amount of water, and now let’s swap it in such a way that I
get access to water when I need it but it’s not the actual water
that’s going there, it’s an allocation of water.
|
|
Denis Prosperi lives next door to the Madera Ranch. He understood the Azurix plan.
Denis Prosperi: Basically a gentleman could be sitting in his office in Philadelphia, wake up the morning, decide he wants to buy a couple thousand acres of water in the Madera water bank and he could speculate. If there’s a dry year the price of water went up and you’d be able to park it. It would be like the Chicago Board of Trade on water.
Prosperi is an almond and grape grower. He draws his water from the same aquifer that Azurix was going to turn into a bank. He made it his business to prevent Azurix from taking his water. For Prosperi, not only was it a fight for his precious resource, but it was a question of economics.
Denis Prosperi: Without water, this is a desert. We can’t function without water. Without water, there would be no farming in the San Joaquin Valley…Water is as valuable if not more valuable than land.His message was that Azurix planned to export the community’s water. He mounted a successful public relations campaign against Azurix and organized the local farmers. He got the attention of the local media and they reported on his cause. In the end, he became the obstacle for Azurix. And finally Azurix went home.
At the end of the day, Azurix could not convince the locals
about the benefits of the water bank. For them, it was taking away their
livelihood.
|
|
Denis Prosperi: I’m a capitalist in the truest sense. I farm almonds and wine grapes which are two of the commodities that have no subsidies. We have booms and we have busts. We’re just coming out of one of the worst busts that the grape business has seen in 50 years. The almond business is booming. Five years ago it was down. I believe in free enterprise. But I also believe that if the price of almonds goes to $2.50 a pound, it’s not catastrophic if people who can’t afford them don’t want to eat them. If the price of wine goes up a dollar a bottle, it’s not going to make much difference to the world economy. But when you’re talking about water, you’re talking about the lifeblood of life itself.
For Chris Wasden, his time at Azurix taught him that
the water business is not a good investment.
Chris Wasden: I
had an executive approach me the other day that said that he had the backing
from a very wealthy family in New York…that had just read a World
Bank report on the situation of the water industry globally. And talked
about what will happen by 2015 what needs to happen with regards to water.
Because we have this looming crisis of water. And he says you know these
people they’re really smart investors and they see this and think
water’s the place to be. Well you’ve worked for a big water
company you’ve looked at this stuff all over the world and what
do you think? I said I wouldn’t touch it. Nobody wants to let anybody
make money on water.
the fifth estate: DEAD
IN THE WATER
Broadcast on the
fifth estate Wednesday, March 31 2004
on CBC-TV at 8PM
Water Stats - France
- North America - Argentina
California - South Africa - The
World Bank
Interviews - Resources