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Water and Wastewater Treatment Export Market Plan
Chapter 1. Overview of the Global Market for Water and Wastewater Technologies
Chapter 1 - Overview of the Global Market for Water and Wastewater Technologies

Access to safe drinking water and contamination of surface water bodies is a major problem in many areas of the globe. In the year 2000, approximately 1.1 billion people (18 percent of the world’s population) lacked access to safe drinking water, and 2.4 billion (40 percent of the total population) lacked adequate sanitation. Most of these people live in developing countries, predominantly in rural areas. Over one-third of the urban water supplies in developing countries operate only intermittently, while roughly 40 percent of the drinking water supply is lost due to leakage in the distribution systems.

At the same time, countries have come to recognize that an adequate supply of clean water and effective wastewater treatment is essential for sustainable development. Governments and organizations around the world are investing substantial sums in water and wastewater improvements. These expenditures create real opportunities for U.S. companies to export water and wastewater equipment technology.

In many parts of the world, wastewater receives no treatment before being discharged into water bodies. The resulting pollution of the receiving waters threatens the human and animal populations that rely on these streams, lakes, and rivers as a source of drinking water or habitat.

Today, it is estimated that only 66 percent of wastewater is treated in Europe, 35 percent in Asia, 14 percent in Latin America, and almost none in Africa. Many important water bodies throughout the world are in violation of local water quality standards. More than 35 percent of drinking water supplies in Africa are contaminated in violation of national health standards, 21 percent in Asia, and 18 percent in Latin America and the Caribbean.

The principal constraints to the development of the water supply and sanitation sector are funding limitations, inadequate cost recovery, and inadequate operation and maintenance. As water sources become contaminated,increasingly effective and costly treatment methods are required. The lack of access to water for drinking and industrial uses, as well as to wastewater treatment, is thus a major limitation to sustainable development.

The incentives for improving water and wastewater infrastructure in developed countries are primarily regulatory, particularly in Western Europe, where countries are struggling to comply with the European Union’s increasingly stringent regulations for drinking water quality and wastewater treatment standards. In developing countries, the driver is public health: 2.2 million people, most of them children, die there every year from diseases associated with the lack of safe drinking water, inadequate sanitation, or poor hygiene.

As a result, the global water market has been growing rapidly over the last decade and constitutes well over a third of the global environmental market. This report is designed to serve as a guide for U.S. exporters of water and wastewater technologies and services and focuses on two segments of the water market:
1. Water Equipment and Chemicals: Equipment, supplies, and maintenance for the delivery and treatment of water and wastewater. About 2,800 private U.S. companies supply filters, pumps, valves, pipes, instruments, and other equipment, as well as chemical and biological products. However, only 800 of them can be regarded as potential exporters, while almost 300 are actually exporting their products.
2. Consulting and Engineering Services: Engineering, consulting, design, management, operation, and maintenance, etc. There are several hundred water engineering and consulting firms in the United States, many of which offer their services internationally.

This report does not address two other segments of the water market - water utilities and wastewater treatment works - for two reasons. First, municipal water and wastewater utilities account for 81 percent and 95 percent of their respective market segments in the United States and are not involved in any exporting activities. The remaining newly privatized utilities are mostly owned by large French and British water companies. Second, U.S. private utility companies cannot compete for water utility markets overseas. The poor performance of Azurix in a water and wastewater concession in Buenos Aires, Argentina is a recent example of this phenomenon.
Figure 1.1 Global Market Size: Water and Wastewater Equipment and Chemicals
1996-2002 (billions of dollars)

By concentrating on the market segments where U.S. industry is most competitive, this report aims to engage more water and wastewater technology firms in exporting their products overseas.

Market Size and Characteristics

According to Environmental Business International, the global market for water and wastewater equipment and chemicals was about $42 billion in 1998, which represents a 5 percent growth over the 1996 figure. The market is expected to grow at a 4 percent rate over the next two years and reach almost $47.3 billion by 2002. Water-related services also represent a significant share of the $27.2 billion (1998) consulting and engineering market.

The United States, Western Europe, and Japan represent over 80 percent of the total market size, but those are mature markets with an average growth of 3 to 4 percent. At the same time, the economic recovery of emerging markets in Southeast Asia and Latin America from the 1997 crisis, rapid expansion of the Chinese economy, and broadening demand in the Middle East promise a return to the 10 to 20 percent pre-1997 market growth in the developing world.
Figure 1.2 Share of the Global Market for Water and Wastewater Equipment, 1998

With assistance from international donors, public sector agencies in developing countries, particularly in Asia, have launched multi-million-dollar spending programs in water supply and sanitation, and are encouraging private sector investments. The proportion of industrialized countries’ development assistance devoted to water supply and sanitation increased steadily from 1986 to 1996, rising from 3.4 percent to 6.6 percent of total assistance. In terms of cash, bilateral commitments from industrialized countries for assistance to developing countries in this sector rose from $1 billion in 1986 to $2.9 billion in 1996 (these numbers do not include France). In absolute terms, Germany’s and Japan’s donor funding was particularly large: Germany spent nearly $3.4 billion, while Japan invested $9.5 billion.

The Market in Industrialized Countries

The water and wastewater equipment markets in industrialized countries, including the United States, comprise roughly 80 percent of the global market, or approximately $34 billion a year. The U.S. market for water and wastewater equipment accounts for about half of this amount ($16.6 billion in 1999). However, these markets are growing slowly, and the demand is mostly satisfied by existing suppliers.

In Japan, opportunities exist mainly in wastewater treatment (this market segment exceeds $6 billion annually), due to water pollution control regulations, which were tightened in 1996-1997. This regulatory pressure has raised demand for both upgrading municipal sewage treatment facilities and industrial effluent treatment equipment (particularly for toxic chemicals). A need also exists for “closed” systems for recycling industrial wastewater.

Canada’s market is well penetrated by U.S. water and wastewater equipment suppliers. Despite very slow market growth, some opportunities still exist in municipal wastewater treatment. Many Canadian municipalities have aging sewerage infrastructure and even discharge untreated sewage into the waterways.

The EU market for water and wastewater treatment equipment is driven primarily by the need to comply with the EU Urban Wastewater Treatment Directive. In addition, large multinational food and beverage, and chemical companies are installing effluent treatment works at many of their European sites in response to local environmental regulations and the desire to enhance their public image.

The biggest market opportunities in the European Union are for biological treatment equipment for both aerobic and anaerobic treatment systems. There is also significant demand for separation equipment for new municipal wastewater treatment plants. The market for high purification (filtration, membrane) systems for industrial and other commercial applications is also expected to grow quickly in Western Europe: from about $300 million in 1999 to over $400 million in 2006. Overall, the market for newer, advanced technologies is expanding at the expense of traditional equipment.

In France, where 9 percent of the population (mostly in rural areas) still does not have access to centralized wastewater treatment systems, wastewater treatment technologies represent the largest segment of the water market. In order to comply with EU regulations, all French towns must install secondary treatment by 2006. In environmentally sensitive areas, tertiary treatment is required in all communities with at least 10,000 residents. However, opportunities for U.S. firms are very limited in France: Vivendi (formerly Compagnie Générale des Eaux) and ONDEO (formerly Suez Lyonnaise des Eaux) dominate the French market, while their closest competitors hardly reach a 1 percent market share.

The British market for water and wastewater equipment is among the largest and fastest growing in Europe, and is relatively open to foreign players. Recently privatized water utilities and major industrial users (for example, power and chemical companies) account for more than 60 percent of the market.

A major market opportunity in Germany is the rehabilitation and upgrading of the water and wastewater infrastructure. The cost of constructing new sewerage systems in the New Lands (formerly East Germany) is about $50 billion, plus another $15 billion for water and wastewater system modernization projects in the New Lands and $13 billion in the Old Lands.

Countries in southern Europe (Italy, Spain, Portugal, and Greece) represent even greater opportunities, although mostly for EU companies. In Italy, over 60 percent of the population does not have access to adequate sewage treatment, and 30 percent of the wastewater is discharged untreated. An overall investment of about $62 billion over the next ten years will be needed to bring Italy’s water and wastewater infrastructure up to EU standards. Spain has a similar situation, with 78 percent of the major cities not meeting the European Union’s water pollution control directives, and just over 40 percent of the population having access to adequate drinking water treatment systems. Over the next five years, Spanish public and private companies will invest about $30 billion in water purification equipment and sewage treatment systems.

The Organization for Economic Cooperation and Development (OECD) countries of Central Europe (Poland, Hungary, and the Czech Republic) and other Central and East European nations are also making efforts to improve their environmental performance in view of their planned accession to the European Union. The market is stimulated by the implementation of the European Union’s drinking water quality and wastewater management standards but is also restricted by limited availability of funds and administrative failings. As the Central European markets are being restructured to involve more private participation, the main opportunities are in industrial wastewater treatment, as well as rehabilitation of the antiquated water supply and municipal wastewater treatment systems. Optimistic assessments valued this market at as high as $4 billion in 1999, with substantial short term growth prospects, particularly due to the large lending program of the European Investment Bank. For example, Hungary’s water and wastewater market is currently estimated at $200–250 million a year and is growing by 5 to 8 percent annually. However, Central and East European water markets are likely to be dominated by EU firms.

The Market in Developing Countries

Many developing countries are unable to meet their population’s need for safe drinking water and adequate sanitation. As the populations and economies of these countries grow, so does the demand for water. The development of environmental regulations also contributes to the need for water and wastewater technology and monitoring. This section discusses the current conditions in developing regions of the world.

Table 1.1 shows average annual investments in water supply and municipal wastewater treatment in Africa, Asia, and Latin America and the Caribbean from 1990 to 2000. The table demonstrates that investments in water supply are significantly higher than those in sanitation, which contributes to the large deficit of adequate sanitation access in the developing world. It also shows that most of the investments come from domestic sources rather than international donors.

Asia. Despite the financial crisis in 1997 and 1998, the Asian water market is stronger than ever. In fact, the economic turmoil made some Asian governments seek to increase the efficiency of the water and sewage infrastructure by attracting private capital. The potential demand is enormous: 80 percent of the global population without access to improved sanitation and almost two-thirds without access to improved water supply live in Asia. However, most of this demand is concentrated in the markets that are in the early stages of development: Southeast Asia, China, and India. Many of these countries have recently promulgated new environmental regulations that are likely to give a boost to the industrial wastewater treatment market as well. Particularly large investments are made in water supply, a significant share of which comes from bilateral and multilateral lending sources. The market in China alone exceeds $1 billion per year, with annual growth approaching 15 percent.

In more developed Asian economies, the market is either saturated (as in Japan) or growing very slowly (for example, in South Korea, Taiwan, and Singapore). At the same time, these more mature markets offer opportunities for sophisticated water and wastewater treatment technologies produced in the United States.

Middle East/North Africa. Water is not only an environmental issue, it’s also a critical economic and political issue in the Middle East. Middle Eastern countries struggle to alleviate water shortages for drinking and irrigation through desalination and wastewater reuse. Water supply and wastewater treatment systems, especially in rural areas, require upgrading and expansion. The desalination technologies market is projected to grow particularly fast, from about $1 billion in 1999 to $2.5 billion in 2006.

While oil-rich countries of the region (Saudi Arabia and the small states of the Persian Gulf) are able to fund these projects themselves, others (Egypt, Jordan) rely heavily on foreign donor assistance. Opportunities for U.S. firms exist mainly in countries that have good political relations with the United States: Saudi Arabia, Egypt, and Jordan. Egypt is the largest recipient of U.S. bilateral assistance in the world, with the U.S. Agency for International Development (USAID) having spent billions of dollars on this country’s water and wastewater infrastructure.

Latin America. Latin America presents abundant market opportunities in water and wastewater treatment - both in contract operations of utilities (most of which are being privatized), as well as subsequent technology investments. Although drinking water coverage is relatively high in Latin America (85 percent), growing urban populations and obsolete, inefficient infrastructure create a demand for investments in water supply. Most drinking water projects are publicly financed, with additional monies coming from the World Bank, the Inter-American Development Bank (IDB), and, increasingly, Japanese bilateral funding. At the same time, water utility privatization has been a major market driver in Chile, Argentina, Mexico, Colombia, and, most recently, Brazil. In municipal wastewater treatment, private sector participation has not yet materialized in most Latin American countries (except Argentina and Chile), with most funds coming from multilateral and bilateral lenders.

According to Environmental Business International, opportunities focus on about 550 municipal projects across the continent, amounting to over $40 billion of investment. Opportunities in industrial wastewater treatment are much fewer, since governments in Latin America are unwilling or unable to enforce environmental regulations on industrial producers.
Table 1.1. Average Annual Investments in Water Supply and Sanitation in Developing Countries, 1990–2000 (billions of U.S. dollars)
Africa
Asia
Latin America
Total
Water Supply
4.09
6.06
2.41
12.56
National Investment
1.21
3.82
1.86
6.89
External Support
2.88
2.24
0.55
5.67
Sanitation
0.54
1.10
1.50
3.14
National Investment
0.26
0.95
1.11
2.32
External Support
0.28
0.15
0.39
0.82
Total
4.63
7.16
3.91
15.70
Source: World Health Organization, 2000.


Africa. Africa has the lowest water supply coverage of any region, with only 62 percent of the population having access to improved water supply (the situation is much worse in rural areas). Sanitation coverage in Africa is also poor (60 percent), with only Asia having lower coverage levels. Almost all African countries depend entirely on donor assistance to help them solve these problems. Most of this aid comes from multilateral lenders and donors (the World Bank, the African Development Bank, and the United Nations Development Program), as well as French and British bilateral development agencies (for their former colonies). The traditional domination of French and British companies, in addition to the generally unfavorable business climate, have deterred U.S. companies from exploring water-related opportunities in Sub-Saharan Africa.

The Republic of South Africa is the biggest water market in Sub-Saharan Africa. The greatest market potential lies in the efforts to provide potable water and sanitation in rural and poorer urban areas that still have no access to these services. The annual market for water and wastewater equipment was about $100 million in 1996, and has been growing at 12 to 15 percent per year.

Newly Independent States. The states of the former Soviet Union offer potentially enormous opportunities in the water sector, particularly in municipal and industrial wastewater treatment. However, local funding resources are extremely limited, and the uncertainties of the business climate hamper market expansion beyond donor-funded projects. Large water and wastewater infrastructure projects funded by multilateral development banks in Russia, Ukraine, the Caucasus states, and Central Asia are essentially the only source of water and wastewater equipment supply opportunities in this region.

Trends Affecting the Water and Wastewater Industry

The global water industry has entered a period of revolutionary changes. Water prices are being adjusted to reflect quality, quantity, and specific end-use values. Market pricing, combined with the growing privatization of water and wastewater utilities, generates private capital to create and maintain rational water markets. The market is further enhanced by the more consistent enforcement of environmental regulations, worldwide consolidation of the water industry, and proliferation of e-business.

Privatization

An important trend in recent years has been the move toward privatization of water and wastewater infrastructure throughout the world. Governments, even in developed countries, are faced with the stark reality of aging and inadequate infrastructure, unable to effectively deliver services to their rapidly growing populations. The economic reality associated with these problems is overwhelming and leads governments to turn to the private sector for assistance.

Among OECD countries, the United Kingdom represents the most vivid example, with completely privatized water and wastewater operations in England and Wales. In developing countries, Latin America and East Asia have been on the forefront of the water utility privatization trend. The increased role of the private sector leads to greater levels of investment in infrastructure and service improvements, thereby offering enhanced opportunities for water and wastewater equipment suppliers.

Compared to other infrastructure sectors such as telecommunications, power, and transportation, the water sector is viewed as more difficult to privatize because water supply and sanitation are considered by many to be social services. Additionally, because regulatory and pricing mechanisms for water and wastewater are less well-established than for other infrastructure industries, many investors view the water sector as having relatively higher risks and lower profit margins than other infrastructure sectors.

Perhaps because consumers willingly pay for water, but are more reluctant to pay for the indirect benefits of sewage treatment, private participation in developing countries has been far more common in water than in wastewater. In Latin America, however, increasing wealth has led to an extension of concessions to the sewerage subsector.

Several public-private mechanisms have evolved to provide water and wastewater services. These are: (1) management contract, (2) lease, (3) concession, (4) buildoperate-transfer (BOT) and build-own-operate (BOO) schemes, and (5) asset sale. Under contract operations, a company is hired to operate and maintain the entire utility or a portion of the utility functions for a specified term; the company does not finance or develop new facilities. Under a lease arrangement, the private contractor typically finances working capital for smaller equipment and infrastructure, along with operating, maintaining, and managing the utility facilities. A concession typically includes the financing of most infrastructure and the concessionaire receives the system revenues as compensation. BOT and BOO schemes are typically concessions that include the private development of new water or wastewater facilities. Asset sales, or sale of shares, formally transfer the utility into the private sector. Table 1.2 illustrates the different privatization scenarios and the roles of the public and private sectors under each arrangement.
Table 1.2. Types of Privatization Arrangements in the Water Industry
Management Contracts
Lease Contracts
BOT or BOO
Full Concession
Asset Sale
Ownershippublicpublicpublicpublicprivate
Investmentpublicpublicprivateprivateprivate
Operationprivateprivateprivateprivateprivate
Tariff Collectionpublic/privatepublic/privatepublicprivateprivate
Source: Silva et al., “Private Participation in the Water and Sewerage Sector—Recent Trends,” Public Policy for the Private Sector, The World Bank Group, 1998.

About 50 percent of the contracts awarded in the last decade have been concession contracts. Countries seem to favor concessions over other forms of private involvement because such arrangements allow them to take advantage of the efficiencies offered by private operators while maintaining control over the assets. Outright divestiture of water and wastewater assets is relatively rare.

Although the numbers of international companies investing in water and wastewater projects in developing countries is growing, to date only a handful of companies have sponsored most of the projects. French water companies ONDEO, Vivendi, and SAUR International, along with Spain’s Aguas de Barcelona and the British firm Thames Water, accounted for 58 of the 79 projects tracked by the PPI Database from 1990 to 1997. Only Vivendi and ONDEO operate in every region of the world. These international companies often team up with local companies, many of which were never involved in the water and wastewater business before, to form consortia for bidding on concessions.

Consolidation and Globalization

The shape of the global water and wastewater industry has changed considerably in the last decade. Widespread consolidation among manufacturing and service companies, as well as utilities, has led to the emergence of giants in the industry. Consolidation in the name of efficiency and globalization has brought together utilities and manufacturers across the globe. These newly consolidated companies have the ability to provide full package solutions to their customers.

The globalization and consolidation trends dominating water markets around the world have had a major impact on the U.S. water industry in recent years. French firm Vivendi’s purchase of U.S. Filter for $6.2 billion in 1998 has created a company (whose $3.1 billion U.S. arm is now called Vivendi Water) with global revenues of about $20 billion in equipment and chemicals, utilities, concessions, and services. Vivendi Water now incorporates over 100 companies previously acquired by U.S. Filter. In 1999, the French firm ONDEO acquired Nalco Chemical and United Water Resources to increase its worldwide water and wastewater revenues to $6.3 billion. These acquisitions have further shrunk the U.S. industry’s global market share, but also opened more markets for companies with a large base of U.S. employment, if not ownership.

In another key development, Azurix Corporation, after becoming a publicly traded company in 1999, acquired Britain’s Wessex Water (water technology, engineering, and services) and Germany’s Lurgi Bamag GmbH (water process engineering), making it the largest American firm in the international water market. However, Azurix has recently failed financially in its large water concession in Argentina, and has not been performing well in its other engagements in developing countries. As a result, Azurix was re-acquired by its former parent company, Enron Corporation, in March 2001.

U.S. water treatment equipment manufacturing companies are also consolidating. With Vivendi Water almost beyond reach of its U.S. competitors, Ionics ($351 million) is firmly in second place, followed by Osmonics ($177 million), which doubled in size between 1993 and 1998, and Waterlink ($135 million), which grew 440 percent between 1995 and 1998. Consolidation is also evident in the water chemicals market, with Hercules, Inc., becoming the world’s largest supplier of specialty chemicals for water treatment programs through a number of acquisitions. At the same time, there is practically no short-term growth envisioned in the U.S. water equipment and chemicals manufacturing markets outside Vivendi Water. This demonstrates that equipment-only suppliers are bound to lose market share to integrated equipment and services providers.

With the growing privatization of utilities, the line separating water and wastewater utilities from companies selling products and services is increasingly blurred. Large companies such as Vivendi that own and run utility operations are also producing the equipment used as part of the investment, thus putting the end-user and the supplier under the same roof. A former U.S. Filter executive noted: “Virtually none of Vivendi’s business was equipment sales and virtually all of ours was, now we have their operations and services to offer and they have our equipment and technology.” Large companies also have the added benefit of increased financial resources and stability to enable them to provide financing assistance to their customers. As a result of economies of scale and a market that is difficult to break into, smaller water and wastewater companies are left at a disadvantage in the global market when competing against these large corporations.

The globalization in the water and wastewater industry has progressed to such an extent that it is now difficult to define what constitutes an American company. For example, successful water and wastewater delivery companies, i.e., those producing pipes, pumps, and filters, build manufacturing plants abroad. Identifying whether a pipe made abroad for an American-owned company should be considered an American export is not a simple matter. As a result, it is particularly difficult to identify the competitive advantage of American water and wastewater companies. In many ways, geographic ties are no longer relevant in a world of multinational partnerships.

Market Pricing

Global population growth and urbanization, along with regional water shortages, are increasing the demand for clean water at an unprecedented rate. These factors, along with accelerating privatization of water and wastewater utilities, has led to the growing recognition that water is an economic good, and that in order to deliver reliable, adequate services to a wide range and growing number of customers, full-cost pricing mechanisms need to be implemented.

For years, public utilities have relied on subsidies in addition to user fees to cover the costs of water supply, particularly in rural, agricultural, and low-income areas. Governments are starting to realize that the use of subsidies results in overall inefficiencies and lack of resources for improvements. This realization has started the trend toward the use of full-cost pricing, where the total cost of service delivery is passed on to the consumer, thereby promoting water conservation and increasing the financial and physical health of the utility.

With growing privatization of utilities, market pricing models that capture the cost of service delivery will continue to expand. Privatized utilities must be able to provide a service and remain financially sound. Some critics contend that full-cost pricing of water will put basic water services beyond the reach of many poorer users, and that providers of basic services should not profit from user fees. This has made privatization of water services and full-cost pricing controversial. In the long run, utilities that are able to fully capture the costs associated with the provision of their services are better able to maintain their facilities, invest in and maintain equipment, and service their customers.

Financing Sources

Financing is critical to the success of water and wastewater projects in emerging markets. Governments faced with the challenge of meeting the demand for water and sewerage infrastructure growth and improvement are increasingly turning to private sources to finance these capital-intensive projects. New players include commercial banks and funds, as well as large water and wastewater firms themselves. One new trend in water and wastewater financing is the stock market. More and more companies have gone public, relinquishing private ownership to investors in exchange for needed capital for project financing.

Many utilities also are requesting extended payment terms as a precondition to placing an order for new technology and equipment. At present, few companies can afford to take on their customer’s credit risk by providing sufficient funding for extended payment plans, but leading industry experts contend that exporting companies must be able to provide extended payment terms to initially win orders and build long-term relationships with the clients.

Finding a financing source is no less important than ensuring project finance ability. Project finance ability means the lender gets its money back - with a profit and within a reasonable time frame - and requires the existence of a cost-recovery mechanism. If a country does not have the political will to impose and collect reasonable user fees, the project is unlikely to attract private capital sources.

Regulatory Development

National governments worldwide are increasing the stringency of both ambient and drinking water quality standards to combat the deterioration of their water resources and halt the spread of pollution. Among developed countries, this trend is particularly visible in the European Union, where EU directives compel member countries (and stimulate accession candidates) to comply with new, tougher regulations. With increasing pressure from international donors and neighboring countries, these trends are spreading to the developing world.

In the developing world, while environmental regulations have been established, little has been done until recently to ensure enforcement. The recent trend in many developing countries, particularly in Southeast Asia, is toward increased monitoring of regulatory compliance and tougher sanctions for violations. With increased enforcement, monetary penalties, and corrective action requirements, industries are starting to internalize the costs of environmental compliance by investing in cleaner process technology and end-of-pipe treatment equipment. The impact on the market is a greater level of demand for industrial wastewater treatment equipment.

Another trend in regulatory development is the integration of economic incentives into traditional command and control regulations. The command-and-control system is often seen as too confrontational in many developing countries. It also tends to emphasize end of pipe pollution control technologies. Economic instruments (such as effluent charges and user fees) give industry the flexibility to comply with environmental requirements. The system encourages polluters to invest in the most efficient pollution abatement measures, including pollution prevention. In fact, some countries have adopted import duty waivers for environmentally cleaner industrial process technologies. The increasing use of pollution prevention has the potential in the future to alter the technological needs of industrial wastewater treatment.

E-Business

In many industries, the Internet has already made many changes in the way business is conducted. However, e-commerce has not had the same dramatic impact on the water industry, either in business-to-consumer (B2C) or in business-to-business (B2B) applications. In 1999, only 18 percent of water treatment equipment manufacturing companies had Web pages and only 0.2 percent had online ordering capability. A survey of 100 of the largest water utilities in the United States determined that less than 5 percent had the capability for customers to access and pay their bills over the Internet.

Nevertheless, the water industry has made advances in e-commerce, beginning with basic on-line catalogues where utilities and other businesses can review equipment specifications and make purchases directly from manufacturers. Auction sites have also been developed to facilitate used equipment sales. However, to date much of the business transacted on the Internet has been for commodities, typically equipment for maintenance, repair, and operations.

Recently, several companies have attempted to take the next step in B2B transactions by establishing digital marketplaces or e-hubs, which are designed to allow for more complex transactions such as requesting qualifications and proposals for engineered products, along with on-line tracking of procurements. At least one e-hub has already expanded its services to include trading of water rights between parties. Two e-hubs now operating in the water industry are VerticalNet’s Water Online, and Azurix’s WaterDesk.

Employing e-commerce in lieu of traditional procurement vehicles can save both time and money for water utilities, as well as for the manufacturers of equipment. Estimates of savings for the procurer in other industries range from 2 to 39 percent.24 Fulfillment cycles can be reduced by two-thirds, as can administrative costs; and inventory costs of manufacturers can be reduced by 25 to 50 percent.

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