Water Barons and Bonds

Global water consumption is doubling every 20-years. Some countries already face grave water shortages. Others have an abundance, but lack the means to deliver it from lakes, rivers, and aquifers to consumers. There is no shortage of press and information on the coming crisis - - this weeks Newsweek has the following cover headline -- "Liquid Asset: Big Business and the Race to Control the World's Water." The article puts it in clear terms - - "The New Oil."

The New York Times today has another twist to the the looming water crisis -- "Water Scarcity: A Bond Risk, Study Warns." Highlights of the article:

• Municipal bonds backed by water revenue may be riskier than investors realize because of potential water shortages and legal battles over water resources.
• Bond valuations and the ability to raise money could be impacted as water becomes the new oil.
• Rating agencies don't reflect the potential vulnerability associated with increased water competition, climate change, and dwindling supplies.
• Utilities may not be positioned to effectively manage these types of risks.
• The report was sponsored by a coalition of water investors, environmentalist and public interest groups and prepared by PricewaterhouseCoopers.
• Energy and water transmission makes water and oil linkage extremely critical in the context of an era where both resources come under supply constraints with increasing demand.
• Water intensive industries, such as electric utilities (also facing cost pressures from carbon control considerations), are also at risk in the water as the new oil era.
• A weak economy and poor growth, combined with aging infrastructure adds additional pressure with respect to capital investment needed to meet supply requirements.
• Municipal bonds are not required to disclose risks associated with climate change vulnerability.