Getting Old & Feeling Unloved: Water Needs A Multi-Billion Dollar Makeover

By Debra Tan 23 April, 2021

It's time to seriously spend to ensure our future water access for both rich & poor nations. CWR's Tan breaks it down

Growing old & outdated is the thing that everyone fears the most. That’s no different to the world of water where ageing water infrastructure presents a whole new set of problems that will eventually lead to breakdowns in our drinking water systems in terms of both access and pollution. The end results are similar to no drinking water infrastructure at all. But both can and must be prevented.

Water infrastructure neglected & “unloved”, is failing …

Billions in developing nations still don’t have access to drinking water, yet a new class of “water poor” is developing in rich countries.

A new class of “water poor” is developing in rich countries…

…maintenance costs in the US were US$50.2bn in 2017

The latter is growing as a result of years of neglect in maintaining and upgrading water infrastructure as water utilities struggle to find funds. In the US, maintenance costs were as high as US$50.2bn in 2017. According to the American Society of Civil Engineers (ASCE), this was partly due to deferred capital projects: almost half (47%) of maintenance work undertaken by utilities is reactive and only done when systems fail.

So Biden’s infrastructure plan is much needed and welcomed. The amount of money required is staggering – according to the White House, fixing water in the US will cost US$111bn:

• US$45bn to replace 100% of lead pipes and service lines;
• US$56bn in grants & loans to upgrade & modernize ageing drinking water, wastewater, and stormwater systems, tackle new contaminants, and support rural clean water infrastructure; and
• US$10bn to monitor & remediate new contaminants (PFAs) & invest in small rural water systems.

Water lost from US’ leaking pipes = ~11L/day for the 2.2bn people w/o access to drinking water

Just looking at this list of issues alone, you’d think that I would be talking about China or India. But sadly not, last month we lamented that treated water lost from US’s leaking pipes enough to provide the 2.2 billion people without access to safe drinking water almost 11 litres of treated water per day. If not attended to, ensuring water security in a changing climate will be a “first world” problem as well.

Emerging “first world” water pollution issues …

Besides new emerging pollutants, challenges over the discharge of raw sewage have surfaced. Over in the UK, its Environment Agency reported that raw sewage was discharged into England’s rivers and seas 403,171 times in 2020. Ugh.

Raw sewage was discharged into UK’s rivers & seas 403,171 times in 2020…

Worse still, this happened for a total of 3.1 million hours via storm surge pipes which were supposed to be used to relieve extreme weather overflow. And it’s not just a 2020 issue – The Guardian reported that there were 292,864 raw sewage discharges incidents in 2019.

Having a dip in England’s rivers and seas suddenly doesn’t sound so refreshing – how is this really different to open defecation issues in India’s rivers? Check out the number of incidents and hours of raw sewage discharge from Anglian to Northumbrian and Wessex to Thames Waters here. United Utilities was the worst offender with 113,940 incidents lasting 726,450 hours.

…how is this really different to open defecation issues in India’s rivers?

These are shocking stats for “first world” countries. Access to clean water is arguably one of the most basic human rights and since the UK and the US like to portray themselves as champions of human rights, they have clearly failed their citizens in this regard. So how did these “rich” countries get to such shocking levels of neglect?

Cracks in established water infrastructure due to neglect are showing but more worryingly, they are simply ageing and some, past their shelf life will have to be replaced. Moreover, they were not designed to withstand the new water risk landscape of higher extremes brought on by climate change; nor were they built to service rising populations or rapid urbanisation.

So how old is considered “old” when it comes to water infrastructure?

Ageing dams + climate change = danger ahead!

Water storage – reservoirs and dams – are important in the management of droughts and floods. But many of these are old. A 2021 UNU-INWEH report warned that “tens of thousands of large dams have reached or exceeded an “alert” age threshold of 50 years.” It worried that “aged structures incur rapidly rising maintenance needs and costs while simultaneously declining their effectiveness and posing potential threats to human safety and the environment.”

Average age of dams: 106yrs for UK & 56yrs for US…

…most in China coming up yo 50yrs

On dam age, the UK “wins” – its dams have an average age of 106 years.  Indeed, the UK has most of the older dams with an age of over 100-years. In the US, the average age of all the 90,580 dams (of all sizes) is 56 years and over 85% of them are reaching the end of their life expectancy in 2020. In China, (home to almost 40% of the world’s large dams) most are approaching the 50-year age threshold whereas in India, over 1,115 large dams will be at the ~50 years mark by 2025. Check out the report for more charts and global dam stats.

Delay in maintenance = increase risk of dam failure = disastrous for downstream

All these old dams may have to be repurposed, partially removed or completely removed. Regardless, it is going to require a lot of effort and money. But beware, delay in some cases will increase the risk of dam failure which will be disastrous for the public living downstream.

Just over Easter, a state of emergency was declared in Florida as leaks in a tailings dam at Piney Point threatened to break the dam wall. A breach would have resulted in a 20ft wall of toxic wastewater flooding the community and affecting the clean water source for the region. The tailings pond of a long-abandoned fertiliser plant containing phosphorus and nitrogen sat on top of “gyp stacks” of phosphogypsum, radioactive waste left over from the manufacture of fertiliser.

The disaster was averted by pumping the toxic water into the sea, polluting Tampa Bay instead; it was the lesser of two evils. But this is a temporary fix – Bone Valley, Florida accounts for more than 60% of the phosphate mined in the US and it is estimated that 1bn tons of phosphogypsum is housed in 24 stacks across Florida. Will these also fail with age? Can they withstand storms ahead?

The state government stepped in to avert disaster but now the blame game starts – who’s going to pay for this? And who will foot the US$200mn bill to permanently close the site?

Stepping back from Florida, two questions surface: 1) where are we on investment in resilience? and 2) who is responsible to ensure action – the government or the companies that own these assets?

Governments calling for urgent multi-billion dollar makeovers …

New resilient infrastructure will also have to be built and governments are stepping up. Biden’s infrastructure plan calls for a separate $50bn in dedicated investments to improve infrastructure resilience (against wildfires, coastal resilience, hurricanes) – a no-brainer investment considering the US$95bn in total damages suffered by the US in 2020 from just 22 billion-dollar extreme weather events.

Yet, US$50bn may not be enough because just to refurbish the nation’s dams needs US$64bn according to the ASCE’s 2017 Infrastructure Report Card. Meanwhile, the UK will spend £1.1bn (~US$1.5bn) to improve storm overflows over the next five years as part of a wider £5bn ($9bn) programme of environmental improvements.

That’s a lot of money; but is it?

China outspent everyone with >RMB3.5trn in the 13FYP on water infrastructure alone

Modi in 1Q21 promised to spend close to US$50bn (IDR3.6trn) to ensure piped water for all Indians by 2024 whereas China appears to have outspent everyone with over RMB3.5trn in the 13FYP (2016-2020) on water infrastructure alone; that’s an average of over US$100bn per annum for the past 5 years.

But what about the private sector – surely, if companies make money from water supply/ wastewater structures, they are responsible for their upkeep?

Can the private sector be trusted to manage a public good?

Water is a public good so common sense dictates that responsibility over water security should sit with the central/federal government. Yet, water access rights are often owned by private companies, which also manage water supply. This brings up a whole other set of challenges.

Ideally, the entire river basin/watershed should be treated as “a unit”

Ideally, the entire river basin/watershed should be treated as “a unit” for planning economic development and ensuring resilience to climate change. This holistic waternomic approach helps ensure that upstream actions do not adversely impact downstream states. China has started doing this with the Yangtze in the 13FYP and is looking to green the Yellow River in the 14FYP and India espoused the same for the Ganges.

However, implementation has been less smooth in India. Unlike China, where water rights ultimately rests with the central government, water rights and management sit with each of the states along the Ganges, which are not all controlled by the same party. The lack of inter-state cooperation thus hampers effective planning from a national perspective; some leading experts go as far as to say India’s water policies are “just feel good documents”.

It is already difficult for the central/federal government to override the state when water rights have been vested to the state let alone intervene with the private sector. But can companies be entrusted to ensure water for all in a changing climate?

This seems like a bad idea as we all know that when push comes to shove, there is a tendency to hoard. Moreover, if delivering dividends is the holy grail, this means that only the rich will be able to afford water as prices would have rocketed with increasing scarcity. Meanwhile, the poor will not just suffer the most but also just get poorer as they spend more time trying to access water and paying more for it.

We do not have to look too far out into the future to glean ugly truths. A new class of water poor is emerging in the US as a growing number of households face unaffordable spending on water.

On the other side of the Atlantic, The Guardian found that English water utilities paid dividends of GBP57bn between 1991 and 2019.

Companies are clearly focused on paying dividends than fixing problems

That works out to be an average of GBP2bn per annum – this is almost double the GBP1.1bn that will be spent to fix storm overflows. With incidents in 2020 almost 40% higher than 2019, companies are clearly focused on paying dividends than fixing raw sewage discharge.

Does institutional ownership, especially given the rise of ESG help? Apparently not: United Utilities’ shareholding is dominated by institutional ownership, yet it was the worst offender in terms of raw sewage discharge.

There is also the question of foreign ownership of water

There is also the question of foreign ownership of vital resources … Northumbrian Water is controlled by Hong Kong’s Cheung Kong Group (Li KaShing) and Wessex Water is 100% owned by Malaysia’s YTL Corp.

According to GMB union, “at least 71% of shares in England’s nine privatised water companies are owned by organisations from overseas including the super-rich, banks, hedge funds, foreign governments and businesses based in tax havens.” 

History has shown that we cannot just leave it to the private sector to “provide the love”; there must be some level government oversight when it comes to this public good, which brings me to the regulators…

Regulatory failure – too many cooks?

Water regulators play an important role in ensuring water security. But because water is a cross cutting issue, there is oversight from multiple departments.

China merged 9 ministries which used to have oversight on water into 2…

…providing the framework for more holistic planning

In China, nine ministries had oversight on water which resulted in overlapping responsibilities and poor coordination; as a result, issues fell through the gaps. China has since reformed the 9 ministries by getting rid of overlapping functions, streamlining reporting lines, ultimately merging the “nine dragons” into two in 2018. While it is still too early to say if this reform has paid off, it does provide the framework for more holistic planning that was not possible under the previous structure.

The multiple oversight approach is also prevalent in the UK and reports have lamented that complicated roles and responsibilities of the organizations has resulted in dispersed authority and accountability in ensuring water for all. While this might have sufficed in the past, climate change and ageing infrastructure demands an update of regulatory frameworks.

It’s urgent, water demands global love …

Water knows no boundaries. Everywhere around the world, water is “hurt” by over-extraction and climate change – from rivers in the US to rivers in Asia. The challenges maybe different, but they are all solvable with comprehensive planning and lots of money.

There is no time for complacency as ageing infrastructure means that “first-world” countries can also run out of water. Just earlier this month, California reported that of the 2,779 public water systems evaluated, 326 were on the Human Right to Water List (HR2W List); in other words, they “‘consistently fail’ to meet primary drinking water standards”; and a further 620 public water systems were “determined to be at-risk of failing to sustainably provide a sufficient amount of safe and affordable drinking”. To fix these, US$1.6bn is needed for interim solutions while US$4.5bn for long term solutions.

Fixing water is also about planning for population & economic growth plus, adapting for climate change

It’s dire and we need to act now. But it is important to remember that fixing water isn’t just about pouring money into fixing leakages, laying new pipes, cleaning up pollution and upgrading reservoirs. We will also have to plan for population and economic growth as well as adapt for climate change which will push out the extremes in water management.

Unfortunately, this expansion of extremes means that even more money is likely needed – larger reservoirs to hold more water for more days with no rain; bigger storm drainage systems to avoid bigger floods. The oversight of water security may also have to change so that the response to climate events can be nimble and effective.

It’s all interlinked – hotter weather means more evaporation; this could lead to longer drier spells leading to droughts and increasing the risk of wildfires. Too much water could bring floods and disease. Deforestation reduces the ability to hold water leading to the loss of watersheds adding to rising water scarcity.

Hard questions should also be asked: If droughts are expected ahead, should water-intensive industries such as semiconductor still be supported or moved? Because if Taiwan does not get water management right, it could sink the entire global electronics industry. 

We must push govts for multi-billion dollar water makeovers; bankers should be salivating at the green finance opportunities

The world may be getting more polarized, but water challenges are happening to us all in one way or another all around the world. There is no running away from it, so we might as well embrace it. Bankers should be salivating by now as green finance opportunities will be generous. So since none of us can do without water, all of us need to give water some love – we must push governments for multi-billion dollar water makeovers as they are absolutely necessary for our survival.

Further Reading

• Looking for water in China’s 14FYP – The new China is not the old China. CWR’s Xu & Tan went searching for water in the 14FYP and are left feeling optimistic, see why in our review
• Water caps & targets – how has China fared and where is it going? – China has set a 2025 water reduction per unit of GDP target. Is it aggressive enough? To answer this we take a close look on how China has fared on its past targets
• Are Asia’s Savings Exposed To Water & Climate Risks? – Asian asset owners have portfolios skewed towards domestic markets that will bear the brunt of climate change. Find out about these risks and what to do as our Dharisha Mirando shares key takeaways from the new report China Water Risk co-authored with Manulife Asset Management & the Asia Investor Group on Climate Change
• Too Big To Fail! Protect At All Costs – Multiple policy innovations have been unleashed to protect the Yangtze River as it is too big to fail – corporates and investors need to get on top of the YREB to avoid regulatory shocks
• Asia, Why On Earth Would We Leave Our Future To G7? – With G7’s absent leadership & inability to plan for pandemics, CWR’s Debra Tan calls for Asia to step-up & lead the global fight against our climate crises. Tycoons, think about it – what’s the point of building empires that will kill your grandchildren?

More on Latest

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• Rising Temperatures, Melting Ratings – 63 countries will suffer climate-induced rating downgrades in the world’s first climate smart sovereign rating simulation. More key findings from Dr Klusak, Dr Agarwala, Burke, Dr Mohaddes & Dr Kraemer
• Bottom Trawling Fishing Releases More Emissions Than Global Aviation – Green Queen’s Sally Ho shares key takeaways from a first of its kind study on the climate impacts from bottom trawling fishing & how to tackle the climate implications plus build food security
• Business of Fashion’s Inaugural Sustainability Index: The Sustainability Gap – BoF’s Sarah Kent who led the inaugural sustainability index talks to us on the why, how & what’s next. Plus, see how the largest 15 global fashion companies scored
• Our Water Footprint: Labeling The Litres Less Known – Many are still blind to the impacts on water from our consumption. CWR intern, Alexandra Murray-Tacon, finds out what 5 young Hong Kongers know about their water footprint