High And Dry

Sept. 18, 2000
The world may be running out of fresh water, and manufacturers are feeling parched.

Even as severe drought parched eastern Kentucky in August 1999, a rollicking storm spewed hail the size of golf balls, caused trees to fall, and sent staff at Toyota Motor Manufacturing Kentucky Inc. in Georgetown scurrying for cover.

But that wild weather failed to lift emergency water measures at the automaker. In the worst cutback since it started production in 1988, Toyota sought ways to curtail consumption by as much as 50%. It reduced rinse operations. It recycled water by funneling it from the paint shop to the boilers. It dimmed the lights so that office workers sat practically in the dark.

"We were even looking at trucking water in -- at a cost of 10 times what we're paying now for it," estimates Rob Knight, assistant general manager.

For suggestions on accomplishing the complex task of channeling water from a truck into plant processes, Toyota Georgetown called managers in Japan. Severe shortages there had forced several plants to truck it in.

Nestled in horse country just 10 miles from Lexington, Georgetown is usually lush. That was until the summer of 1999 when creeks stopped gurgling and rivers slowed to a dribble. Toyota, which is one of the region's largest employers, managed to implement cutbacks without affecting its annual production target of 500,000 automobiles.

Although the manufacturer -- which makes Camrys, Avalons, and Sienna minivans -- experimented with drastic measures such as trucking water to the plant, it only implemented a few of them, resulting in reductions of 15%. Respite came just in time with the rain in September.

This summer was not as bad, but Toyota remains on guard. "Regardless of drought the Kentucky River gets more and more stressed every year, mainly from a lot of residential growth," points out Knight.

Eastern Kentucky joins a growing crowd of thirsty regions. Scarcity has led pundits to predict water will be the oil of the 21st century. Unprecedented growth, helter-skelter development, and poor management of infrastructure threaten sources of fresh water. In the U.S. alone, Silicon Valley, El Paso, Tex., Denver, and even Atlanta face major shortages.

Where growth is greatest so is the likelihood of shortfall. Sewage treatment systems become overwhelmed and cause municipalities to fail to meet environmental standards.

"Water or wastewater is a sensitivity I have for any red-hot urban area," observes Michael K. Edwards, manager of corporate real estate development at Intel Corp., Santa Clara, Calif., who looks for places to build plants worldwide. "In Phoenix or Portland, Oreg., you have to be real careful that growth has been properly planned for."

Globally, some of the centers of world-class manufacturing may fail to support industrial output in the next 10 years. Barcelona faces water shortages. So does Ciudad Juarez, Mexico, which shares an aquifer with El Paso that could run dry by 2020 if not sooner.

In the developing world millions of people collect in urban centers and dump raw sewage into once pristine water bodies. In China several cities have been forced to seek new wells because industrial pollution damaged existing ones. In Chile the worst drought in decades led to brownouts that halted production at manufacturing plants. During Bangkok's monsoon season corporations complain of too much water, and then when the rains end they go thirsty.

Manufacturers design factories for the worst scenario, but without adequate historical data, even the worst case may be wrong. "The biggest impact is the variability of quality. If you're making toothpaste or mouthwash that require certain quality, you may not be able to make products when poor water supersedes your ability to treat it on site," explains Lockwood Greene Engineers Inc.'s Charlie Funk, who manages water systems for the Spartanburg, S.C., design and construction firm.

Lure Of People, Lack Of Water

When it comes to water, manufacturers find themselves facing a Catch-22. Economic growth tends to follow the movement of people. To hire the best, corporations build factories in thriving areas, but doing so strains resources already burdened by existing residents.

In general, manufacturers put brains before water concerns. That's why heavy water users such as semiconductor manufacturers end up in deserts such as Phoenix and other "oasis cities," believes Sandra Postel, who directs the Global Water Policy Project, Amherst, Mass.

"They look like lush places with lawns and golf courses. You don't really get a sense that scarcity is high even though ground water is being overpumped," she warns.

Rain has saturated Silicon Valley for the last six years, but high-tech businesses there are worried about what will happen when drought inevitably strikes.

"Even though we've had very wet weather, our main water suppliers have barely met demand. Are we thirsty now? No. But given our projections for growth, and our history of dry years, we're on the verge of difficulties," cautions Justin Bradley, environmental programs director for the Silicon Valley Manufacturing Group, a 170-member trade association.

Conditions are worse in Atlanta. The metropolitan area suffers shortages because of growth, history, and geography. The city's population has doubled since 1970. But unlike other East Coast cities that developed along rivers, Atlanta emerged to serve the railroad industry. As a result it lacks a river to call its own. Worse, Atlanta's pioneers built on rock rather than natural springs so it lacks groundwater.

More than 1,000 miles of rivers and streams in the region fail to meet quality standards.

The looming crisis prompted the Metro Atlanta Chamber of Commerce and the Regional Business Coalition to organize a group of three dozen leaders from government, the environmental community, and business, including A.D. Correll, the CEO of Georgia-Pacific Corp. By October the group hopes to offer resolutions to policy makers.

There is one battle the group will not resolve. Since 1992 Georgia, Alabama, and Florida have argued over rivers that originate in one state and flow through others. Alabama's chief water negotiator Jim Campbell is especially concerned about the Chattahoochee River, which provides the Atlanta region with three-quarters of its water but also serves manufacturing centers in Alabama.

"Water is a vital issue to metro Birmingham, especially as the large Honda plant gets cranked up," warns Campbell.

Other regions sharing boundaries and water battle over the same issues dividing the southern U.S. In Spain, Barcelona could run out of drinking water by 2010. Politicians and water companies have offered different solutions to meet the pressing need, but each generates controversy. One plan would build a giant pipe from the Rhone River through Southern France to Barcelona.

"It may not be too easy for French farmers to accept that water taken from the Rhone will pass though southern France and be delivered to their Spanish competitors," acknowledges Gerard Mestrallet, chairman and CEO of Suez Lyonnaise des Eaux Group, Paris.

The $32 billion water and energy utility is interested in building the controversial water system. Water is precious, but it also is cheap. In Denver, where the booming metro area strains resources, the city's Water Board charges rates that run half of the average paid in other U.S. cities. Leaky pipes and mismanagement means that utilities in some areas lose half the water drawn from rivers, aquifers, and other sources.

Business also is guilty of waste. Plant managers often fail to implement expensive conservation measures until notified by local utilities of a shortage. And industry is blamed for copious consumption. By 2030 manufacturers are expected to use as much as 269 billion tons of water, an increase from 52 billion today.

H20 Ownership?

Complicating potential shortages are outdated laws and the eternal ability of water -- critical to human life and economies -- to arouse strong emotions. It's easier to figure out who owns oil than who owns water. Even though it runs water systems in 20 municipalities and provides the clear gold to corporations around the globe, Suez Lyonnaise avoids prickly questions over ownership.

"Water does not belong to us. I don't want my group to be considered an owner of water," insists Mestrallet.

Just because an area is dry doesn't mean it lacks rights to water. Arizona, for instance, pumps the precious commodity all the way to the desert state from the Colorado River. Distribution is tricky and expensive, as Toyota's Kentucky managers learned when they investigated trucking water to their site. Not only does a prospective user need to evaluate the basic hydrology, but also ownership and existing infrastructure to move the water.

In water-wealthy Canada a national debate over ownership emerged after officials in Ontario province permitted a company to sell water drawn from the Great Lakes to thirsty areas of Asia. An angry Canadian public criticized the move and the permit was rescinded.

The U.S. and Canada have fought over water for decades. Each time a plan emerges to divert water southward, Canadian citizens stop the flow. In the 1950s engineers wanted to dam James Bay and send water to manufacturers in Midwestern states. More than a decade later Canadians nixed a scheme to divert contents of the MacKenzie River south.

The U.S. and Mexico have been at war over water even longer. In the 1890s Washington fought with Mexican authorities on behalf of farmers in New Mexico and Texas over rights to the Rio Grande River. Both countries failed to protect the river. It became a liquid dump for raw sewage and industrial waste.

A century later the mighty Rio Grande was declared America's most endangered river. Just about anywhere natural resources are sparse and population abounds, battles are waged.

"Water, and the Indus River in particular, has poisoned relations between India and Pakistan. India and Bangladesh squabbled for decades over the Ganges," writes Marq De Villiers, author of Water: The Fate of Our Most Precious Resource (2000, Houghton-Mifflin Co.).

And the list goes on. Israel's national water company recently warned that by 2001 that country would hold no reserves because of low rainfall in North Africa and the Near East.

"The water resources of the Golan Heights and Gaza have figured largely in the military minds of Israel and its neighbors," writes De Villiers.

When regions run dry, the results for manufacturers can prove costly. Curtailment -- when officials turn down or turn off the water flowing to a manufacturer's tap -- has happened recently in Southern California, in San Antonio, as well as in southern China and Bangkok. When there is a shortage, manufacturers often are the first to lose water.

Some managers redline regions with histories of shortage. A few others examine sources before deciding to build a plant. For most, however, the importance of the substance registers when it's too late.

"It's not high on the list of priorities when it comes to selecting a site," acknowledges Lockwood Greene's Funk. Concerns rise when a problem surfaces. "When design starts, after the property's been purchased, hard questions about constraints start to be asked," says Funk, who has been called in to solve costly oversights.

In other cases manufacturers end up with difficult decisions when economic development outpaces construction of infrastructure or existing natural resources. It's easy to see how Toro Co., a Bloomington, Minn.-based manufacturer of lawn mowers and other irrigation equipment, ended up with two plants on the parched Tex-Mex border.

"The labor market is excellent," asserts Ed Williamson, who oversees one Toro plant in Ciudad Juarez and another in El Paso.

Williamson grew up in Arizona and understands the importance of conserving water, but nothing prepared him for the Tex-Mex border. Local newspapers warn that water will run out in the next 20 years, but Williamson suspects doomsday may come sooner.

"The last report I saw said five years. Water is of a lot of concern to all of us. The cities are growing at such a tremendous rate."

Toro's Juarez plant is a low water user, but across the border the plant in El Paso guzzles the precious commodity. Its 55 injection molding presses are cooled by water. Both businesses and residents have turned to xeriscaping (low-water landscaping) to conserve water, but Williamson sees the promotional value in a healthy patch of grass by the El Paso factory. Every year it shrinks.

"Now we've got a postage-stamp-sized lawn," he says.

Fear of fire pushed Toro to build its own large water storage tank in El Paso, not to use in the manufacturing process but simply to supply sprinklers should a fire break out. "The city just doesn't have good sources. It keeps increasing prices to encourage conservation, and it is negotiating to buy from other sources, but La Nia didn't help at all," he concludes.

If the situation worsens, Toro may need to relocate one or both plants. Williamson dislikes the idea, especially because the labor force is productive. "It would be something that we would have to consider -- an option if we ran out of water," he acknowledges.

Glass Half Full

The business of water is big business, worth $400 billion. It involves collecting, cleaning, and transporting water through pipes to homes and industry. Often the price includes treatment and disposal of sewage. Where shortages loom, companies predict profit, but making money in water is tough.

One high-profile company is struggling. Spun off from Enron Corp. 15 months ago, Azurix Corp. swiftly acquired competitors and won concessions to run water and wastewater systems in Latin America and Europe. The $618 million company also introduced innovative products such as a water insurance plan for municipalities and manufacturers during dry years.

But in Britain, Azurix battled regulators who called for lower prices. At its Bahia Blanca, Argentina, operations a public-relations disaster erupted when citizens protested foul-smelling water. In the U.S., where Azurix introduced its Water2Water Web site to buy and sell water over the Internet, it found sales as hard to come by as lakes in a desert.

"Right now we don't quite know where supply is because it is husbanded by various municipalities in different places for different reasons," admitted former Azurix chairman and CEO Rebecca P. Mark, prior to her abrupt resignation in August.

Suez Lyonnaise des Eaux is counting on profits from industry. It predicts growth of up to 20% a year in the business of providing clean water to thirsty manufacturers as well as disposing of wastewater.

Mestrallet believes more and more industrial companies will outsource these needs just as they have outsourced everything from information technology to accounting. Suez already provides services to companies ranging from IBM Corp. to Imperial Chemical Industries PLC. It offers 6,000 different varieties of water to companies, and often finances entire water systems.

Providing services to industrial companies is just one part of the business. Monumental in cost and potential profits is the task of furnishing clean, fresh water to municipalities. Urban areas are privatizing their systems in hopes that a corporation can provide better cost and quality.

Already Suez runs municipal systems in Casablanca, Buenos Aires, Atlanta, and Amman. Manufacturers buying from a privatized water district may find lower rates and better service. In the developing world a workforce with access to fresh water could prove another benefit. The World Bank estimates that at least 1 billion people lack clean drinking water and 3 billion go without proper sanitation.

"In the emerging world water is not the problem of the downtown, but the favellas, or suburbs," explains Mestrallet. "Very poor people have to buy it at very high prices from people who carry it on their backs for kilometers."

When Suez takes control of systems often it invests in infrastructure, installs new technology, and repairs pipes. In Buenos Aires the corporation spent $1 billion to improve infrastructure and to pipe water to 2 million people, including those living in the poorest favellas.

"The price of water is five or 10 times cheaper than it was before we arrived," estimates Mestrallet.

Smooth as it sounds, privatization hits bumps. Last spring in the Andes Mountains of Bolivia people revolted when they learned about higher water prices proposed by a consortium that sought to privatize the water system. Privatization schemes also have encountered difficulties in parts of Argentina and Indonesia.

Disappointed with the results of privatization in the U.S., a number of regions, including Chattanooga, Tenn., and Peoria, Ill., want to take back their systems from private companies. Despite examples of dissatisfaction, manufacturers can expect municipalities to privatize their systems at even faster rates in the coming years.

Manufacturers also should expect to see a few signs of hope. Conservation measures at factories are increasing. Back in Georgetown, Ky., for instance, most of the changes Toyota made during the drought of 1999 are now permanent.

"This year we're going to get a lot more aggressive in looking at what water we can recycle back into the process," promises Knight.

Municipalities also encourage conservation. To ensure that manufacturers conserve water, officials from Singapore's Public Utilities Board conduct regular audits. Wafer-fabrication plants now recycle more than 70% of water used. Some 50 other manufacturers use sewage effluent for cooling and washing. Half of Singapore's daily requirements are satisfied by water piped in from Malaysia, and the law-and-order state implemented a strict conservation plan in 1981 that includes regular price hikes. Recently, in a controversial move, it shut off faucets to thousands of households for a day to demonstrate the preciousness of water. That is a difficult lesson that the rest of world may soon learn.

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