Does Evolution of Water Derivatives Mean Private Control of Essential Element?

Written By: The WealthCycles Staff

The planet Earth has an abundance of water. Unfortunately, 97.5% of the world’s water is saltwater. Of the remaining freshwater, less than 1% is available for human use. Already 41% of the world’s population lives in water-stressed areas. Despite its scarcity, freshwater is rarely mentioned or thought of as a trading commodity. A joint project of Waterfund LLC and IBM seeks to change that.

Many water utility companies use water metering to measure household consumption of water and to match bills to actual local costs—ensuring good supply. Metering also allows the utility to determine the amount of water lost through leaks in the distribution network—estimated at an alarming 1.7 trillion gallons per year in the United States.

Metering cannot, however, calculate the true cost of the water. True cost takes into account resources (the cost to extract the water from reservoirs, rivers or lakes), operating costs, infrastructure/capital costs, opportunity costs (how much could be saved from fixing infrastructure or improving processes) and maintenance. Without a good understanding of these cost elements, water utilities have faced difficulty raising funds through bankers and Wall Street. After all, if a business cannot calculate its costs, it cannot adequately report its profits.

Waterfund and IBM have joined together to remedy this. According to the

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testiomials By tying water provision into the financial markets, the index will very likely encourage privatization of water systems throughout the world.”

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