Berlinwasser Holding AG

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Berlinwasser Holding AG

Neue Jüdenstrasse 1
Berlin, 10179
Germany
Telephone: (49 30) 86 44 0
Fax: (49 30) 86 44 28 10
Web site: http://www.bwb.de

Private Company
Founded: 1856
Employees: 5,836
Sales: EUR 1.15 billion ($1.51 billion) (2006)
NAIC: 221310 Water Supply and Irrigation Systems; 237110 Water and Sewer Line and Related Structures Construction

Berlinwasser Holding AG is the umbrella organization that was created when the waterworks of Berlin, Germany, were privatized in 1999. The partners in Berlinwasser are the German federal state of Berlin with a 50.1 percent share of the firm, and two private companies, RWE AG, a provider of electricity and other utility services, and the French utilities firm Veolia Environnement, each of which owns a 24.95 percent share. Berlinwasser Holding has two primary divisions. The first includes the firm's government regulated business, the Berlin Wasserbetriebe AöR (BWB). Formerly the Berlin municipal waterworks, BWB provides water and wastewater services to residential and commercial customers in the greater Berlin metropolitan area. BWB is the largest company providing such regional services in Germany. In 2006 BWB's nine waterworks delivered 209.3 million cubic meters of drinking water to some 2.62 million buildings in and around Berlin. In addition, it treated 224 million cubic meters of wastewater. The other division includes Berlinwasser's unregulated subsidiaries, its so-called competitive businesses. These subsidiaries are active in the national and international markets. Berlinwasser International AG, for example, provides water and wastewater services in China, Hungary, Albania, Namibia, and other nations. Berlinwasser Services GmbH provides water-related services, such as renovation of wells and engineering and consultation services.

BERLIN'S FIRST WATERWORKS

In October 1852 Freiherr Karl Ludwig Friedrich von Hinckeldey, the police president of Berlin, gave the official order that a waterworks be built on the banks of the Spree river just outside Berlin. Two months later the city of Berlin entered an agreement with the England-based company of Charles Fox and Thomas Russel Crampton which stipulated that Fox and Crampton build a waterworks, operate it, and deliver water from it to the residents and businesses of the Prussian capital. The new company, the Berlin Waterworks Company, started operations on July 1, 1856, and built a reservoir and filtering tower—the first public works of its kind in Germany—together with 121 miles of pipes to carry water to neighborhoods. Within a year, 314 buildings in the city were getting running water from the system; by mid-1864 the number had increased more than tenfold, but that coverage was still negligible for the city whose population, with incipient industrialization, was nearly 700,000 and growing with each passing month.

Because of the rapidly growing population, by 1868 the city fathers of Berlin had decided the city should take over the waterworks from the English company. Unfortunately the Prussian king resisted the move because of the high cost of purchasing the water system from the English company. It was not until after the creation of the German Empire in 1871 and the naming of Berlin as imperial capital that permission for the takeover was finally given. Negotiations with Fox and Crampton lasted nearly a year. On December 31, 1873, the English agreed to sell the waterworks and its pipes, and Berlin took over the entire network of waterworks and pipes for 1.25 million pounds sterling. The system was named the Städtische Wasserwerke or municipal waterworks. At the time of the takeover, Berlin's population had reached 910,000, about 48 percent of which were connected to the city's water system.

The first order of business was the extension of water lines to the surrounding areas of the city that were not yet served, primarily because their higher elevation made delivery of water by pipes alone impossible. New pipes were laid and water towers and pumping stations were constructed. Industrialization and a rising population were taking their toll on the river. Increased pollution led to the relocation of the city's waterworks to the shores of two large lakes, one to the south of Berlin and one to the north. The two new waterworks were largely completed by 1906. During the same period, the city also began to lay a sewer system to process rainwater and wastewater.

Meanwhile, in 1878 a privately owned water company, the Charlottenberger Wasserwerke AG, was founded in Charlottenburg, a large city west of Berlin. Within a few years, the firm had grown as large as the Städtische Wasserwerke and was providing water to its own residents as well as those of many of the small towns and villages to the west and south of Berlin. The company's main waterworks, which would be expanded constantly during the next century, were located on the shores of the Wannsee, a lake southwest of the capital. By the start of World War I, the Charlottenburg firm had built five waterworks altogether. In addition to the two firms in Berlin and Charlottenburg, a number of communities operated their own smaller water purification works.

GROWTH IN GREATER BERLIN

In April 1920, just after the conclusion of World War I, an enormous area of eight cities—including Berlin and Charlottenburg—plus 59 smaller communities and 27 townships were incorporated to form Greater Berlin. With one fell swoop Berlin was the second largest city in the world, by area, after Los Angeles. The Städtische Wasserwerke grew to 21 waterworks after taking over most of those being run by smaller communities. In 1924 the public waterworks were reorganized and an Aktiengesellschaft, or stock company, was created in which the city held a 100 percent stake. The company's main priorities in the 1920s were catching up on badly needed system maintenance that had been neglected during the war and the years of severe inflation during the early 1920s. Meanwhile the waterworks in Charlottenburg continued to operate independently under a new name, Charlottenburger Wasserund Industriewerke AG. Through the 1920s and 1930s and until the end of World War II, the company continued to provide water to areas in western and southern Berlin. The two Berlin firms existed side by side, expanded, and modernized their facilities in the years leading up to World War II.

Although the Charlottenburg firm lost its headquarters to bombs in 1944, the water purification and pumping stations in Berlin survived the bombardments of World War II in relatively good condition. For one thing, they were, for the most part, located some distance away from the central city and from industrial areas as well. Hardest hit was the system of water pipelines in central Berlin. Their damage led on the one side to water outages in homes and businesses and on the other to the loss of million gallons of water to burst lines when streets were blown up.

COMPANY PERSPECTIVES

Water is our business! For more than 159 years the Berliner Wasserbetriebe have provided 3.5 million people in Berlin and its environs with drinking water as well as processing the waste water of 3.9 million people. That makes us one of the largest enterprises with a long history of experience in the water industry.

POSTWAR RECOVERY AND DIVISION

Despite the damage incurred by various water facilities, when hostilities ended in May 1945 most parts of Berlin were provided continuously—except for a couple days at a time—with sufficient water for cooking and drinking. A bigger difficulty at war's end was finding supplies for the waterworks, such as pipes for the repair of damaged lines, and fuel, especially coal, to power essential equipment. A further result of the end of the war was the takeover of the of the Charlottenburger Wasserund Industriewerke AG by the Berliner Städtische Wasserwerke (BWB) in August 1945. The action was initiated by the city of Berlin, which had become an influential holder of Charlottenburg stock through investments made in the late 1930s.

The political division of Germany and Berlin in 1949 posed far-reaching problems for the city's waterworks—in particular in West Berlin. Following the currency reform of 1948, the Russian representatives walked out of the Allied Kommandantura, the American-Russian-British-French military body that jointly governed Berlin, and set up its own in its zone in East Berlin. Before long, East and West Berlin had completely separate government structures, from the Allied heads at the top, through the mayors and city councils and down to various city departments, including the waterworks.

Although it was relatively easy to divide a water bureaucracy in two, it was next to impossible to cleanly divide the physical water systems of the two halves of Berlin. An example was the West Berlin district of Neukölln, which bordered on the eastern sector and for years had gotten most of its water from the waterworks on the Müggelsee in East Berlin. Neukölln's precarious situation became clear in 1950 when the eastern authorities shut off the faucets to the district for two weeks when no agreement on water prices could be agreed upon. Another advantage East Berlin had was its much higher per capita water production capacity. A nearly insurmountable difficulty for the West Berlin waterworks was that all the plans showing the location of water and sewer lines in West Berlin were in the hands of the East Berlin authorities and thus were completely inaccessible. Later on, the Berlin Wall extended literally underground into the Berlin sewer system which ran back and forth across the East-West border. When they built the wall in 1961, East German authorities installed heavy metal grills in the sewers to block would-be escapees to the West. Over time these screens became de facto filters, and by the time the Berlin Wall came down in 1989, they had caused some main sewer lines to be blocked off completely.

During the 1950s and 1960s West Berlin worked hard to establish its water autonomy from the East. The firm, which in 1949 had been reorganized as Berliner Wasser Betriebe (BWB), Eigenbetrieb der Stadt Berlin (a company owned by the city of Berlin), launched a program for the systematic renovation and where possible for expansion of its older waterworks as well as for the construction of new facilities to bring water to areas not fully served. The renovations began in 1953 in the former Charlottenburger Wasserwerke facilities on the Wannsee. By the mid-1980s the BWB had modernized five water plants and built a brand new one. The West Berlin firm also built waterworks in the 1980s for the purification of polluted surface waters by filtering it through the ground and back into the water table.

Meanwhile, the VEB Wasserversorgung und Abwasserbehandlung (WAB Berlin), as the water firm in East Berlin had been known since 1967, faced serious difficulties in the 1970s and 1980s when the East German government launched a major residential construction program. Satellite cities for hundreds of thousands of people were built in the outlying areas of East Berlin and WAB Berlin had to provide them with water services. Adding to the challenge, the massive undertaking took place concurrently with the renovation of East Berlin's primary waterworks.

KEY DATES

1856:: Berlin Waterworks Company begin operations.
1873:: Berlin purchases the water system and renames it the Städtische Wasserwerke.
1920:: Städtische Wasserwerke purchases numerous smaller community waterworks after formation of Greater Berlin.
1924:: Städtische Wasserwerke reorganized as an aktiengesellschaft (stock company).
1949:: Postwar reorganization results in Berliner Wasser-Betriebe, Eigenbetrieb der Stadt Berlin.
1964:: Waterworks in East Berlin reorganized as VEB Wasserversorgung und Abwasserbehandlung (WAB).
1967:: BWB takes over leadership of the Berliner Entwässerungswerke, the Berlin wastewater works.
1990:: WAB is reorganized into a company owned by the city of Berlin.
1992:: WAB is merged into the BWB.
1999:: BWB is partially privatized, and Berlinwasser Holding AG is founded as parent company.

REUNIFICATION OF BERLIN AND ITS WATERWORKS

After the Berlin Wall opened in November 1989, it was clear within months that Germany as a whole—and thus the city of Berlin and its multiple water systems—would eventually be reunified. In those first months, however, no one could have known that political reunification would come to pass in less than a year. The eventual merging of the two water systems began with cooperative meetings almost immediately after the fall of the Berlin Wall. The management of the two waterworks firms met for the first time in December 1989. In March 1990 the removal of the grills closing off the sewers from East Berlin began. Less had to be done from the western side—West Berlin had always planned its network of water pipes with the idea that Berlin would eventually be a reunified city. In August 1990, WAB Berlin was reorganized from a so-called people's company of the socialist model to a company owned by the city of Berlin, after the model of the western BWB.

The unification of the two firms proceeded in a step-by-step fashion. In October they agreed to merge. In November 1990 whole departments of the WAB Berlin were closed and managers with "politically loaded" pasts were let go. In November 1991 the Berlin city council passed a law that made the merger of the two operations legally possible. On January 1, 1992, WAB Berlin was absorbed by the Berliner Wasser Betriebe (BWB), which became the largest water and wastewater treatment company in Germany. It had some 7,300 employees, 16 waterworks with a daily capacity of 1.87 million cubic meters, 5,090 miles of water pipe, and 5,635 miles of sewage lines.

In 1994 the company changed its legal form again, to an Anstalt öffentlichen Rechts —a public corporation—completely owned by the city of Berlin. The result of this change was to give BWB a much larger degree of self-determination in its business planning. Its finances were separated from the Berlin city budget completely. It became independent of the Berlin city council as it no longer needed that body's approval to take out loans or implement rate increases. It could found and own subsidiaries, enter into contracts, and determine its own organizational structure. This reorganization eliminated much of the bureaucracy the BWB officials had to deal with when planning and implementing new projects.

PRIVATIZATION OF THE BERLIN WATERWORKS

By 1997 BWB was in healthy shape. Despite a shrinking market for water in the Berlin region, the BWB was termed the "pearl of Berlin's city-owned companies" by the newspaper Welt am Sonntag. The company boasted climbing revenues and steady, if somewhat declining, profits. The firm had also set its sights on the lucrative international market for water services. The declining demand for water pushed the BWB to enter other markets, and in the middle 1990s it founded subsidiaries for waste management, environmental services, construction supplies, and telecommunications.

Toward the end of the decade, however, the city of Berlin found itself in a severe financial crisis. Facing serious shortfalls in the city's budget, the Social Democrat–controlled city council developed a plan in 1998 to raise DEM 2 billion or more through the partial privatization of the BWB. Under the plan, private companies would bid to acquire a 49.9 percent holding in the waterworks. Once the private partners entered the picture, a holding company would be set up in which the city of Berlin would remain the majority shareholder. One division of the umbrella firm would be established for the company's longstanding Berlin municipal business, that is, the BWB, which remained under government regulation. A second separate division would be set up for the subsidiaries that were operating on a strictly forprofit basis on the national and international markets, the so-called competitive businesses. When the BWB was put on the block, companies from Europe and North America entered the bidding. The price was considered high, but gaining a share in the water utility company of a city as large and significant as Berlin could also be seen as a giant step toward becoming firmly established in the international market for water services.

Objections to the plan came from various quarters. The head of the BWB responded with a plan of his own to avoid privatization. It was simply ignored by the Berlin government. Two parties on the left end of the political spectrum in the Berlin city council, the Greens and the Communist PDS, claimed that any privatization constituted a breach of Berlin's sovereignty and sued in Berlin's constitutional court to block it. In the summer of 1999 the European Commission of the European Union approved the plan. In the meantime a consortium of three companies, RWE Umwelt AG, Allianz SE, and the French conglomerate Vivendi, offered DEM 3.3 billion for a stake in the BWB. When the constitutional court ruled in October 1999 that privatization was not unconstitutional, the plan went forward quickly. Berlinwasser Holding AG was set up as the parent company of BWB and its subsidiaries.

SVZ GmbH, a Berlinwasser subsidiary that specialized in the gasification of solid waste and that was deeply in the red, was sold to Global Energy Inc. of Cincinnati, Ohio, in 2000. At the time of the sale Berlinwasser announced that it would henceforth concentrate its activities in four areas: water and wastewater in the Berlin metropolitan area; national and international water and wastewater; products and services; and multi-utility services. Two years later Berlinwasser announced that the Berlinwasser board of managers would also become the board of managers of the BWB. It was a plan that all but eliminated the distinction between Berlinwasser's two divisions, one regulated, the other unregulated.

In August 2004 the BWB announced a major plan to extend its processing of rainwater runoff. Its goal was to reduce pollution in Berlin's two rivers, the Spree and the Havel, and in its lakes. The plan called for the addition of greater sewer line capacity to handle heavy rainfall. In addition, facilities would be set up so that rainwater from outlying areas could be treated before it was released into Berlin surface waters. Dams would also be constructed to create larger reservoirs to hold rain and runoff until it could be properly treated.

In November 2004 the existence of a secret contract involving the city of Berlin, RWE, and Vivendi was revealed. The most important term was Berlin's agreement to make annual payments of 8 percent of the value of BWB's basic capital assets to the companies for the 28-year term of the contract. Because the value of those assets increased every year—for example, through the reestimation of property values or the value of current investments—payments to RWE and Vivendi would increase every year as well. In 2004, for example, payments based on assets worth EUR 3.3 billion would total some EUR 200 million; by 2009, those same assets were expected to increase in value to about EUR 4.1 billion. The newspaper Welt am Sonntag reported that it was those secret payments that accounted for the 15 percent increase in the price of water for Berliners. Critics called for making public all documents relating to the 1999 privatization, a demand that was never met.

In August 2007 Berlinwasser announced it was making an investment of approximately EUR 50 million annually through the year 2025 to systematically renovate the Berlin area's drinking and sewage infrastructure, a project that had been postponed for decades. Work was to begin in Berlin's western districts. It would then proceed over the years to other parts of the city, bringing much needed modernization to the entire system.

Gerald E. Brennan

PRINCIPAL SUBSIDIARIES

Berlinwasser International AG; Berlinwasser Services GmbH; Berliner Wasserbetriebe AöR (49.9%); bluepartner GmbH; p2m berlin GmbH; pigadi GmbH; perdie. net GmbH.