Janet Bush: Profits pour forth - but the world's poor are being trampled in the 'blue gold' rush

When Ted Turner bought his first parcel of land in Patagonia in 1996, his ostensible motivation was a desire to get away from it all - not to mention the fabulous fly-fishing. A self-proclaimed ecologist, the media mogul has bought huge tracts of wilderness with the idea of managing it in a sustainable way. In the US he now has more than 1.8 million acres, compared with the 1.6 million owned by the Nature Conservancy, America's largest land-conservation organisation.

But of course there's a business angle too. The land Mr Turner owns in Patagonia happens to contain some of the most important sources of fresh water in the region. When, as a young man, he was asked in an interview what single investment he would make, he answered with one word: "Water."

And that's where the smart money is going these days. The veteran Dallas oil man T Boone Pickens set up a hedge fund specialising in water-related investments in 1997, and has since spent more than $50m (£27m) on water rights around his north Texan ranch, claiming to have enough water to serve 20 per cent of the Dallas-Forth Worth area.

Terrapin Asset Management, a $50m hedge fund investing exclusively in water-related companies and rights, has made a return of 22 per cent since it was started in April 2005.

H ₂0 is becoming de rigueur. Bloomberg boasts a World Water Index which has afforded investors a 35 per cent annual return over the past three years, compared with 29 per cent for oil and gas stocks and 10 per cent for the S&P 500.

It is not just our own (much loved, ahem) privatised water companies in Britain that are making a mint while our lawns die. Worldwide, the water industry makes some $450bn in revenues a year, second only to electricity and oil. In 2000, Fortune magazine ran a special feature on the global industry, saying: "Water promises to be to the 21st century what oil was to the 20th: the precious commodity that determines the wealth of nations."

And it can only become more lucrative as the world's population grows. The International Food Policy Research Institute forecasts that the use of fresh water for human consumption, agriculture and industry may rise 22 per cent by 2025 compared with 1995 levels.

Already, the UN Environment Programme estimates that a third of the world's population suffers from shortages or "water stress". There are an estimated 1.1 billion people who lack access to clean water and 2.4 billion without access to sanitation; around half of the world's hospital beds at any one time are believed to be taken up with people suffering from water-borne diseases. By the middle of this century, the UN reckons that seven billion people in 60 countries could be faced with water scarcity.

Kofi Annan, the UN Secretary-General, has forecast that, if present trends continue, two out of three people on the planet will be "water stressed" by 2025.

We are all aware of the geo-political mayhem caused as governments and firms compete to secure the world's oil and gas resources; the "blue gold" rush is perhaps less well-known but it is potentially even more far-reaching. Without oil, industry dies; without water, we die.

Water is already a key strategic concern for governments. Consider, for instance, the current assault on southernLebanon. Yes, the justification is defending Israel from terrorism, but Israel is also dependent for its water supplies on the West Bank and the Golan Heights. It is certainly arguable that there has been an element of "hydro-nationalism" in Israel's policy towards both.

On three occasions in 1965 and 1966, for instance, Israel attacked the site of a project that, by diverting the Jordan River's headwaters, would have cut her water capacity by 35 per cent.

In 1973, then Prime Minister David Ben-Gurion said: "It is necessary that the water sources upon which the future of the Land depends should not be outside the borders of the future Jewish homeland." He went on to specify that Israel should include the southern banks of the Litani River - and, in this latest conflict, Israel has warned the Lebanese to evacuate to the north of the Litani.

When he was Defence Secretary earlier this year, John Reid warned that conflict between governments over water sources is set to intensify, but the battle for control is already raging between governments and business. Countries are faced with a dilemma: they want to control water as a public asset but they need billions to build the infra- structure needed to transport and treat water. According to Unesco, the cost of providing safe drinking water and proper sanitation to everyone in the world by 2025 will be between $111bn and $180bn a year - two to three times greater than current investment.

With sums as big as this, it is no wonder that governments are resorting to public-private partnerships and full-scale privatisation of water, but this all too often puts them on a collision course with their citizens.

Probably the most notorious case is that of Cochabamba, Bolivia's third-largest city. In 1999, the San Francisco-based Bechtel (a substantial donor to the Republican Party and granted the largest Iraq reconstruction contract by the Bush administration) was given a 40-year lease to take over Cochabamba's water system. Within weeks, the corporation had imposed huge price rises, prompting riots, and a state of martial law was declared.

After months of protests, the contract was terminated, after which Bechtel launched a $25m lawsuit against the people of Bolivia.

In Britain, the privatised water companies have come under fire for making excessive profits even as hosepipe bans and drought orders have been imposed in parts of the country. In the 15 years since privatisation, customers' bills have increased, on average, by 35 per cent in real terms. The water companies argue that this is necessary to finance the £50bn of investment they have made to upgrade the infrastructure.

On the current evidence, it seems the pendulum has swung too far in favour of the private sector, in Britain and elsewhere. Even the OECD, which tends towards economic liberalism, argues this case. In a study on privatisations of public utilities in sub-Saharan Africa in 2004, it concluded: "In the absence of proper regulation, profit-maximising behaviour has led privatised companies to keep investments below the necessary levels, with the result that rural communities and the urban poor were further marginalised."

In the long term, a balance needs to be struck between the need for investment in the water infrastructure, the profit motive and the public good.

We are far from achieving this.

India chooses dollars over a quiet life

The debate over whether developing economies should liberalise their capital accounts (the flow of money in and out) is contentious, and not least in India. The country has maintained controls on capital that limit foreign investment but confer strong stability. As a result, when Asia was hit by the late-1990s financial crisis, which then tore across the world through Russia to Latin America, India was relatively insulated.

Now that the capital account has been partially liberalised, the converse is true: India is attracting unprecedented levels of foreign money but also destabilising volatility. In the past year or so, it has attracted an estimated quarter of all investment in Asia and a third of American cash in the region. Investment in equity mutual funds over the past year has been greater than in the whole of India's history.

Some of this money is being invested with relatively long-term intentions, partly tied to India's programme of privatisation; a lot is distinctly speculative and short term - a pursuit of high returns. In May, most emerging markets were badly hit when the US Federal Reserve raised interest rates again, but India suffered more: the authorities estimate that $2.5bn (£1.3bn) flooded out of its markets in just eight days.

Some are now arguing for a halt to liberalisation, but the authorities show every sign of going the other way. The Reserve Bank of India is set to produce a "road map" for the full lifting of capital controls, and India's Securities and Investment Board has announced, in principle, that it intends to lift restrictions on short selling. The green light is eagerly awaited by speculative hedge funds that are itching to become even more involved in the Indian market.

Like other emerging economies that have boarded the globalisation train, India should brace itself for a bumpy ride.

Hamish McRae is away