The perfect business plan

Behind One Effort to Tap Into India’s Water Market By PETER WONACOTT, Wall Street Journal, August 14, 2007; Page B1
It seems that somebody at Dow has had a ‘eureka!’ moment. Whilst it’s a given that arms manufacturers thrive while countries burn, the business gains from mass pollution aren’t so immediately obvious. Perhaps that’s why it’s taken world-class global polluter Dow this long to see the commercial opportunities in profit-oriented water purification schemes. And where better to make your socially responsible lucre than India, where eight in ten people suffer major stomach complaints due to water contaminated by pesticides, industrial effluents and raw sewage?
KAIKALURU, India — After draining this town’s pool of drinking water recently, cleaners found drowned rats and bloated lizards. But at least, as is common at other storage tanks across this parched land in eastern India, there were no dead monkeys.
Kaikaluru’s drinking water, filtered through sand from a nearby pond, is amber in color and alive with microbes. Even so, a survey of the town’s residents showed that half the people still prefer it to a sanitized version dispensed at a new store operated by a tiny Orange County, Calif., company, WaterHealth International Inc.
WaterHealth operates about 60 stores in India’s Andhra Pradesh state.
“The old water is free,” explains Dhana Lakshmi, a 43-year old mother and local resident. Daily, she walks past WaterHealth’s store to a community tap, rather than pay less than half a penny for the company’s five-gallon jug of purified water. Ms. Lakshmi says her family of five earns about 80 rupees a day, or about 40 cents per person. Most families that size go through about five gallons of water a day.
Holdouts like Ms. Lakshmi highlight the difficulty of diving into the potentially massive, but messy business of selling clean water to poor people. Many have tried to help developing nations with their water problems; few have come up with a way to profit from the effort.
But WaterHealth, led by its Ghanaian-born chief executive, Tralance Addy, believes it can do both. Mr. Addy, the sixth of 12 children, used to wait in line at the village water tap when he was growing up in West Africa. Today, he’s quickly expanding WaterHealth’s business in India and other countries, while eyeing big markets such as China and Mexico. “It doesn’t surprise me that people would pay for clean water,” says Mr. Addy, who retired in 2001 after more than two decades at Johnson & Johnson and is now a citizen of both Ghana and the U.S. “It surprises me that people thought that they wouldn’t.”
Whether or not WaterHealth succeeds in India, the company could provide clues as to how nations tackle a prime public-health concern: contaminated water. About 450,000 Indians die every year from diarrhea, far more than in any other country, according to the United Nations 2006 Human Development Report. While the report notes other factors can cause the diarrhea, “low levels of spending on water and sanitation surely contribute.”
Despite one of the world’s fastest-growing economies and a cutting-edge technology sector, India still struggles to distribute clean water. In rural areas, cow dung, pesticides and human waste mix together in irrigation canals and seep into ground water. Last month, Indian Prime Minister Manmohan Singh acknowledged government failures to stem water-borne diseases.
In Asia, about 635 million people don’t have access to safe drinking water, or 19% of the region’s total population, according to 2004 figures from the Asia Development Bank.
The problems in developing countries have attracted those who see huge commercial potential in cleaning up water. GE Water & Process Technologies, a unit of General Electric Co., currently does about $20 million in sales in India, mostly catering to the clean-water needs of industrial customers such as power plants. But GE would like drinking water to help drive the business “well beyond $100 million annually in the very near future,” according to Steve Fludder, a company vice president.
Steps to overhaul water supply have met resistance, though. In 2005, for example, a World Bank proposal to hand over limited management of the New Delhi municipal water board to a contractor provoked an outcry. Public-interest groups alleged irregularities during a bidding process among consulting firms for the project’s plan. The World Bank’s India country chief, Michael Carter, denied any wrongdoing. The bank later backed away from the project.
“The right idea is to have the community control the water,” said Arvind Kejriwal of Parivaran, an Indian citizens group that opposed the World Bank plan. “The World Bank is trying to promote privatization. That’s not the best model.”
Many past efforts to provide purification equipment and train personnel for free haven’t worked, says Gangji Reddy, project director for Chaitanya, an Indian organization that works on natural-resource-management issues. Poorly trained and sporadically paid technicians fail to maintain equipment, leaving the door open for farmers who sell access to clean water at exorbitant prices.
WaterHealth aims to step between the profiteers and nonprofit programs. Unlike much bigger multinationals, WaterHealth is also willing to stay small and rural even as its business grows. In the state of Andhra Pradesh, WaterHealth currently operates about 60 stores, mostly through joint ventures with local governments. An Indian organization, Naandi Foundation, supports the venture by educating locals about the health benefits of clean water. The company also operates in the Philippines and Ghana.
The joint-venture model grew out of WaterHealth’s earlier troubles of relying on sales of equipment to customers in other countries, many of whom failed to maintain it. After years battling insolvency, WaterHealth emerged from bankruptcy in 2004 thanks to Mr. Addy’s Orange County, Calif., venture-capital firm, Plebys International. He took control of the company for $2 million.
Since restructuring, WaterHealth has attracted several big backers. They include Dow Venture Capital, a unit of Dow Chemical Co., which has acquired about 30% of the company for $7.25 million. International Finance Corp., an arm of the World Bank, has kicked in $1.2 million.
Mr. Addy declines to provide sales and profit figures for the privately held company. But one question is how WaterHealth will be able to make enough money by selling water so cheaply.
In Kaikaluru, despite Naandi’s survey showing that half the town prefers the community tap, signs of the business’s potential are surfacing. A summer morning crowd forms in front of WaterHealth’s four taps. Mr. Addy shows how water at the store is filtered through a series of tanks before entering a plastic chamber. Inside, a lamp administers a lethal dose of ultra-violet light to remaining bacteria and viruses.
In a village outside Kaikaluru, a local leader laments that dirty water has driven up medical costs and caused kids to miss school. Mr. Addy listens, but later says the village isn’t big enough to support a WaterHealth store. Maybe later the company might sell it smaller-scale equipment it’s developing. “You can have a soft heart in this business,” he says, “but you need a hard head.”
Write to Peter Wonacott at

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