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Distressed U.S. cities seek to sell water systems: Aqua America CEO

NEW YORK (Reuters) - Official interest in privatizing water utilities in cash-strapped U.S. cities is extremely high, Aqua America Inc’s CEO Christopher Franklin told Reuters in an interview on Thursday.

In his 24 years with the company, Franklin said he has “never before” seen such a high level of interest among mayors and public officials in selling off their publicly-owned drinking and waste water systems.

Eight years after the end of the “Great Recession,” some U.S. local governments are still facing sluggish revenue growth, big unfunded pension liabilities and reduced levels of state aid.

Some municipalities have turned to selling public assets, including utilities, to help raise money or pay for infrastructure improvements that towns cannot afford on their own.

But critics of privatization say towns sometimes give away important assets for too little money in a quick one-time budget fix.

Public interest groups like Food & Water Watch say that accountability is limited by corporate ownership that is beholden to shareholders and that privately-run water companies charge higher rates.

Some deals have turned sour. In 2003, Atlanta, Georgia and Suez SA dissolved a private water system deal after just four years of a 20-year agreement. Users blamed the Suez unit for water main breaks, poor maintenance and slow billing operations.

Franklin said Aqua strives to work with communities early on to avoid such problems.

“I’m not going to ruin (the company) by doing the wrong thing for the community we hope to serve for a long time,” he said.

Amid uncertainty over federal financing of infrastructure projects, Franklin said he has been telling Congress not to spend federal money and to let private capital go to work instead.

A handful of states - including Illinois, Indiana, Pennsylvania and New Jersey - have enacted legislation in the past few years that lets private companies pay fair market value for water systems instead of depreciated values.

Aqua, which is focused on expanding by acquiring public water utilities from financially struggling local governments, operates in all four of those states as well as four others - Ohio, Texas, North Carolina and Virginia.

So far this year, the company has bought three public water utilities - two in Indiana and a sewer system in Tobyhanna, Pennsylvania - for a total of $5.8 million, Aqua said earlier this month.

Acquisitions of another four larger systems, worth an estimated $120.5 million in total, are in the works, it said.

Reporting by Hilary Russ in New York, editing by G Crosse