>To me the lesson is clear, get the state out of business wherever you can.
Mmm, okay, let's take that as a maxim. How do we know if 'we can' in a particular instance. Well one critical requirement to 'can we' is: "is it acceptable if some people don't have this thing". That's acceptable for chocolate - so we really don't want or need government supplying chocolate.
But it stops being acceptable if the resource in question is a fundamental human right, or if there is serious and huge risks to other, innocent, people when somebody is deprived of it.
When either or both those things are true - you can't leave *anybody* out - even people who have no money, even people who have negative money. Debts and no income. 
In those you CAN'T use business - the market only deals with demand measured in money. It has no concept of the demand of the moneyless - it cannot supply to everybody.

Water meets BOTH criteria, and either one alone would rule it out for privatization.