Water privatization issues

Your Fundamental Right to Water (Sandy)
From the United Nations to the World Water Council to Mexican President Vicente Fox Quesada to international NGOs and innumerable water advocates, the universal consensus is that water is both a human right and a public good that all governments must guarantee (WWF 2006, 3). In 2002, the UN Committee on Economic Social and Cultural Rights (UNESCR) General Comments on the Right to Water stated: “the human right to water entitles everyone to sufficient, affordable, physically accessible, safe and acceptable water for personal and domestic uses.” General Comment No 15, Committee on Economic, Cultural and Social Rights, Geneva, 11–29 November 2002. The General Comment listed these key components of water rights: http://www.foodandwaterwatch.org/water/rights.pdf
 * Sufficient and adequate (absolute min of 20 liters/day)
 * Safe
 * Physically accessible (in or nearby the household)
 * Affordable (does not affect the ability to buy other essential goods)

But what does this mean in terms of creating sound water policy and effective water management? Governments must do more than just provide water: they must also prevent others from interfering with its citizens’ rights to safe water, whether it is from pollution, someone cutting off access to a river, or overcharging for water usage.

Water experts agree that water should be available to all; however, they disagree as to the best means of getting water to the people. Certain sectors feel that water is a public commodity, and as such, should be solely maintained by public and municipal entities. Others feel that the private sector can offer the funding and efficiency not found in many public-run waterworks. Are there benefits to privatizing water management? Is there a difference between the right to use water as opposed to the right to own water? If a community does choose to privatize, what precautions can it take to prevent from being taken advantage of by avaricious corporations? What can citizens do to ensure that they choose a system that will deliver clean, safe water to the greatest number at the best cost?

Our purpose here is to explore different kinds of water ownership and management, public and private, and the pitfalls of both.  Privatizing Water

“Privatization is the act of reducing the role of government or increasing the role of the private institutions of society in satisfying people’s needs; it means relying more on the private sector and less on government” (ES Savas, 2). Water may be a fundamental right, but it is expensive. At least providing water to all who need it is an expensive proposition. The need for money to invest in water infrastructure is the biggest factor behind the surge in privatization.

According to the World Bank, the private sector has invested about $700 billion in infrastructure in developing countries over the past decade (World Bank 2004, 43); about 5% of this went into water and sanitation and another 5% into hydropower. However, these investments were heavily concentrated into the relatively low-risk economies in East Asia and Latin America (World Bank 2004, 44). '''

Definitions: Types of Privatization
PSP): Private Sector Participation The range of PSP is extremely broad and may include: ''
 * Full privatization: private company purchases water assets and runs operation as a business on a permanent basis
 * Concessions: private contractor manages the whole utility and invests in its maintenance and expansion. The company assumes the commercial risks while municipality retains ownership.  These contracts may run 30-40 years or more.
 * Leases: revenue is determined by the tariff. Contractor collects tariffs, pays a lease fee and keeps the difference.
 * Management and service contracts: private company has the responsibility for operation and maintenance; the public sector retains responsibility for investment and expansion (taking all the risks). Municipality pays a fee to the company; contracts typically run 5-10 years
 * Build-own transfer contract: a private company constructs, for example, a sewage treatment plant, and then manages it. At the end of the contract, the assets will either transfer over to the municipality or remain with the company.
 * Consulting services: a short-term agreement for specific tasks, such as installing meters, collecting bills, or repairing plumbing.
 * Public-private partnerships: private company works together as a partner with the public sector and/or NGOs
 * Consortium: several companies and interested parties join together to run a utility; this way they do not compete with one another
 * Small-scale water entrepreneurs: an individual with a cart, or a tanker providing water on a small local level'' Budds & McGranahan, 2003

Privatization has 4 major objectives: (Prasad 2006 2006, 672)
 * To achieve higher production efficiency
 * To strengthen the role of the private sector
 * To improve the public sector’s financial position
 * To free resources and allocate them to other important sectors, such as social policy

Who are the Privateers?

A small “handful of companies dominate the global water market” (Bouguerra 2006, 108). Approximately five percent of world’s water utilities, mainly in urban areas, are run by a “tiny number of private companies” (Sjölander-Holland 2005, 17) [see Appendix I for a list of Private Multinational Water Corporations]. “These few multinationals manage to restrict competition, both at the international and local levels. In France, Suez and Vivendi ‘control 85% of the market’.” These two companies alone have a presence in “over 100 countries” (Prasad 2006, 681). Three of the largest private water companies are Suez and Vivendi Environnement, from France, and British-based Thames Water, owned by Germany's RWE AG. Other major players are Saur of France, and United Utilities of England working with US’s Bechtel. These six companies serve 300 million people in 56 countries. Switzerland’s Pictet Bank predicts that by 2015, 75% of European and 65% of US water utilities will be privatized.

These companies claim that they are not really privatizing water, but rather “managing utilities under in partnership with governments” (Marsden 2006). Jean-Luc Trancart, the Director of Suez, a private water company, would prefer if the “public water company owns the assets and the private sector operates the network. We are selling organization and knowledge, but we should not be spending capital” (Sjölander-Holland 2005, 123). Vivendi's President Olivier Barbaroux claims that "we do not sell water. You take the water and you give it back. Exactly the same amount. What we are doing is bringing the water to your home, making it clean for you to use, and then taking it back and putting it back in nature clean. And that is the service we are bringing" (Marsden 2006).

According to the Center for Public Integrity, privatization has been “concentrated in poorer countries where the World Bank has used its financial leverage to force governments to privatize their water utilities in exchange for loans” (Marsden 2003). An investigation by the CPI shows that these companies often work closely with the World Bank, “lobbying governments and international trade and standards organizations for changes in legislation and trade agreements to force the privatization of public waterworks” (Marsden 2003). Out of 276 loans for water projects between 1990 and 2002, 80 “called directly for privatization.” The IFC (International Finance Corporation) offers a “toolkit” on how to privatize. According to the IMF, financial stability “requires privatization and cutbacks in the public sector” (Sjölander-Holland 2005, 90-93).

However, privatization does not just mean large multinational corporations. More and more, small-scale and informal operators are taking a larger role in private water services, as are civic organizations providing water and sanitation services, “on a small scale and to low-income settlements. These operators are very different types of organizations from large water companies and, typically, play very different roles and operate on very different principles (e.g. on a not-for-profit basis)” (Budds & McGranahan, 2003).

== Reasons for public sector failures: ==

What is the cause of this trend towards privatizing? Why are communities willing to give up their public water works to foreign investors? Many blame the poor performance of the public water works: “The public utility in this country is not performing and corruption is said to be part of their activities, and we have the poor buying water at higher prices, so what do we do?” African water delivery NGO (Urquhart and Moore 2004, 12)

There are a number of reasons offered for the failure of the public sector to carry out its mission to deliver water to its citizens:


 * Lack of funding
 * Inefficiency
 * Condition of the infrastructure
 * Corruption
 * Availability of quality water/capacity
 * Inability of government to pay
 * Inability of consumers to pay
 * Lack of political will: governments don’t make water a priority

One of the more compelling arguments for privatizing is the inability or unwillingness of weak and corrupt governments to deliver water to their citizens. But there may be a chicken and egg syndrome to the weakened public sector. It becomes a vicious cycle: lending institutions like the World Bank force privatization which leads to underinvestment in public utilities, resulting in poorer performance, which in turn “stiffens the resolve” of privatization advocates, leading to the “abdication of state responsibility” (Sjölander-Holland 2005, 248-250). Furthermore, privatization does not always help countries with corrupt governments: in fact, privatization schemes are “most likely to be inefficient in precisely those countries where the bureaucracy is corrupt” (Prasad 2006 686). Many public utility stakeholders felt that if given the same policy reforms, the public sector could perform as efficiently as a private company (Urquhart and Moore 2004, 15).

Local governments often lack investment capital. Local water managers also lack the lobbyists and the money to influence political leaders the way huge corporations can: municipalities are “starved by an international leadership possessed with supporting private companies. Decisions are made on a global level, where those who are affected, the municipal water utilities, do not exert any influence over what happens….They have never been invited.” (Sjölander-Holland 2005, 154). This results in “unequal power relations between influential and well-resourced international water companies on the one hand, and fledgling and/or weak local democratic structures on the other” (Urquhart and Moore 2004, 12).

Private companies often promise to deliver a better service at a lower price. An “ICIJ investigation found, however, that governments often drive up water prices just prior to privatization to give water companies room to immediately reduce prices and win popular approval. Once a company has won the contract and lowered prices, it often quickly attempts to renegotiate for higher rates and reduced performance targets. In Buenos Aires, for instance, Suez-controlled Aguas Argentinas almost immediately put pressure on the government to renegotiate the concession contract for more favorable terms (Marsden 2003).

Others feel that: ''The private sector has not kept its promises nor complied with contracts...tariffs have been raised despite investment schedules not being met, services not being improved, corners being cut in favor of profits, and a reliance on expatriates who do not understand the local context or infrastructure. Donors, government agencies, regulators, and NGOs noted that, in theory, the private sector is not inherently better than the public sector'' (Urquhart and Moore 2004, 15).

Rather than uncritically accepting privatization programs, Jan-Erik Gustafsson, Associate Professor at the Department of Land and Water Resources at the Royal Institute of Technology in Stockholm wonders why development agencies don’t “help to build up national competence in the water sector” instead, insisting that overemphasis on privatizing undermines the “negotiating powers of poor countries.”

There are still those who feel strongly that because “the supply of a water is a natural monopoly, it should be managed by the public sector” (Sjölander-Holland 2005, 243), and believe, as Bouguerra (2006) does, that “only a public service has the three qualities of universality, equal access and unbroken service.” Can private corporations, who must ultimately answer to stockholders, guarantee this public good?

The World Bank is one of the strongest advocates for privatization: about 40% of all the projects it finances involve some form of private sector participation (World Bank 2004, 19). They feel that “private international financing is particularly important for small countries that do not have the capacity to raise funds from domestic public or private sources,” and insist that the private sector “has stimulated the development of more transparent, impartial regulation and greater disclosure of information: in short, greater accountability to consumers and taxpayers” (World Bank 2004 19). But even the IMF and World Band recognize that PSP [private sector participation] is not always superior to the public sector. Others argue “that if the World Bank applied the same energy and money to improving local utilities, [and] allow[ed] them to maintain control of their water systems, the local utility would actually perform better than private companies” (Marsden 2003).

The debate between the privatization advocates and the public sector supporters can become polarizing. Passionate accusations fly from both sides. But the truth is, both private and public sectors have failed to “reform, improve efficiency and financial sustainability, curtail political patronage, or expand access to or quality of services (Urquart & Moore 2004, 4).

While privatization may lead to “profitability of firms, productivity increase and efficiency,” most studies find that prices increase following privatization (Prasad 2006 675). Is increased efficiency coming at the expense of those least able to afford the service? Pedro Arrojo Agudo, President of the New Culture of Water Foundation, stressed that “access to drinking water is not so much a financial problem, but rather a political and democratic one…part of the problem has been prioritizing profit over access to water as a human right” (WWF 2006, 4).

== Profit Motive vs. Public Good ==

The 1st World Water Forum, held in Marrakesh, Morocco, in March 1997, “cautioned against treating water as a marketable good, and prioritized water and sanitation; shared water management; ecosystem conservation; gender equality; and efficient use of water “(WWF Bulletin 2006, 1) Larbi Bouguerra lists six reasons why the free market actually “makes the water problem worse:” (Bouguerra 2006, 120)
 * the primacy of profitability
 * the role of frenetic competition
 * the global race to build financial and industrial giants, which tends to poison economic and geopolitical struggles between countries for the control of natural resources
 * the role of absolute territorial sovereignty
 * contempt for the community interest
 * contempt for the principle of fair and reasonable use of the resource—as in the dispute between Turkey and Syria and Iraq

Private water companies, like all for-profit ventures, by their nature focus on markets that will earn them the most profits. This may result in focusing on areas with the greatest potential as opposed to areas that need water service most. For example, private companies “rarely have an interest in supplying rural areas of developing countries with drinking water” insists Patrick Point, claiming that “foreign capital is only interested in large markets with very limited risk” (Bouguerra 2006, 99).

The countries with the greatest needs do not receive the most aid: “lower-middle-income countries received over half of the total ODA [Official Development Assistance] for water and sanitation between 1990 and 2003” (Prasad 2006, 676). Additionally, “bankers and multinational water companies are looking for large-scale projects, with contract values of US $100 million upwards, in middle- to higher-income cities with at least 1 million inhabitants (for comparison, the usual water project size is between US$ 10–50 million)… Smaller urban centers are unlikely to be attractive unless they are high-income areas, or if they can be bundled with other locations or simultaneously served with a number of utility services” (Budds & McGranahan 2003).