Tomoko Sakuma
Japan Center for a Sustainable Environment and Society (JACSES)
Water privatization - what is the situation?
Since 1993, privatization of water management and supply
has been a condition in the World Bank's loan and debt reduction
programs. Regional development banks have implemented similar
policies on water privatization, particularly the Asian
Development Bank (ADB) is involved in many privatization
schemes in the region. Today, privatized water services
are controlled by only a handful of global water corporations,
and this trend towards oligopoly is only getting stronger.
Endorsed by the World Bank, the World Water
Forum (WWF) was initiated by World Water Council (WWC),
a private think tank established in 1996, which remains
dominated by global water corporations. The WWF is not an
official inter-governmental forum, but a biased body that
promotes water privatization as a 'more effective' model
of water management and supply, using the concept of Public
Private Partnership (PPP).
During the past decade, water corporations
have increased their global share of water services by tenfold,
causing a lot of problems around the world in the process.
It is no coincidence that global water corporations have
been forced to withdraw from water services in a number
of countries after citizens rejected their dissatisfactory
performance, for instance in Malaysia and Bolivia. The most
recent case was in January 2003 when a subsidiary of Suez
was forced to pull out of Atlanta, U.S., as a result of
worsened water quality and inefficient operation(*1).
At the same time, there are cases such as
in Manila and Buenos Aires, where water corporations simply
abandon 'non-profitable' water services, in the middle of
20-30 years concessions. Global water corporations are now
claiming that they cannot operate in unstable markets in
developing countries unless governments or international
financial institutions cover the investment risks, i.e.,
currency exchange risks or external public sector debt.
As a result of these developments, the situation
around water privatization and the perception of the issues
is changing drastically. Still, however, the Draft Summary
Report of the 3rd WWF reflects an unchanged basic position
by the WWF, promoting privatization. Concerned citizens
and NGOs from around the world worry that the position embodied
in the World Water Vision will be consolidated in the World
Water Action Plan (which is to be drawn up by next June),
and that the WWF's Ministerial conference will simply legitimize
the entire WWF process.
Problems with water privatization
Corporations are inherently profit-oriented, and thus the
discussion around privatization of any public service has
to anticipate the risks associated with handing the service
over to the corporations. Problems currently experienced
with water privatization includes:
1.Water conservation is not a priority.
2.Corporations only enter into profitable markets(*2), while
expanding the services to the poor is not high on their
agenda(*3).
3.Privatization often causes higher water rates, and once
privatized, supply often stops when fees is not paid(*4).
4.Privatization is often accompanied with large job-cuts,
but the number of employees per 1000 faucets is not significantly
different between private and public water services(*5).
5.Profits are not reinvested in improving the service, but
absorbed by the corporation to cross-subsidize other sections
of the corporation or to pay out dividends.
6.In order to hide the above mentioned corporate behavior,
many global water corporations do not disclose detailed
financial reports, just like in some cases the contract
documents are kept secret(*6).
7.The process of privatization is often a breeding ground
for corruption.
Moreover, the risks of investment that are
supposed to be taken on by the investors, are often passed
on to the service users, governments and IFIs in various
ways:
8.Corporations are offered special debt reduction
by IFIs, they are covered under the Multilateral Investment
Guarantee Agency (MIGA), or guaranteed profits by the governments(*7).
9.In order to avoid currency exchange risks, 'dollarization'
of government payments to the concessionaires is regularly
introduced(*8).
10.Other forms of public assistance is provided to the concessionaires,
such as subsidies for construction or operation, tax breaks,
or in some cases, financial assistance for job-cuts following
privatization.
11.There are several international dispute settlement cases
in which water corporations seek financial compensation
after they have abandoned non-profitable water concessions(*9).
Should we rely on corporations?
The rationale behind water privatization was the assumption
that only the private sector could provide the vast sum
of money needed to build and improve water infrastructure.
In reality, however, corporations are in various ways receiving
money from governments and IFIs. Successful privatization
by the definition of these corporations and the World Bank
in effect means directing water supply towards the needs
of the industrial sector and the urban wealthy who can afford
the high water rates, at the expense of the poor, subsistence
farmers and fishermen.
Indeed, the World Bank explicitly confirms
the emerging reality of corporations serving only the profitable
markets, while loss-making services are left for NGOs to
take on. This trend is a result of the WB's policy of forcing
indebted developing countries to repay debt by selling off
government enterprises and reducing social expenditure(*10).
The people who raise concerns about water
privatization do not simply accept municipal services the
way they currently are. What should not be forgotten is
that there is the option to allow only non-profit entities
to enter into concessions, as is the case for many welfare
or health services. Moreover, it is indispensable to assure
pro-active public participation in all phases of water management
and supply services, from decision-making to operation and
monitoring, in order to prioritize water conservation and
realize efficient and universal water supply, for instance
through cross-subsidizing.
The national governments and IFIs that gather
at the WWF should immediately redirect their financial means,
away from global water corporations and towards more participatory
water management and supply operations, for instance run
collaboratively by municipalities and residents.
(*1) Hall, David. Water multinationals in
retreat - Suez withdrawals investment. Jan. 2003.
(*2) Kitano, Naohiko and Kenichi Ariga. July 2000.
(*3) So-called 'Cream-skimming'. As in the case in Argentina,
where cross-subsidies were illegal after privatization,
it is more difficult for privatized services to maintain
cross-subsidizing, for instance because of public distrust
in corporations.
(*4) the worst outbreak of cholera has been experienced
in the KwaZulu-Natal province after the water privatization
two years ago, that forced the poor to drink dirty river
water instead of tap water they cannot afford. Jeter, Jon.
South Africa's Driest Season. Mother Jones Com. News, Nov./Dec.2002.
(*5) Hall, David. Water in Public Hands. June 2001.
(*6) 泥ocuments relating to the privatised Budapest Sewerage
Company, where Vivendi is the multinational, are kept secret,
even from council officials, and Budapest City Council debates
related issues only in closed sessions. In Morocco, a Suez-led
consortium was awarded a multiple concession for water and
energy in Casablanca by King Hassan, which the city council
was not even informed about until later. In Fort Beaufort,
South Africa, the contract prevents any member of the public
from seeing the contract without the explicit approval of
the company WSSA (owned by multinational, Suez-Lyonnaise)�.
Ibid.
(*7) In Cochabamba, Bolivia, US corporation Bechtel's subsidiary
was given the contract under which 18% return for its USD
200 million investment was guaranteed by the Bolivian government,
and the WB significantly reduced the amount of debt for
the private corporation. Once the corporation left the country,
the WB's debt reduction was cancelled.
(*8) Argentina's government promised to "dollarize"� its
payment to the corporation, but new legislation introduced
after the severe currency crisis effectively nullified the
promise, hence the departure of corporation.
(*9) Aguas del Tunari, a Bechtel subsidiary once operated
in Cochabamba, sued the Bolivian government for compensation
of USD 250 million. A Suez subsidiary is suing the Argentina
government for USD 300 million compensation after it left
the Buenos Aires water service.
(*10) Mohri, Ryoichi. Aug. 2000.
