Water privatization

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Water privatization is a short-hand for private sector participation in the provision of water services and sanitation, although more rarely it refers to privatization of water resources themselves. Because water services are seen as such a key public service, proposals for private sector participation often evoke stronger opposition than for other sectors. Globally, more than 90% of water and sanitation systems are publicly owned and operated.

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[edit] Types

There are two main types of private sector participation in water supply and sanitation, sometimes known as the "British Model" and the "French Model". The British model consists of privatising both the assets (water and sanitation network, treatment plants and so on) and the operation of the assets, whilst in the French model, the assets remain publicly owned. The British model is largely limited to England and Wales (the system is still public in Scotland and Northern Ireland), with only isolated examples elsewhere.

For the more common "French model" of keeping assets public and privatizing service operations, there are three major types, in order of increasing risk transfer to the private operator:

  • management contract, under which the private operator is responsible only for running the system, in exchange for a fee (usually performance-related). Investment is typically financed and carried out by the public sector, but implementation may be delegated.
  • lease contract, under which assets are leased to the private operator, who recoups the cost from end users. Investment is typically financed and carried out by the public sector, but implementation may be delegated.
  • concession, under which the private operator is responsible for running the entire system, including planning and financing investment. Concession contracts usually run for 20–30 years.

An additional structure, a BOT (Build-Operate-Transfer), exists for the carrying out of specific new investments, usually the construction of new water or wastewater treatment plants. The BOT contract involves the private partner constructing the plant and then running it for a number of years (during which payment is received for the treatment capacity provided) before handing it over to the public water company. The risk for the private company for these is often relatively low, especially when contracts relate to capacity provided (rather than services provided) and the water company takes the demand risk.

All these structures can be considered public-private partnerships. In some cases, the operating company is a joint venture between the public owner of the assets and the private company, which usually has at least day-to-day management control.

[edit] Reasons for privatization

Typically there are five reasons for attempting to involve the private sector in water supply and sanitation:

In developing countries, during the 1990s there has sometimes been pressure from international financial institutions such as the World Bank and IMF to introduce private sector participation in water supply and sanitation, for example through the imposition of loan conditionalities.

A recent World Bank paper summarised evidence on efficiency: "For utilities, it seems that in general ownership often does not matter as much as sometimes argued. Most cross-country papers on utilities find no statistically significant difference in efficiency scores between public and private providers." Note: exact quote missing - link does not function [1]

Currently, commercialisation or the corporatisation of water supply systems is more popular[who?] in developing world due to the failures of water privatization in some developing economies and the lack of interest by multinational water companies in commercially unattractive water supply systems.[clarification needed]

[edit] Impact of privatization

Fredrik Segerfeldt, the author of the book Water for sale, wrote in FT that 97 % "of water distribution in poor countries is managed by the public sector, which is largely responsible for more than a billion people being without water. - - In poor countries with private investments in the water sector, more people have access to water than in those without such investments. Moreover, there are many examples of local businesses improving water distribution. Superior competence, better incentives and better access to capital for investment have allowed private distributors to enhance both the quality of the water and the scope of its distribution. Millions of people who lacked water mains within reach are now getting clean and safe water delivered within a convenient distance."[2]

An empirical review of public-private partnerships for urban water utilities in developing countries by the World Bank concluded that they were "generally quite satisfactory". In 2007, 84 percent of contracts awarded mostly in the 1990s were still active, serving 160 million people in 41 countries. 24 other countries had reverted to public management. According to the report the most consistent contribution of private operators were improvements in efficiency (such as a reduction in non-revenue water) and in service quality (e.g. less water rationing and improved continuity of supply). However, the private operators contributed little in terms of finance. The report lists the following examples as successful public-private partnerships: Colombia, Chile, Guayaquil in Ecuador, several concessions in Brazil and Argentina, Cote d'Ivoire, Gabon, Senegal, Eastern Manila in the Philippines, Yerevan in Armenia and Morocco.[3]

In some cases, the price of water was previously subsidized, which lead to overconsumption. There privatization may have lead to an increased price (and hence less consumption and some resistance) for those having already access to the water, but also to increased investments and the extension of piped water supply to millions of other people, thus leading to lower child mortality and better drinking water to more people, also to those who have previously had to buy their water from very expensive private water-sellers instead of piped producers.[2]

In Chile, along water privatization, the access to piped drinking water in rose from 27 % of the population in the 1970s to 99 % in 2005.[4]

In Guinea, "the number of urban-dwellers with access to clean water tripled from two in ten, to seven in ten by 2001."[4]

In some cases the incompetent governmental supervision has caused problems, but in "Chile and Argentina, in Cambodia and the Philippines, in Guinea and Gabon" water privatization "has already saved many lives".[2]

[edit] England

Main article: Water privatization in England

The impact of private sector participation can vary substantially from one case to the other. In the case of water privatization in England, tariffs increased by 46% in real terms during the first nine years and operating profits have more than doubled (+142%) in eight years. On the other hand, privatization increased investments (in the six years after privatization the companies invested 17 billion Pound Sterling, compared to 9.3 billion Pound in the six years before privatization) and brought about compliance with stringent drinking water standards and led to a higher quality of river water.[5] However, it has been also argued that privatisation has led to both a decline in quality and supply with much of the infrastructure being left to decay.[6] Full-scale privatization with the sale of assets following the English example has been adopted by very few other countries, one of them being Chile.

[edit] Multinationals

Privatization is often associated with multinationals. According to Masons Water Yearbook 2004/5, 545m people (9% of the world population) were served by private providers. The number has declined since then after private concessions in Argentina and Bolivia have been cancelled. Of the three biggest multinationals active in the sector

The next biggest players are Aguas de Barcelona (35.2 million); SAUR (33.5 million); and United Utilities (22.1 million). Exceptionally, none of these are U.S.-based. Of the big three, Suez and Veolia are French-based, and RWE is German, although its water subsidiary (Thames Water) was originally British.

However, increasingly, domestic water operators are entering the market in Middle Income Countries (e.g. Brazil, Colombia, Malaysia, and China).

In addition, public utilities are going overseas and entering contracts that do not require investments (e.g. management contracts). Examples of these include Rand Water (South Africa) and Vitens (The Netherlands) winning the management contract in Ghana. The lines between public and private are thus blurring.

[edit] Opposition to water privatization

Privatization proposals in key public service sectors such as water and electricity are often strongly opposed. Opponents may include political parties, civil society groups, and wide groups of citizenry. Opposition to privatization includes fear that giving multinational corporations control over the necessities of life would be disadvantageous; that as a result profits would be valued over service, and expensive centralized projects will be undertaken to the exclusion (of even outlawing) of small wells or rain water collection. Past and current water privatization regimes and proposals have denied peoples rights to collect rain water.

According to PSIRU, a research unit at the University of Greenwich, this has been the case in England and Wales.[7] Usually campaigns involve demonstrations and political means. Those disadvantaged by water privatization have revolted in protest (eg Cochabamba Riots of 2000 in Bolivia). Other recent examples include Ghana and Uruguay (2004). In the latter case a civil-society-initiated referendum banning water privatization was passed in October 2004. A law banning privatization of public water supply was also passed in the Netherlands in September 2004, with broad cross-party support.

[edit] See also

[edit] References

  1. ^ World Bank
  2. ^ a b c Private Water Saves Lives, Fredrik Segerfeldt, Financial Times, August 25, 2005
  3. ^ World Bank / Public-Private Infrastructure Advisory Facility:Public-Private Partnerships for Urban Water Utilities: A Review of Experiences in Developing Countries, by Philippe Marin, 2009, Overview, p. 6-7
  4. ^ a b Hong Kong WTO Special, CFD Bulletin, Dec 2005
  5. ^ Water privatization and regulation in England and Wales, by Caroline van den Berg 1997
  6. ^ Colin Robinson: A 'crisis'in water? The wrong sort of privatisation, Economic Affairs, Volume 18 Issue 2, June 1998, Pages 25 - 29
  7. ^ PSIRU on UK water privatization (Microsoft Word format).

[edit] Sources

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[edit] Further reading

[edit] External links

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