Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Privatisation of waterPublic-private partnerships: do they deliver to the poor?    A report published by The Norwegian For...
This report is published by the ForUM working group on fresh water:Norwegian Church Aid (NCA)The Association for Internati...
TABLE OF CONTENTSEXECUTIVE SUMMARY...........................................................................................
3.6 Cochabamba, Bolivia......................................................................................................
EXECUTIVE SUMMARY                                   Regarding        the     international      financial                 ...
INTRODUCTIONOver the past 20-25 years public utilities have            donors as a strategy for financing waterbeen seen a...
1. PRIVATISATION AND WATERIn this chapter, we provide an overview of how        The IFIs promoted this policy package inpr...
1990s many donors supported extending                      and low levels of coverage, the public utilitiesprivate provisi...
public services rather than a question of equal        during the 1990s, peaked in 1997 and declineddistribution and owner...
1.4 Various types of water privatisationPrivatisation of water and sanitation services            private participation, a...
Photo: Knut Nyfløt, The Norwegian Development Fund                                                     11
2. PRIVATISATION OF WATER SERVICES – ACTORS ANDINTERNATIONAL POLICY FRAMEWORKThis section provides a more detailed        ...
2003 and beyond:                                WBG operatesacross the entire                                spectrum of p...
To reduce risk, the bank identifies                  Development Strategy (2002) emphasisesmechanisms such as protection a...
involvement we will return to in section           2.5.3.                 Box 2.1: Multi-donor initiatives involving the W...
people in rural areas and more than 90         weeks to table the bill in Parliament;million in the cities.               ...
AfDB further supports the full or partial      international private sector is seen as thetransfer of water resource devel...
trying to use access to European                  companies and conditionalities on bilateralagricultural markets as a car...
Other important traits in Norwegian              2.4.3 Disharmony between policy anddevelopment policy include the need to...
Public water utilities are blamed for poorBox 2.2: Norwegian development funds          management practice and inefficien...
Under negotiations on GATS, countries         France stood out as the only major countrycan request other countries to ope...
3. EXPERIENCES FROM WATER PRIVATISATION IN THE SOUTHIn this chapter, we have selected various case      Germanys Gauff Ing...
international courts (see box 3.1). The                  own pocket and the people of Tanzania will beGovernment of Tanzan...
3.2 Accra, GhanaDue to low access to clean water in Ghana,           Over the period from 1973 to 1998, the IDAwater suppl...
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Public private partnerships - Do they deliver to the poor?
Upcoming SlideShare
Loading in …5
×

Public private partnerships - Do they deliver to the poor?

2,806 views

Published on

ForUM for utvikling og miljø 2006. Rapporten drøfter ulike erfaringer med vannprivatisering i Sør, tar opp rollen til de internasjonale finansinstitusjonene og ser på hva må til for å nå tusenårsmålet om tilgang til vann.


Published in: Business
  • Be the first to comment

Public private partnerships - Do they deliver to the poor?

  1. 1. Privatisation of waterPublic-private partnerships: do they deliver to the poor? A report published by The Norwegian Forum for Environment and Development April 2006 1
  2. 2. This report is published by the ForUM working group on fresh water:Norwegian Church Aid (NCA)The Association for International Water and Forest Studies (FIVAS)The Norwegian Development FundWomens International League for Peace and Freedom (WILPF)The Norwegian Water MovementOslo, April 1st, 2006 (no joke)Front page: Collection of water is often a job for women and children, and can consume a lot of timeand energy which could have been spent on schooling and other activities. Photo: Ellen BirgitteStrømø, the Norwegian Development Fund.Written byJørgen Magdahl, The Norwegian Development Fund’s Youth (Spire) / Member of the Association forInternational Water Studies (FIVAS)Hege Sørreimd, The Norwegian Development Fund’s Youth (Spire)Elise Christensen, The Norwegian Development Fund / Board member of the Association forInternational Water Studies (FIVAS)Andrew Preston, The Association for International Water Studies (FIVAS)Terje Kronen, The Norwegian Forum for Environment and DevelopmentØystein Berg, The Norwegian Forum for Environment and Development2
  3. 3. TABLE OF CONTENTSEXECUTIVE SUMMARY......................................................................................................................... 5INTRODUCTION ..................................................................................................................................... 61. PRIVATISATION AND WATER.......................................................................................................... 7 1.1 The advent of privatisation ........................................................................................................ 7 1.2 Privatisation of water and sanitation –policy rationale........................................................... 8 1.3 Trends in privatisation of water supply and sanitation .......................................................... 9 1.4 Various types of water privatisation ....................................................................................... 102. PRIVATISATION OF WATER SERVICES – ACTORS AND INTERNATIONAL POLICYFRAMEWORK ...................................................................................................................................... 12 2.1 The World Bank......................................................................................................................... 12 2.1.1 Post-2003: less dogmatic, more pragmatic? ....................................................................... 12 2.1.2 Continuing pro-privatisation bias in World Bank strategies and practices .......................... 13 2.1.3 PRSPs and continuing conditionality ................................................................................... 14 2.1.4 World Bank partnerships ..................................................................................................... 14 2.2 Regional Development Banks ................................................................................................. 15 2.2.1 The Asian Development Bank (ADB) .................................................................................. 15 2.2.2 The African Development Bank (AfDB) ............................................................................... 16 2.2.3 The Inter-American Development Bank (IADB)................................................................... 17 2.3 Donor agencies ......................................................................................................................... 17 2.3.1 European Union ................................................................................................................... 17 2.3.2 Bilateral agencies ................................................................................................................ 18 2.4 Norway in the spotlight ............................................................................................................ 18 2.4.1 Water in Norwegian development policy ............................................................................. 18 2.4.2 Norway’s position on water privatisation ............................................................................. 19 2.4.3 Disharmony between policy and practice? .......................................................................... 19 2.5 Other reinforcing structures and institutions ........................................................................ 20 2.5.1 OECD................................................................................................................................... 20 2.5.2 General Agreement on Trade in Services (GATS) .............................................................. 20 2.5.3 Multinational corporations.................................................................................................... 21 2.5.4 Consultants .......................................................................................................................... 213. EXPERIENCES FROM WATER PRIVATISATION IN THE SOUTH................................................ 22 3.1 Dar es Salaam, Tanzania .......................................................................................................... 22 3.2 Accra, Ghana ............................................................................................................................. 24 3.2.1 World Bank involvement in Ghana ...................................................................................... 24 3.2.2 Ghana Water Company Limited and Public Private Partnership......................................... 24 3.2.3 The urban water project in Accra......................................................................................... 24 3.2.4 The Price of Water............................................................................................................... 25 3.2.5 The National Coalition Against Water Privatisation ............................................................. 25 3.2.6 Critique of the privatisation of GWCL .................................................................................. 25 3.3 South Africa ............................................................................................................................... 26 3.3.1 Government policy – a neoliberal success? ........................................................................ 26 3.3.2 An alternative approach: Public-public partnership ............................................................. 27 3.4 Manila, the Phillippines ............................................................................................................ 28 3.4.1 High expectations ................................................................................................................ 28 3.4.2 Unfulfilled promises ............................................................................................................. 28 3.4.3 Cholera and increased water rates...................................................................................... 28 3.4.4 Ondeo terminates the contract and leaves a huge public debt ........................................... 29 3.5 Buenos Aires, Argentina .......................................................................................................... 29 3.5.1 Water privatisation as the only solution ............................................................................... 30 3.5.2 Renegotiation and cherry-picking ........................................................................................ 30 3.5.3 Lack of regulation and failed promises ................................................................................ 30 3.5.4 Public resistance and lay-offs .............................................................................................. 31 3.5.5 Compensation for risky business......................................................................................... 31 3
  4. 4. 3.6 Cochabamba, Bolivia................................................................................................................ 32 3.6.1 What next? After the Water War.......................................................................................... 32 3.6.2 Financing ............................................................................................................................. 32 3.7 Kibera Slum, Nairobi, Kenya .................................................................................................... 34 3.7.1 The situation in Kibera ......................................................................................................... 34 3.7.2 Experiences with commercialisation of water and sanitation services ................................ 34 3.8 Uganda ....................................................................................................................................... 35 3.8.1 Reforms of the management ............................................................................................... 35 3.8.2 Enhanced performance from learning ................................................................................. 35 3.9 Olavanna Village, Kerala, India ................................................................................................ 37 3.9.1 The first initiative .................................................................................................................. 37 3.9.2 The success story and learning points ................................................................................ 37 3.10 Case study findings ................................................................................................................ 39 3.10.1 Lack of regulation & democratic accountability ................................................................. 39 3.10.2 Public resistance................................................................................................................ 39 3.10.3 Higher prices...................................................................................................................... 39 3.10.4 Policies in contradiction with experiences ......................................................................... 39 3.10.5 Corporate monopoly and corruption .................................................................................. 39 3.10.6 Cherry picking .................................................................................................................... 39 3.10.7 Public subsidies to pay for corporate risk .......................................................................... 39 3.10.8 Renegotiation..................................................................................................................... 404. CONCLUSIONS AND RECOMMENDATIONS ................................................................................ 41 4.1 In general, privatisation has failed .......................................................................................... 41 4.2 Policies ignore experience....................................................................................................... 42 4.3 The way forward........................................................................................................................ 42 4.4 Recommendations .................................................................................................................... 43 4.5 End note to civil society and governments in developing countries:................................. 44REFERENCES ...................................................................................................................................... 454
  5. 5. EXECUTIVE SUMMARY Regarding the international financial institutions (World Bank, IMF, etc.):The purpose of this report has been to • ensure that water privatisation is notdocument and discuss: included as a condition for financial support from the World Bank or any of the1. How privatisation has been promoted by IFIs;international financial institutions and other • reduce support to institutions, funds anddonors as a strategy for financing water partnerships that, without exception,services. support private sector development in the2. Effects on the poor of different kinds of water sector;privatisation of water services in developing • ensure that governments have the right tocountries. subsidise water to secure adequate3. Policy recommendations for the provision of access for all;water to the poor. • advocate the World Bank’s abandonmentThe report reviews how the World Bank and of their push for privatisation in all activitiesother international institutions and donors have and on all levels;promoted privatisation during the last two • cancel the debt of developing countries indecades through privatisation conditionalities order to free public funds for expanding theand a focus on the private sector as the access to water;solution to financing needs in the water and • advocate a World Bank strategy aimed atsanitation sector. The World Bank says it improved public and community-controlledacknowledges the difficulties with privatisation, water delivery.but remains wedded to its belief in the Regarding Norwegian bilateral aid:underlying rationale of private participation and • ensure that recipient countries are notcontinues to find new ways to encourage forced into privatisation;private investment. • ensure that water privatisation is not madeCase studies from Africa, Latin America and a condition of Norwegian multilateral andAsia, show that privatisation involving bilateral aid, loans or debt forgiveness;multinationals often leads to higher prices for • ensure that water supply is affordable forthe poor, disconnections and in some cases the poor;cancellation of contracts, leaving water • gain and demonstrate the consent of civilinfrastructure in a worse state than before. The society before policies of waterreality on the ground contradicts the continued privatisation are promoted, and involveenthusiasm of international institutions and them in questions of regulation anddonors for privatisation as a solution to global decision-making;water needs. Alternative forms of water • strengthen transparency, governance andmanagement and provision, for example, local user participation in the water sector, andcooperatives and small-scale community- be open-minded to private ownership orcontrolled initiatives, provide examples of operations on the community level if thedifferent, more viable solutions. public service does not work; • pay more attention to questions of local-Our conclusions are: level power and politics as well as local-• Water privatisation has failed to deliver to level understandings of water and the poor sanitation issues.• Water privatisation has undermined the human right to water Regarding WTO and GATS negotiations:• Water privatisation has taken place at the • take the position that all countries should expense of democratic principles and with withdraw their requests to developing minimal accountability to local citizens countries about privatisation of services in• Privatisation leads to foreign control and the water sector through the GATS monopoly agreement;• Developing countries have not proven • renegotiate bilateral and regional trade and profitable for multinational companies investment agreements which enable• With strong and competent public private water corporations to claim undue authorities, private actors may have a role “compensation” from public authorities via arbitration cases;Our recommendations to the Norwegian • ensure that governments have the right togovernment are: subsidise water to secure adequate access for everyone. 5
  6. 6. INTRODUCTIONOver the past 20-25 years public utilities have donors as a strategy for financing waterbeen seen as failing to provide water services services.in developing countries. In response to this, a 2. Effects on the poor of different kinds ofstrategy of privatisation within the water and privatisation of water services insanitation sector has been promoted developing countries.internationally since the 1980s. Private 3. Policy recommendations for the provisioncompanies were considered to be more of water to the poor.efficient than public utilities, and were expectedto be able to provide better water services, Chapter 1 provides an overview of howalso for people with low incomes. privatisation has been promoted as the solution to the problems of public servicesMany case studies show that privatisation in delivery in general, and water and sanitationthe water sector has negative effects, services in particular.especially in respect of provision of water tothe poor. Privatisation of water has, in many Chapter 2 gives an overview of internationalcases, led to unaffordable tariffs for people actors in the water sector and also looks atwith low incomes. Profit-based companies will Norwegian water policies and privatisation.normally only provide water to those they knowhave the ability to pay. Chapter 3 contains a collection of case studies from around the world illustrating waterThe purpose of this report is to document and privatisation projects.discuss: Chapter 4 consists of conclusions and policy1. How privatisation has been promoted by recommendations. international financial institutions and other MDG 7, target 10: “Halve, by 2015, the proportion of people without sustainable access to safe drinking water and basic sanitation” www.unmillenniumproject.org6
  7. 7. 1. PRIVATISATION AND WATERIn this chapter, we provide an overview of how The IFIs promoted this policy package inprivatisation has been promoted as the developing countries in the 1980s and earlysolution to the problems of both public service 1990s as Structural Adjustment Programsdelivery, in general, and water and sanitation (SAPs). In many cases, getting a loan fromservices, in particular. We also give an either of the two institutions, or evenoverview of privatisation trends in the water development aid from international donors,sector and discuss the various types of was made conditional on implementing a SAP.privatisation. Hence, many countries adopted these policies and removed state control and price subsidies1.1 The advent of privatisation from various areas of the national economy.Since the late 1970s and early 1980s, Opening up to privatisation and privateprivatisation has been put forward as one part investments in public services would reduceof a larger reform package intended to stabilise the need for government spending.economies and create growth. These reformswere based on the rationale in new economic SAPs were heavily criticised for havingtheory that state planning and expenditure detrimental effects, especially on the poor.were often less efficient than private actors Critics among civil society organisations claimoperating in a free market. that many of the policy recommendations, including privatisation, are still being promotedReforms, such as deregulation, reducing public by the IFIs, through policy frameworks such asexpenditure and privatising publicly owned the World Bank’s Poverty Reduction Strategyindustries, were recommended by the two Papers (PRSPs) and the IMF’s Povertymost important international financial Reduction Growth Facility (PRGF). The PRSPsinstitutions (IFIs) - the World Bank and the will be discussed in more detail in sectionInternational Monetary Fund (IMF), along with 2.1.3.the U.S. government (Hartwick & Peet 1999).The policy recommendations came to be In recent years, aid has changed in theknown as the “Washington Consensus” (box direction of ‘harmonisation’ and ‘globalised1.1). conditionalities’. Bilateral aid has become less competitive, better coordinated and better targeted. Greater cooperation between bilateral donors has increased the significance Box 1.1: Washington Consensus policy of multilateral programmes, with aid recommendations contributions being channelled in their direction, and increased the coordinated • Privatisation of state enterprises pressure on developing countries. This has led • Deregulation – abolition of regulations that to the reinforcement of policy conditions set by impede entry or restrict competition multilateral institutions. Moreover, decision- • Legal security for property rights making has moved to the international level, • Openness to foreign direct investment further away from democratic accountability, • Fiscal policy discipline but nonetheless still very much open to the • Redirection of public spending toward influence of multinational companies (Hall and education, health and infrastructure Motte 2004). The influence of these companies investment will be discussed further in section 2.5.3. • Tax reform – Flattening the tax curve • Interest rates that are market determined According to the 2003 Human Development and positive Report, privatisation is promoted through • Competitive exchange rates international or bilateral aid, as well as through • Trade liberalisation – replacement of institutions such as the World Trade quantitative restrictions with low and Organisation (WTO): uniform tariffs “The (…) push for private provision [of Source: Hartwick & Peet (1999) services] has come from donor policies advocating economic liberalisation and free markets to advance growth and development. Social services are frontier issues in this move to expand the private sector’s role. In the 7
  8. 8. 1990s many donors supported extending and low levels of coverage, the public utilitiesprivate provision and financing to social were blamed for “over-engineered” high-costservices, especially urban water supply. The solutions, requiring large government subsidiesWorld Trade Organisation’s General (Asher 1987). In general, a number of closelyAgreement on Trade in Services also related reasons have traditionally been seenencourages private entry into social services”. as the failure of the public water supply and sanitation service (see box 1.2). UNDP Human Development Report, 2003 The case for privatisation in the water supply1.2 Privatisation of water and sanitation – and sanitation sector stems, in part, from apolicy rationale belief that the private sector is better placed toThe 1980s were declared the “UN International undertake the kinds of investment necessary toDrinking Water Supply and Sanitation expand and rehabilitate water infrastructure.Decade”. The goal was to ensure that This belief has replaced the idea that politicseveryone in the world had access to adequate and political processes can provide thewater supply and sanitation within a decade, solutions to social problems, instead givingbut the goal was far from met. Thus, the neo- room for markets or market-friendly processes.liberal argument behind a pro-privatisationagenda expanding into a new sector was tied In short, the private sector is considered moreto an alleged failure of the public sector to effective and better able to provide capital thandeliver water in poor countries. governments as a result of competition and the pursuit of self-interest, such as maximisingThe increase in privatisation has largely been profits. This, in turn, solves social problems bydriven by a desperate need for increased providing expanded connections, better qualitycapital investment in water supply and and prices – also for the poor, according to thesanitation (WSS). theory and the World Bank: Box 1.2: Reasons given for the failure of public water supply and sanitation services Lack of efficiency: public water and sewage utilities tend to be inefficiently managed since governments have multiple objectives, but limited financial resources. With the government as bothowner and provider, the manager of the utility is subject to a number of conflicting influences, which it may not be able to balance, if clear priorities are not established. In this line of argument, lack of efficiency is seen as closely related to: Absence of competitive discipline: since public utilities are not usually subject to the discipline of the market (competition) they have fewer incentives to minimise costs and provide services in the manner which customers demand. Lack of access to capital: because government budgets are strained, most public utilities have insufficient financial capital to undertake the necessary investments to maintain services. It is argued that private companies are better placed to access capital, both domestically and internationally. Source: Ascher (1987)In many Least Developed Countries (LDCs) “The reality is that the private sector has thethe combination of rapidly growing populations, capacity and the interest to serve the poor, isurbanisation; reduction in assistance for public willing to experiment with low cost options, andwater supply and sanitation services from different levels of service, and with greaterinternational development agencies; and the efficiency can benefit all consumers”.gradual downscaling of the state sector, meanthat public sources of finance are not sufficient World Bank quoted by Catley-Carlson (2002),for the rehabilitation and expansion of the in Emanuele & Hall (2003), p 29.infrastructure. Facing problems of inefficiency Resolving the water crisis has become a question of reducing the state and “reforming”8
  9. 9. public services rather than a question of equal during the 1990s, peaked in 1997 and declineddistribution and ownership. Completely absent after this. This applies both to the number offrom the so-called “crisis of the state” argument World Bank privatisation projects and to thehas been the fact that some governments in amount of private investment provided. Tabledeveloping countries have been unable to 1.1 gives an overview of total privateafford investments in their water services. investments in the water and sanitation sector.These governments are recovering fromfinancial crises, asphyxiated by IMF-imposed As IFIs started to promote privatisation in thestructural adjustment programs and ‘cash- water sector as part of “reforms” in developingstrapped’ by being forced to spend a huge countries, bilateral development agencies,percentage of their annual budgets on debt such as the United Kingdom Department forservicing. Moreover, the debt relief process International Development (DFID) and theunder the Heavily Indebted Poor Countries United States Agency for International(HIPC) initiative is used in most cases to push Development (USAID), followed suit. This ledprivatisation as a set of policy conditions to privatisation of water utilities in cities in Asia,required to qualify for the relief process (World Latin America and Africa, and became aDevelopment Movement, 2005). central development policy during the 1990s.The process of privatisation has led to much Estimates indicate that only 10% of the world’scontroversy and is an intensely political population is currently served by privatephenomenon. There is a tendency to providers (World Bank 2006). However, theredepoliticise privatisation as simply a standard are major regional differences (WSSCC 2003).economic and commercial transaction between See table 1.1 for an overview of private sectorusers and private service providers. Still, investment by region.privatisation creates a new situation, shiftingutilities from governments towards the market, “From 1990-2004, 54 low and middle-incomeaffecting the way civil society normally countries had private activity in their Water andarticulates its needs and affects democratic sewerage sectors. In those countries, 307input (Gutierrez 2003). Hence, privatisation Water and sewerage projects with privatehas highly politicised the question about water participation, involving investmentsupply and sanitation provision. The battle is commitments for about US$41 billion, reachedfought by a range of actors, from civil society financial closure. Latin America and theorganisations in poor countries strongly Caribbean and East Asia and Pacific were therejecting the strategy, to bilateral donors and most active regions, accounting for about 51%multilateral financial institutions promoting it, and 38% of total investment, respectively.often through policy conditionality. Concessions were the most frequent form of private participation in the sector, representing1.3 Trends in privatisation of water 42% of the projects and 64% of totalsupply and sanitation investment. […] Some of those deals,Until the 1990s, there were few large private however, turned sour. Of the 307 projects, 21initiatives in water and sanitation infrastructure representing 37% of investment to the sector,and services. Privatisation in the water and were either cancelled or under distress bysanitation sector (WSS) accelerated sharply 2004” http://ppi.worldbank.org [online 26.03.2006] Number of Investment Region projects (2001, US$ billions) Investment (%) East Asia and the Pacific 90 15,90 38 Europe and Central Asia 56 3,80 9 Latin America & Caribbean 137 21,00 51 Middle East & North Africa 8 0,24 1 South Asia 2 0,22 1 Sub-Saharan Africa 14 0,23 1 Total 307 41,36 100 Table 1.1 Private participation in water and sewerage projects in low- and middle-income regions, 1990–2004. Source: http://ppi.worldbank.org [online 26.03.2006] 9
  10. 10. 1.4 Various types of water privatisationPrivatisation of water and sanitation services private participation, albeit non-commercialhas many variations. The World Bank uses and people-centred, in the provision offour different categories for private participation community water services.projects: concessions; management and leasecontracts; greenfield; and divestiture projects. Another aspect is how much of the waterThe term “privatisation” usually refers to one of service is privatised. There is great varietythese types. Service contracts are another here: from concessions and managementvariation (see box 1.3). contracts, with the private operator assuming control of the whole operation for a period ofThere are many ways to describe the various time, to service contracts, involving limitedtypes of privatisation. One important aspect is specific tasks, such as installing meters,the degree of influence that ordinary people repairing pipes or collecting bills. A specialhave on the projects. The type of privatisation type of privatisation occurs when the publicthat involves multinational companies usually authority actively out-sources the managementmeans less democratic influence and and operations of water and sanitation servicesaccountability. In contrast, small-scale projects, to cooperatives or local, democratically basedrun by cooperatives or local, democratically organisations (as described in section 3.9)based organisations, usually provide a basisfor local influence on water delivery. All the types of privatisation mentioned below may involve public-private partnershipsWhile these other local forms of water delivery (PPPs), where the operating company is a jointare not strictly “privatisation” (and are therefore venture between the public owner of the assetsnot included by us in box 1.3), they do and the private company, which usually has aconstitute alternative ways of increasing form of management control over the utility.Box 1.3 Privatisation typesProject type Description1. Concessions Operations and management contract with major capital expenditure. A private entity takes over the management of a state-owned enterprise for a given period during which it also assumes significant risk.2. Management and lease Operations and management contract where a private entity takes overcontracts the management of a state-owned enterprise for a given period.3. Greenfield projects A private entity or a public-private joint venture builds and operates a new facility.4. Divestiture A private consortium buys an equity stake in a state-owned enterprise. The private stake may or may not imply private management of the company.5. Service contracts Usually short-term agreements whereby a private contractor takes responsibility for a specific task, such as installing meters, repairing pipes or collecting bills.Sources: UN Habitat (2003) and World Bank (2000)10
  11. 11. Photo: Knut Nyfløt, The Norwegian Development Fund 11
  12. 12. 2. PRIVATISATION OF WATER SERVICES – ACTORS ANDINTERNATIONAL POLICY FRAMEWORKThis section provides a more detailed As pointed out in chapter 1, this relates tooverview of the comprehensive and the idea that the public sector is unable topervasive international policy framework provide the necessary services, andthat serves to facilitate and encourage the therefore the need to find a role for theprivatisation of water and sanitation private sector.services. As mentioned in chapter 1, keyactors in this framework are the 2.1.1 Post-2003: less dogmatic, moreinternational financial institutions (IFIs), pragmatic?such as the World Bank and regional Since 2003, however, the World Bankdevelopment banks, and bilateral donor appears to have acknowledged difficultiesagencies, including Norway. The pro- with privatisation of water supply andprivatisation policies and practices of sanitation. Officials say that the Worldthese key actors are reinforced by the Bank has adopted a less dogmatic, moreactivities and ambitions of other important pragmatic approach to privatisation andactors, such as the OECD, the World that the World Bank has moderated itsTrade Organization (WTO) and policies (World Bank 2006b).multinational corporations. Only about 5% of private investment in infrastructure goes to the water and2.1 The World Bank sanitation sector (World Bank 2006).The World Bank provides loans to over Furthermore, private investments areone hundred developing economies, with heavily concentrated in relatively low-riskthe declared aim of helping the poor. The economies in East Asia and Latin America.hundreds of millions of people worldwide Thus the World Bank concludes thatwho lack access to water supply and financial markets have a reduced appetitesanitation are one of its target groups. for risk and that the level of financing is unlikely to recover soon (World BankSince 1993, the World Bank has promoted 2004).privatisation as an answer to the watersupply and sanitation crisis. The Water Some moderation in language can beResources Management Policy Paper discerned in a number of important World(1993) states that water should be treated Bank strategy documents, such as theas an economic commodity, with an Infrastructure Action Plan (World Bankemphasis on efficiency, financial discipline 2003b), the World Banks Program forand full cost-recovery, including profits. Water Supply and Sanitation (World BankThe strategy requires caution on cross- 2004b), as well as operational guidancesubsidies and budgetary transfers to for World Bank staff on public and privatesubsidise connections (Royeen 2002). roles in water supply and sanitation (WorldAlthough this policy was criticised for not Bank 2004c). The World Bank says it willtaking local concerns into consideration, support operations across the entirethe main thrust of this policy was spectrum of public and private andcontinued in the Water Resources Sector respond “to country demand by offering aStrategy in 2002, building on the 1993 broad menu of options for public andreports argument: “the obvious need (…) private sector infrastructure servicefor private sector involvement if the huge provision”. (Ibid).financing needs are to be met” (WorldBank in Hall et al 2001). See figure 2.1 for illustration.12
  13. 13. 2003 and beyond: WBG operatesacross the entire spectrum of public and private Public Private 1980s: Late 1990s: reliance bricks and mortar on private sectorFigure 2.1 The World Banks changing rhetoric. Source: World Bank Infrastructure Action Plan, 20032.1.2 Continuing pro-privatisation bias inWorld Bank strategies and practicesDespite acknowledging the difficulties and Ban 2004b). In 2005 the World Banka degree of moderation in its language, states that several hundred water supplythe content of the World Bank strategy and sanitation utilities in developingpapers still demonstrate a clear bias countries have improved managementtowards privatisation and a considerable efficiency, transparency andscepticism towards the public sector. responsiveness to consumers through privatisation.For example, the implementation progressreport of the World Bank Private Sector Also, support for the public sector isDevelopment Strategy (2003a) admits to provided on much stricter terms thanproblems with the privatisation strategy. support for the private sector. WhileBut, instead of calling for an end to the financing public sector utilities will "dependpromotion of privatisation, the report states on an assessment of its financial strengththat “these problems do not undermine the and past operational performance" (Worldbasic rationale of private participation”. Bank 2004c), statements about the privateThere is a continued belief that well- sector have a quite different tone. Here,designed private participation schemes the World Bank will support “a broad rangecan lead to more efficient and better of private participation options” and “aquality services. The report concludes that broad range of Bank Group instrumentsthe "problems confirm the fundamentals of are available to support privateefficient private provision while also participation” (Ibid).suggesting the need for some innovativeapproaches based on these fundamentals In their efforts to improve privatein order to address client needs and participation in the water sector, the Worldconcerns.” (Ibid). Bank’s strategy papers emphasize new ways to reduce risk for multinationalFurthermore, the World Bank portrays the corporations: “Private internationalprivatisation experience in positive terms. financing is particularly important for smallThe World Banks program for water countries that do not have the capacity tosupply and sanitation from 2004 states raise funds from domestic public or privatethat during the last decade the entry of sources. To stimulate private investmentprivate sector operators has challenged there is a need for a more collaborativethe idea of permanent, unregulated, public public-private partnership, an approach inmonopolies and stimulated better which the World Bank has a role to play.”performance among all operators (World (World Bank 2004a). 13
  14. 14. To reduce risk, the bank identifies Development Strategy (2002) emphasisesmechanisms such as protection against water privatisation and explicitly states thispolitical risks, currency risks, and as a priority for PRSPs.structuring municipal finances to supportprivate involvement. These instruments Statistics also show that World Bankfollow the recommendations of the lending in water supply and sanitation fromCamdessus Report (WPFWI 2003)1. The 2000–2003 had an increasing emphasisreport recommended stimulating more on privatisation and cost-recovery. Inprivate investment with guarantees against 2000, 91% of World Bank funds in thepolitical and currency risk (essentially sector were tied to privatisation and 98%providing public subsidies to reduce the of the funds promoted cost-recovery. Inrisks for multinationals); and giving a 2003 all loans promoted privatisation andgreater role to consultants, funding private 99% promoted cost-recovery (Publicconsultancy companies and their work Citizen, 2004).facilitating public sector “reform”. Theserecommendations represent a new WSS Another study indicates that conditionalitystrategy and a new wave in the promotion prevents governments from making upof privatisation. In addition, the strategy is their own minds about privatisation.important due to its role as a coordination Looking at conditionalities attached tostrategy implemented by key institutions, water supply and sanitation reform acrosssuch as the World Bank (see countries, one can see manyhttp://www.forumfor.no/?id=1421 for an commonalities: legislative reforms toanalysis of the report). enable provision of water supply and sanitation services by others than theThe World Water Council published the central government; increased costfollow-up of the Camdessus Report, recovery; regulatory reforms to improvenamed the Gurria Report in March 2006 regulators’ ability to monitor contracts; and(WPFWI 2006)2. Stressing the need for leasing service provision or managementdecentralized water provision, demand- contracts to the private sector in urbanresponsive approaches and full cost areas (Water Aid, 2003).recovery, the report still embraces privatesector participation and public-private 2.1.4 World Bank partnershipspartnerships. The World Bank takes part in and organises a network of actors with differing2.1.3 PRSPs and continuing conditionality roles: forums, lobby organisations, thinkThe most comprehensive strategy tanks and partnerships with otherframework, developed by the World Bank international donors. The purpose is toand supported by almost all bilateral provide “advice” on water reform anddonors, is the Poverty Reduction Strategy create good investment climates. ThePapers (PRSPs). As mentioned in chapter different institutions and programmes are1, these papers have substantial impact typically created by the World Bank inon a country’s development policy. A partnership with at least one other donor,review of 50 PRSPs provides clear and most include funding for increasingevidence of a continuing bias towards private sector provision in water supplywater privatisation (World Development and sanitation. For an overview of theseMovement 2005b). According to the institutions and funds, see box 2.1.findings of this review, nearly two-thirds ofthe PRSPs specifically include water The numerous partnerships andprivatisation or greater private sector organisations, some more important thaninvolvement in water supply services. others, are key players, supplying financeNone include a review of such privatisation and advice for the promotion of waterpolicies and not a single strategy paper privatisation (Royeen 2002). Althoughhas, as a goal, to keep water and many of the institutions appear to besanitation under public management. This neutral, aiming to promote dialogueoutcome is not surprising, considering the between stakeholders, they are in realityfact that the World Bank Private Sector biased towards water privatisation. The World Bank’s involvement in these1 rd Prepared for the 3 World Water Forum in Kyoto, strategic partnerships provides legitimacy2003. to multinational corporations (Ibid), whose2 Prepared for the 4th World Water Forum in MexicoCity, 2006.14
  15. 15. involvement we will return to in section 2.5.3. Box 2.1: Multi-donor initiatives involving the World BankBusiness Partners for Development (BPD)Initiated by the World Bank, BPD acts as an industry promoter of privatisation. It supports andfinances private sector initiatives in infrastructure and water supply and sanitation. Thisincludes loans to private companies and currency guarantees to reduce the risks of localcurrency fluctuations when financing infrastructure.Global Partnership on Output Based Aid (GPOBA)This was created by the World Bank and the UK in 2003 and provides subsidies to privatesuppliers that provide infrastructure services, specifically enabling provision to the poor.1Global Water Partnership (GWP)Created in 1996, with strong support from the World Bank, this has been a leading advocateof private sector management in water supply and sanitation. This is also one of its main toolsfor improving services.Private Infrastructure Development Group (PIDG)The World Bank donates to the fund, which exists to support and finance private sectorinitiatives in infrastructure and water and sanitation, such as loans to private companies andcurrency guarantees to reduce the risks of local currency fluctuations when financinginfrastructure.Public Private Infrastructure Advisory Facility (PPIAF)This is hosted by the World Bank and is the main multi-donor facility funding consultants thatadvise governments on introducing the private sector into infrastructures such as watersupply and sanitation.Water and Sanitation Program (WSP)The program is administered by the World Bank and receives direct funding from, amongstothers, Norway. Contributions are channelled through trust funds1 such as the NorwegianTrust Fund for Private Sector and Infrastructure (NTF-PSI)1. This funding covers managementand staff costs, operational expenses, and hired consultants.Water Utility Partnership (WUP)This is funded by the World Bank with the main goal of creating an enabling environment forthe water sector reform. It promotes “Private Public Partnership” as a tool to improve accessto financing and the management of water and wastewater services.World Water Council (WWC)A water policy think-tank established in 1996 as part of recommendations by the World Bank,promoting, amongst other things, closer ties between public authorities and the private sector.Source: World Development Movement (2005a)2.2 Regional Development Banks 2.2.1 The Asian Development Bank (ADB)In addition to the World Bank and its In Asia, water resources are under seriousrelated multi-donor initiatives, all three pressure. Freshwater investments areregional development banks, in Asia, amongst the lowest in the world, and yetAfrica and Latin America, have policies over the next 15 years it is estimated thatthat facilitate and encourage privatisation. one billion more people will have to share Asia’s limited water supplies. Today, one in three Asians lack access to a safe drinking water source, affecting 700 million 15
  16. 16. people in rural areas and more than 90 weeks to table the bill in Parliament;million in the cities. otherwise, the loan would be cancelled.In October 2001, the Asian Development A comprehensive implementation reviewBank (ADB) set out its vision for integrated of the ADB Water Policy got underway inwater management in the region. June 2005. Combining in-countryDescribing water as “a socially vital consultation workshops and regionaleconomic good,” (ADB nd/a), the ADB’s workshops, the review will assess“Water for All” policy focuses on seven progress and the need for policy revisions.principal elements, one of which is theimprovement and expansion of the 2.2.2 The African Development Bankdelivery of water services (ADB nd/b). (AfDB) According to AfDB, the development ofADB clearly believes that service Africa’s water resources is one of its keyexpansion can best happen with private objectives. AfDB has been involved in aactors. According to its water policy, variety of initiatives to help meet the“governments should change their role challenge of providing safe water andfrom service provider to regulator. sanitation to the roughly 300 millionAutonomous and accountable providers people, predominantly in rural areas, whocan best provide water services.” (ADB currently lack access.nd/b). The policy goes on to say that ADB“will support the enabling environment for The Rural Water Supply and Sanitationprivate participation in the water sector, Initiative (RWSSI) is an AfDB initiativeand help to develop the safeguards that aimed at providing water supply andensure equitable access for the poor.” sanitation to 80% of the rural population of(Ibid). Further, “consumers should expect Africa by 2015, and 100% by 2025. Theto meet the full operating and maintenance first International Donors’ Conference forcosts of water facilities and service this initiative was held in April 2005.provision in urban and rural water supplyand sanitation schemes.” (ADB nd/c). The African Water Facility (AWF) is a special water fund managed by AfDBThe ADB water policy regards subsidies which aims “to improve the enablingas a controversial issue. Subsidies will be environment and strengthen watersupported in certain circumstances, such resources management so as to attractas when “a limited quantity of treated massive investments necessary to achievewater for the poor is regarded as a basic the regional objectives” (AfDB nd/a).human need,” but, in the long term, Canada, the EU and France already“governments and regulatory agencies will support the AWF, while the Nordicbe persuaded to phase out subsidies as countries and Japan have signalled theireconomic conditions improve.” (ADB nd/c). intention to support the initiative. The AWF hopes to raise over US$600 million forADB has not been loath to use its “facilitation activities” and capitalinfluence to push through policy reforms at investments.the national level, in spite of publicopposition. In Sri Lanka, ADB agreed to Other initiatives, in which AfDB is activelyfinance a major programme of water involved, include the NEPAD Waterinfrastructure development on condition Resources Management Program and thethat the private sector was brought in to Netherlands-backed Water Partnershipprovide the services. ADB’s eagerness to Program.see water services privatised becameeven more apparent in the wake of the As pointed out in chapter 1, the publicDecember 2004 tsunami. Despite the sector is not regarded as sufficient to meetextensive destruction wrought by the investment needs in the water sector.tsunami, the ADB insisted that previous According to AfDB, it is essential todeadlines for privatisation reforms be kept. mobilise the private sector at both localJust four days after the tsunami struck, a and international levels to meetdraft bill to legalise water privatisation investments needs estimated at US$20received Cabinet approval. (MONLAR billion per annum, to reach RWSSI targets2005). Thereafter, Sri Lanka had only 10 (AfDB 2000).16
  17. 17. AfDB further supports the full or partial international private sector is seen as thetransfer of water resource development panacea.and management to “restructured publicagencies, private agencies or water user A recent review of the IADB water andassociations.” (AfDB 2000). These sanitation portfolio from 1996 to 2003institutions should be “accountable and yielded the following conclusions (Publicautonomous” (Ibid), echoing the words of Citizen nd):the Asian Development Bank. • Some of the largest IADB loans went directly to water multinationals afterOn subsidies, however, AfDB contrasts they were granted private concessionswith ADB. While recognising that in Argentina, Bolivia and Honduras.experience with direct subsidies on water • A large number of IADB loans requirehas been mixed, the AfDB advocates the states, provinces or municipalities tointroduction of cross-subsidisation: open their doors to private sector participation in order to be eligible for“One effective way of assisting the poor is IADB loans.the introduction of cross-subsidisation, in • A large proportion of IADB loanswhich richer consumers cover a part of the promote so-called reform of the watercost of providing services to the poor. This and sanitation sector that is based oncan be done by introducing a progressive changing legal and institutionalblock tariff schedule, in which a low price arrangements so that private sectoris charged for a limited lifeline amount of investment in the water and sanitationwater, with higher prices for additional sector will be secure and profitable.levels of consumption”. (AfDB 2000). An example of the latter is the recent loanAnother favoured strategy is “transfer agreement between the Nicaraguanpricing” between urban and rural water government and IADB. The agreementsupply, with a special levy on urban seeks to facilitate water privatisation in thehouseholds and industries to subsidise the long term, but also requires that thecost of developing rural water supply and contract is awarded to an internationalsanitation. service provider. Increasingly, IADB conditions for loans do not requireAfDB explicitly seeks to “facilitate private privatisation explicitly, but rather “prepareparticipation and implementation of cost the ground” for privatisation.recovery measures, without jeopardisingaccess by the poor.” (AfDB 2000). 2.3 Donor agencies2.2.3 The Inter-American DevelopmentBank (IADB) 2.3.1 European UnionFor the last decade IADB has been the The European Union (EU) has openlylargest multilateral lender of development advocated privatisation of water servicesfinance for Latin America and the in developing countries. At the WorldCaribbean. This gives the institution Summit on Sustainable Development intremendous power to impose lending Johannesburg in September 2002, itconditions such as privatisation and launched the EU Water Initiative. This setderegulation. Since its creation, IADB has out to channel €1.4 billion from various EUbeen active in the water sector, development aid funds into public-privatepredominantly financing projects in partnerships in Africa, the former Sovietsanitation, hydropower, and irrigation and Union, and later Latin America (CEOdrainage, but also in other areas such as 2003).watershed management, flood control andwaterway projects. Since 1961, IADB has This was followed by the launch of a € 500invested almost US$1 billion per year in million Water Facility for the 77 African,water-related projects, and this trend is Caribbean and Pacific (ACP) states inexpected to increase in the near future 2004, again intended to provide public(www.iadb.org). IADB’s Water and finance to companies looking atSanitation programme commits the developing markets in the water sector.institution to achieving the Millenniumgoals, which means providing services to Under the GATS negotiations underway in70 million new users. Involvement by the the WTO (see section 2.5.2), the EU is 17
  18. 18. trying to use access to European companies and conditionalities on bilateralagricultural markets as a carrot to get aid. The UK aid agency DFID promiseddeveloping and least developed countries £10 million to Ghana to fund a water(LDCs) to open up their water distribution expansion project, but on condition thatmarkets. The European Union has the country’s main privatisation processrequested 72 countries to open up their went ahead.water sectors to European serviceproviders. Although private companies Finally, governments push privatisationcurrently run only 5-10% of the world’s through conditionalities on thewater, 95% of that is in the hands of international arena, as mentioned in theEuropean companies (PSIRU nd). previous chapter. Increased use of multilateral mechanisms and greater donor2.3.2 Bilateral agencies coordination has reinforced policyA recently published report by the World conditionalities set by the IMF and theDevelopment Movement points to four World Bank.ways in which donor governments promotewater privatisation (World Development Another means by which donorMovement 2005a). governments advance private sector participation in public services is throughFirst, more and more governments are support to various institutions,using aid money to pay for consultancy programmes and trust funds, often withincompanies to advise poor countries on the World Bank, that promote privatereform of their water sectors. Companies, sector investments. One example of this issuch as the Adam Smith Institute and the Emerging Africa Infrastructure FundPricewaterhouseCoopers, are providing (EAIF), set up with the help of the Britishexpensive advice on how to make the government in 2002, which aims towater sector more attractive to foreign promote private sector investment incompanies. While governments appear to infrastructure in Africa. The fund ischoose privatisation as the best option, managed by Emerging Marketsthis is often on the basis of strong advice Partnership, a fund manager based in thefrom consultancies with a heavy bias in United States. Funding decisions arefavour of privatisation. This is a way of made without the involvement of nationalintroducing privatisation through the governments (PSIRU 2004).backdoor.Second, public relations offensives have 2.4 Norway in the spotlightbeen funded with aid money in order toconvince sceptical local communities that 2.4.1 Water in Norwegian developmentprivatisation is in their best interests: policy The 2004 White Paper on development“..-Should we believe in waiting for grace policy identifies three main challenges forto come down to us from above and we the water sector (St.Meld. 35 2004):are all adults? -We still have our country • the need to build up capacity toand it is at a standstill. -The children are manage water resources;singing -- saying that Tanzania is a • the enormous need for developmentbeautiful country full of natural resources financing in the water sector;and yet our developments are nothing! -If • and the need to prioritise the poor.theres no capital we will die of starvation! -And there are people with capital in the In discussion of these challenges, the roleworld and these are plenty! -Its better that and need for private investment is alwayswe call them and benefit. How many present. This reflects one of the keypeople have died and yet they were elements of Norwegian developmentunable to enrich themselves of their policy, namely support for private sectorcountry?” development. In 1998, the Norwegian “We need money” sung by Ebbo government presented a strategy to the (Tanzania), co-written and produced by Storting (Parliament) for support for private the Adam Smith Institute (World Bank nd). sector development in developing countries (Norwegian gvt 1998).Third, governments promote privatisationthrough subsidies to private water18
  19. 19. Other important traits in Norwegian 2.4.3 Disharmony between policy anddevelopment policy include the need to practice?safeguard the rights of the poor and to Norway’s recent withdrawal of demands toensure that recipient countries dictate the developing countries to open up theirshape of their own future. Development water sectors to market access is in lineassistance should be responsive to with its stated support for cross-subsidiescountries’ own plans, rather than imposed. and alternative pricing mechanisms. GATS rules prohibit subsidising poorer2.4.2 Norway’s position on water communities with profits from wealthierprivatisation areas.In October 2005, the newly electedgovernment of Norway declared that But, while Norwegian development policy“Norwegian aid should not go to insists on the need to safeguard the rightsprogrammes that contain requirements for of the poor and appears to be increasinglyliberalisation and privatisation.” sceptical towards privatisation, Norway(Norwegian gvt 2005). It followed this up in continues to provide substantial financialDecember by announcing that Norway and moral support to institutions andwould withdraw all its requests to programmes that actively facilitate anddeveloping countries, under GATS promote privatisation as a strategy.negotiations, to open up their watersectors to market access. The government In addition to its general support for theargued that these demands could be seen funding activities of the World Bank andas a potential barrier to countries’ the regional development banks, Norwaymanaging their public services (Støre contributed, in 2002, to the establishment2005). of a Norwegian Trust Fund for Private Sector Infrastructure (see box). NorwayWhile not ruling out privatisation has helped to finance the Water andcompletely, this bolder approach indicates Sanitation Programme (WSP),a greater scepticism to privatisation and administered by the World Bank, and hasgoes beyond the line adopted by the indicated its intention to contribute €1.5previous government, which million per annum for 3 years to theacknowledged the role of the private African Water Facility (AWF) of the Africansector, while also emphasising the need Development Bank. Norway also supportsfor proper government controls and both the Global Water Partnership (GWP)protection of the rights of the poor. and the Water Supply and Sanitation Collaborative Council (WSSCC).In March 2003, then former Minister forInternational Development, Hilde Frafjord Thus, a disharmony exists between officialJohnson, explained: Norwegian development policy, with its stated goals of safeguarding the rights ofIf government sets the right priorities and the poor and finding new ways toregulatory frameworks with regard to subsidise their water needs, and the realityaccessibility, pricing and sustainability, the of its support to international institutionsquestion of private versus public need not that choose to work differently. Thebe the most important.” (Johnson 2003). benefits of such an approach are not lost on the authors of the 2004 White Paper:The minister called for the consideration of“new and different ways of subsidising the Infrastructure with a view to improvingwater needs of the poor” and put forward services in poor countries and regions willprice-differentiated systems as “one of the continue to have priority in Norwegiananswers”. In this case, the better off and policy for private sector development. Asindustry would have to pay more for the level of private financing increases andservices, while the poor would pay infrastructure measures are carried out,considerably less. Interestingly, she particularly in cooperation with theacknowledged that water privatisation in multilateral development banks,Norway would provoke strong protests; international and Norwegian business andyet, in a development context, it was industry will increasingly be involved in thisnecessary to look at the question from work. This can also open new doors fordifferent angles. Norwegian companies.” (St.Meld. 35 2004) 19
  20. 20. Public water utilities are blamed for poorBox 2.2: Norwegian development funds management practice and inefficiencies. The need to reform urban water andNORFUND sanitation is stated. Financing the reformThe Norwegian Investment Fund for and operation of water supply andDeveloping Countries (NORFUND), set up sanitation infrastructure must, according toin 1997, aims to promote private sector this report, mobilise private capital anddevelopment in developing countries by management expertise. It concludes that:providing venture capital and expertise to “private capital through thenew and existing companies. In 2004 commercialisation or privatisation of waterNORFUND managed capital totalling supply services can work well.”around NOK 2.4 billion. At the same time, the paper points out thatNORFUND is involved in both direct the outcome depends on monopolies notinvestments and local investment funds. A being abused. Another concern is thatreview of NORFUNDs direct investment “liberalising markets without effectiveportfolio shows no evidence of regulatory systems can lead to majorinvolvement in the water sector. The Africa problems. Of particular concern is theInfrastructure Fund (AIF), however, tendency for private service providers toexplicitly invests in the water and focus on the wealthier areas, best able tosanitation sector. afford their services, while neglectingMore information: www.norfund.no lower-income areas.” Furthermore cost- recovery is seen as important in reformingNorwegian Trust Fund for Private tariff structures to enable self-financingSector and Infrastructure (NTF-PSI) systems that are commercially viable.Norway contributed, in 2002, to the Many poor households are supposed to beestablishment of a separate Norwegian able to pay full cost-recovery. To ensurefund in the World Bank/IFC for support for that the poorest can afford water, the usethe private sector and infrastructure. This of tariffs with a low price per unit volume offund aims to improve “framework water to a certain consumption level andconditions for private sector development low cost options should be considered.in developing countries.” Consequently, such moderation partly recognises the social drawbacks of a hardA key objective of the fund is “to ensure line price policy. The DAC advisesthat high priority Norwegian policies in member countries and monitors policies inareas such as improving governance, different areas, but does not explicitlystrengthening investment climates and promote the privatisation of public servicesinfrastructure services for impoverished (PSIRU 2004).groups are better integrated into the WorldBank’s overall efforts to strengthen the 2.5.2 General Agreement on Trade inprivate sector”. Services (GATS) When the World Trade OrganisationAs of 2004, Norway had channelled NOK (WTO) was set up in 1995, it subsumed110 million into the fund, with half of the the General Agreement on Tariffs andfunds earmarked for African countries. Trade (GATT), a multilateral trading system governing trade in goods that had existed since 1947. Two new trading agreements, TRIPS3, governing2.5 Other reinforcing structures and intellectual property rights, and GATS,institutions governing trade in services, were also introduced.2.5.1 OECD The GATS agreement commits WTOThe OECD’s Development Advisory members to liberalise trade in servicesCommittee (DAC) advises member progressively. Since January 2000,countries and monitors policies. A 2003 services have been the subject ofpaper entitled “Supporting Development of multilateral trade negotiations.Water and Sanitation Services indeveloping Countries” by the DevelopmentCo-operation Directorate states that DACmembers support water privatisation. 3 Trade-Related Intellectual Property Rights20
  21. 21. Under negotiations on GATS, countries France stood out as the only major countrycan request other countries to open up where private sector provision of waterparticular sectors for market access. Once had been a norm for a long time. Thea country agrees to market access, it can French companies therefore had a clearno longer support alternative models of advantage in terms of size and capitalservice delivery, such as non-profit resources when the fashion forschemes, even though these may be privatisation started in the 1980s.better suited to meeting the needs of thepoor. Comfortably secure in their home-market dominance, the water corporations, withSubsidising poorer communities with substantial support from government andprofits from wealthier areas would also be extensive political contacts, havein breach of GATS rules. Governments expanded their operations worldwide.would lose the ability to cross-subsidise, Ondeo now controls water services in 130while foreign companies would not be countries on five continents and has aboutobliged to service areas offering poor 115 million customers. Veolia has 110financial prospects. million customers in more than 100 countries. Bernard Maris, professor ofFurthermore, when a country has opened economics at the University of Paris VIIIits water sector to foreign companies writes:under GATS, it is virtually impossible toreverse the decision. After 3 years, a ”The behaviour of French companiesprocess can be initiated which involves abroad is that of conquerors, and spelt outproviding compensation in the form of the hypocrisy of Western free-trade policymarket access in another sector. However, agenda. At the same time, they havethis has to be approved by all other WTO enjoyed a century of protectionism, andmembers who are affected (World their home market continues today to beDevelopment Movement 2004). closed to foreign competitors."GATS has been described by the 2.5.4 ConsultantsEuropean Commission as “first and In line with the approach espoused by theforemost an instrument of business.” Camdessus report, the interests of a newDespite claims by WTO that “great efforts type of company have been legitimised,are made to publicise what takes place in namely consultancies. Aid money is usednegotiations” and that “the texts of all to hire advisers on WSS reform, includingdecisions and the proposals made by the preparation and structuring of projectsGovernments are available to the public” in the privatisation process, covering the(WTO 2001), it is difficult to gain a clear legal, financial and technical aspects, butpicture of negotiations. also the tendering and negotiating phases. Advisers, such as Pricewaterhouse-2.5.3 Multinational corporations Coopers, have a vested interest inMultinational corporations are also vital promoting the idea that public servicesactors in the emergence of the water need to be privatised, rather than focusingprivatisation trend. The privatised section on the limitations of privatisation.of the water industry is dominated by avery small number of companies. Three of With the World Bank-promoted shift fromthe four top water companies in the world public to corporate service provision andare French, namely Ondeo (formerly multinationals giving advice on theSuez), Veolia (formerly Vivendi) and process of privatisation, there is a clearSAUR. Because the private sector played democratic deficit. Space for civil societya minimal role in water supply and to provide inputs is limited, allowing profitsanitation worldwide until the late 1980s, motives to decide the fate of water issues. 21
  22. 22. 3. EXPERIENCES FROM WATER PRIVATISATION IN THE SOUTHIn this chapter, we have selected various case Germanys Gauff Ingenieure and a localstudies in which water management has been investor, Superdoll Trailer Manufacturersprivatised. The degree of privatisation varies in Limited. The $140m World Bank-fundedeach case, ranging from almost full privatisation scheme was one of the mostprivatisation to partial commercialisation of ambitious in Africa and was intended to be apublic utilities. model for how the world’s poorest communities could be lifted out of poverty and ill health.The case studies in this chapter are mainlyrelated to concessions and management However, the model has been short on results,contracts (see box 1.3 in chapter 1). Some of both in terms of poverty alleviation andthe cases have been initiated and financed achieving “water for all”. In fact the UK waterlocally or by government, but the majority of company Biwater has been accused of makingthe cases presented here have received less then half the required investment andfinancing from the World Bank. failing to improve services and water quality for millions of inhabitants in the city of Dar esExamples of service contracts are also Salaam.included, and at the end of the chapter,examples of small-scale community-controlled According to the Tanzanian government, Cityprojects are provided to illustrate the fact that Water should have invested US$ 8.5 millionsome types of provision involving private during the first two years of operation, butparticipation can work. invested only US $4.1 million. Along with persistent complaints by city residents overThe case studies demonstrate the forces poor water delivery and the incompetence ofbehind water privatisation and the main the firm, the Tanzanian government decided toreasons why water privatisation has generally cancel its concession deal with Biwater in Mayfailed. They also illustrate the contradiction 2005.between the pro-privatisation agenda of theinternational financial institutions and theactual implications of these policies for “The water supply services in Dar es Salaam,developing countries. Tanzania and in the neighbouring places have deteriorated rather than improved since thisThe cases raise the question of what options firm took over some two years ago.“are available to make the necessaryimprovements to achieve the Millennium Tanzanias water minister Edward LowassaDevelopment Goals. There is no ultimate (2005)solution to the world’s water and sanitationproblems, but almost all the case studiespresented in this report indicate the need to The collapse of the contract throws intolook for other ways to provide water and question the role of water multinationals insanitation than through privatisation and providing water in poor countries in the South.commercialisation. Water companies are to an increasing extent becoming wary of taking on contracts in3.1 Dar es Salaam, Tanzania developing countries, because of politicalFrom 1996 to 1999, privatisation of Dar es uncertainties and because poor countries haveSalaams water was a condition of the IMFs learned to negotiate better deals. City WaterEnhanced Structural Adjustment Facility and, admitted that it stood to make little money outfrom 2000 to 2003, it was a condition of an IMF of the water scheme. “There is no way we canPoverty Reduction and Growth Facility. make super-profits in Dare es Salaam,” saidContinued restructuring and privatisation of Cliff Stone, the British chief executive of Citypublic utilities was part of Tanzania’s Water, to the Guardian newspaper. “We haveconditions for getting debt relief under the been losing money. The plan was to use thisHeavily Indebted Poor Countries initiative. In as a model for other projects and recoupAugust 2003, the Government of Tanzania money later on.” Clearly the model failed.awarded the contract to run the water supply ofDar es Salaam (population: 3.5 million) to City Biwater is attempting to pursue theWater, a joint venture of Biwater International, Government of Tanzania through the22
  23. 23. international courts (see box 3.1). The own pocket and the people of Tanzania will beGovernment of Tanzania risks paying a huge punished for a failed policy, which they did notcompensation fee to the company out of its ask for in the first place. Box 3.1 UK water company to sue one of world’s poorest countriesCampaigners have condemned the UK Water company Biwater for suing Tanzania, one of the poorestcountries in the world. Earlier in 2005 the Tanzanian Government kicked Biwater out, just two yearsinto a $102 million ten year water privatisation contract, on the grounds that Biwater had failed to makeeven half the required investment or improve services in the Tanzania’s biggest city Dar es Salaam.“This is an absolute disgrace, Tanzania is one of the poorest countries in the world, and nowTanzanian citizens are being punished for being the victims of a failed policy which they did not want.The privatisation, a condition of debt relief, seriously lacked legitimacy. Biwater failed to deliver, withpeople on the ground reporting that water delivery was getting worse in many areas, with empty tapsand Biwater’s use of bullying tactics which resulted in mass disconnections. Benedict Southworth, Director of the World Development Movement (WDM)“We are in full support of our government in cancelling the Biwater contract and we think it is veryunfair of Biwater to sue our government because the burden of paying for this legal case will fall on thepeople of Tanzania. We are going to start up a campaign to oppose the privatisation of water suppliesin our country and for an end to this legal case against us.” Andrew Mushi, Tanzania Association of Non-Governmental Organisations Source: World Development Movement newsletter Dec 1st 2005, www.wdm.org.uk Photo: Sigurd Jorde, The Norwegian Council for Africa 23
  24. 24. 3.2 Accra, GhanaDue to low access to clean water in Ghana, Over the period from 1973 to 1998, the IDAwater supply and sanitation plays a key role in invested US$152.4 million to improve Ghana’sthe Ghana Poverty Reduction Strategy (GPRS urban water supply infrastructure. The results2003). According to the GPRS, privatisation from this have, according to the World Bankplays a major part in the achievement of water (2004e), been disappointing. The Nationalaccess for all. Privatisation opponents in Coalition Against Water Privatisation (CAP)Ghana say the privatisation focus in the GPRS said the reason was that the private companiesresults from a government and donor position, involved in the capacity building (Thameswhich is strongly guided and influenced by the Water, Biwater and SOGEA) were notWorld Bank’s framework for poverty reduction delivering the services they were supposed to(Adam 2006). deliver (Adam 2006). The urban water sector remains in a poor condition. Continuing withFull cost recovery in the water and sanitation the public sector only was not recommendedsector (among other sectors) is routinely and the World Bank and other donors rejectedincluded in loan conditionality. This implies that the public option. Other models, such asordinary people, who are users of the services, public-public partnership, seem not to havehave to cover the costs of the service by been considered.themselves, including infrastructure, operationand maintenance, and sometimes even the 3.2.2 Ghana Water Company Limited andwater company’s debt. In March 2002, the IMF Public Private Partnershipmade it clear that Ghana would only be given a The Government of Ghana has undertakenPoverty Reduction and Growth Facility Loan if several key initiatives related to the urbanthe Ghanaian government approved full cost water and sanitation sector. In 1996, therecovery in all sectors, including the water government, in consultation with a wide rangesector (IMF 2002). of stakeholders (World Bank 2004d), started to explore the option of public-private partnership3.2.1 World Bank involvement in Ghana (PPP) arrangements for the urban waterThree previous urban water projects in Ghana, sector.funded by the World Bank’s InternationalDevelopment Association (IDA), provide In 1999, GWCL was incorporated as a public,specific lessons for the country (World Bank limited liability company. The company2004). According to World Bank experiences, a assumed responsibility for a large amount ofproperly designed Private Sector Participation urban potable water supply systems. Under thecontract in the water sector can make a privatisation process, these were reclassifiedsignificant difference in utility sustainability into larger systems and put in two business(World Bank 2004:5). This is contested by units, leased out for 10 to 25 years. A mainNGOs, both Ghanaian and others. At the same argument in support of the privatisation oftime, the World Bank warns that it is important GWCL was that there would be more moneythat the expectations raised around a potential for the utility.Private Sector Participation (PSP) interventionare realistic. Governments and others should 3.2.3 The urban water project in Accrasee PSP as a process or tool to accomplish A few weeks after the decision to accept anspecific objectives, and not as a panacea to IDA loan of US$103 million, the Ghanaianrectify years of neglect and poor management government signed the Ghana Urban Water(World Bank 2004a). Project in Accra. The total cost is estimated to be US$120 million. The Ghanaian governmentThe World Bank (2004e) claims that other is to pay US$12 million, and the Nordicoptions were considered, while NGOs in Development Fund (NDF) US$5 million. NDFGhana claim that there was no public input in will support the rehabilitation of existing damsthe process and that only consultants and and weirs. The aim of the project is to provide“experts” were asked to provide inputs. Public- clean water at a price which is affordable forprivate partnership was unsurprisingly chosen the urban poor. (Fact-Finding Mission 2002).as the best option. For the Ghana urban water But already, people have been disconnectedproject, a public versus private management and dragged to court for not settling their billsregime was examined and, once a private (Adam 2006).sector option was decided, two different PSPinterventions were considered.24

×