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Seven Myths of Water Privatization The Myths
Myth 1: Water privatization facilitates network expansion, coverage and infrastructure improvements. Truth: Water privatization has not resulted in significant expansion, coverage or infrastructure improvements in the water sector. The financing necessary to make such improvements—including funds promised by private operators—has in many cases failed to materialize. In fact, private sector involvement tends to favor middle and upper-income households and enterprises. Example: A report from Public Services International estimates that among all of Sub-Saharan Africa, South Asia, and East Asia (excluding China), only about 600,000 new household connections were made as a result of investments by the private sector in the last 15 years of World Bank-financed projects.[1] In Jakarta, three out of four new connections made under the concession were for middle and upper-income households, government and commercial enterprises.[2] Myth 2: Water privatization projects improve access to water for the poor. Truth: Privatization has not brought about improved access to water for the poor. Instead, it has led to increases in tariffs, unaffordable connection fees, and people resorting to unhealthy alternatives when they are unable to pay for privatized water. In some cases, unregulated privatization has also brought about reductions in water quality. Example: Where private providers are charged with both financing and managing water utility systems, the state of the system they acquire can greatly affect their efficacy. Private providers must both maximize their profits for shareholders, and also meet their intended targets of delivery. In the case of Cochabamba, Bolivia, the effort to achieve both these ends resulted in dramatic failure. The consortium of private companies increased tariffs six times in nine years, in an effort to offset the costs of both improving infrastructure and generating profit. While many customers had to deal with increased costs of water, poor people living in surrounding areas were faced with heavy tariffs on a service that had previously been provided for free.[3] Myth 3: Involving the private sector in water provision alleviates the burden on governments to remove subsidies, raise tariffs and fully recover costs of service provision. Truth: Privatization has not resulted in significant savings for governments. Private operators have in many cases failed to fulfill their investment commitments and financial obligations. Example: In 1999, Cape Verde sold a 51 percent stake in the state-owned electricity and water utility to a consortium of Portuguese companies (supported by a World Bank loan). In 2005, the Cape Verde government threatened to renationalize the utility company after charging the consortium with failing to make its contractual investment of US $147 million.[4] Myth 4: Private operators have better access to the funding necessary to improve water services. Truth: Private operators do not have better access to the finance needed to improve water services. Financing from donor countries, development banks, commercial bank loans, bonds and operating surpluses is in principle equally available to public sector operators; the only form of finance uniquely available to the private sector is equity finance from private shareholders.[5] Private water companies rely on the same sources of finance as does the public sector. This implies that private finance will not be the agent responsible for improving access to water and sanitation in the future. It has failed to be that agent for the last twenty years of World Bank-financed privatization projects, and it will fail to be that agent in the future. The cumulative effect of the last 15 years of privatization projects has been to reduce available funds for investment in water where it is truly needed.[6] Myth 5: Water privatization has significantly helped governments reduce leakages, improve efficiency of delivery and conserve water. Truth: Water privatization has not significantly helped governments save water or reduce leakages and unaccounted-for water. In fact, private operators may not have the incentive to encourage water conservation—because the more water is used, the more revenues they receive. Example: According to the UNDP’s 2006 Human Development Report (HDR), private utility providers in the U.K. have been repeatedly fined for failing to improve leakage levels in water delivery systems. Public utility providers are encouraged to reduce water loss or misuse since unaccounted-for water translates to lost revenue. In addition, private providers may benefit from the misuse or overuse of water resource, because their revenues are directly enhanced by the increased consumption of their “product.”[7] Myth 6: Contracts between private providers of water and governments are predictable, stable and transparent. Truth: Frequent renegotiations of water privatization contracts—often at the request of the private operators—have resulted in higher tariffs and lower obligations for the private operators. These renegotiations make the entire system unpredictable, endanger the welfare of consumers, and cost governments money, time and credibility. Example: In 1999, Siza Water was awarded a contract to provide water and purification services to Dolphin Coast, South Africa. When Siza Water encountered financial problems in 2001, it refused to make its contractual payments to the municipality and demanded a renegotiation of its contract. Under the revised contract, the annual concession fee (paid to the local government) was halved, prices increased to connected households and standpipes by amounts up to 80 percent.[8] Myth 7: Water privatization has no effect on, or improves employment opportunities and job security. Truth: Water privatization has led to loss of jobs. One of the ways the private sector is more “efficient” is by downsizing and cutting jobs. Private operators also frequently import foreign labor rather than employing local people. Example: According to activist and author Vandana Shiva, public water systems employ 5 to 10 employees per 1,000 water connections, while private companies employ 2 to 3 employees for the same number of water connections. In 1993, the public water utility provider in Buenos Aires, Argentina, was reduced from 7,600 employees to 4,000 in an effort to streamline their operations. Moreover, the cost of water increased by 13.5 percent in the first year of operation.[9] [1] World Development Movement and Public Services International, Pipe Dreams, 37.
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A Brief History: U.S. Public Water Systems |
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