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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 strong opposition. Globally, more than 90% of water and sanitation systems are publicly owned and operated.

The Cochabamba protests of 2000, also known as the "Cochabamba Water Wars", which were a series of protests that took place in Cochabamba, Bolivia's third largest city, between January and April 2000, happened because of the privatization of the municipal water supply.

Contents

Types of privatization

There are different types of private sector participation (loosely all labelled "privatization") in water supply and sanitation

The four most common models in the order of increasing transfer of responsibilities to the private operator are:

  • 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. Assets remain publicly owned.
  • 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. Assets remain publicly owned.
  • 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. Assets remain publicly owned.
  • Asset sale (full privatization), under which the operator owns the assets for an undetermined period. This model has been used in England and Chile.

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.

Reasons for privatization

Typically there are five reasons given by proponents of privatization to involve the private sector in water supply and sanitation:

  • mobilizing financing for investment
  • need for technical expertise[citation needed]
  • increasing efficiency[citation needed]
  • improvement of service quality[citation needed]

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 World Bank paper that reviewed empirical studies on the impact of private ownership on the efficiency of service provision by utilities concluded that: "...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." [1]

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]

According to the World Bank, in 2007, 84 percent of water systems privatized in the 1990s were still under private control. 24 countries have regained public management of their water systems.[3]

According to Fredrik Segerfeldt in Financial Times, higher prices from the privatization of water resources can cause increased investments in expanding water systems.[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.[4]

In some cases, the price of water was previously subsidized, which led to overconsumption. There privatization may have led 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.[5] In Guinea, "the number of urban-dwellers with access to clean water tripled from two in ten, to seven in ten by 2001."[5] 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]

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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, compared to £9.3 billion in the six years before privatization) and brought about compliance with stringent drinking water standards and led to a higher quality of river water.[6] 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.[7]

Bolivia

When Bolivia sought to refinance the public water service of its third largest city, the World Bank required that it be privatized. Which is how the Bechtel Corporation of San Francisco, (California, U.S.A.,) gained control over all of Cochabamba's water; even that which fell from the sky[citation needed], i.e., rainwater. Bechtel was granted the power to seize the homes of delinquent customers. In response, Bolivians took to the streets.[8]

Following the Cochabamba Riots of 2000 in Bolivia, Cochabamba's water system is now run by an organization of community and government representatives. Though at a World Bank secret[9][10] tribunal, Bechtel is seeking "compensation for damages" from Bolivia in the amount they would have profited. Bechtel is demanding "at least US $25 million" — which is equal to 1.7% of Bolivia's public spending (as such a sum could finance 125,000 new connections to the public Cochabamba water system); "or 125,000 new water connections in Cochabamba."[11]

Australia

In Australia, systems are currently being constructed to facilitate and in anticipation of the privitisation of water. In Victoria particularly, where via a series of pipelines, the water system supplying 5 million people is being linked so that water can be bought and sold in a commercial market.

Multinationals

Multinational corporations are heavily involved in water privatization. According to Masons Water Yearbook 2004/5, 545m people (9% of the world population) were served by private providers. Argentina and Bolivia have since rescinded water privatization schemes. The three companies of water privatization are:

The next biggest players are Aguas de Barcelona (35.2 million); SAUR (33.5 million); and United Utilities (22.1 million).

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

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.[12] Usually campaigns involve demonstrations and political means. Those disadvantaged by water privatization have revolted in protest (e.g. 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.

See also

References

  1. ^ Antonio Estache (World Bank and ECARES, Université Libre de Bruxelles), Sergio Perelman (CREPP, Université de Liège), Lourdes Trujillo (DAEA, Universidad de Las Palmas de Gran Canaria): [http://wdsbeta.worldbank.org/external/default/WDSContentServer/IW3P/IB/2005/03/06/000090341_20050306101429/Rendered/PDF/wps3514.pdf World Bank Infrastructure Performance and Reform in Developing and Transition Economies: Evidence from a Survey of Productivity Measures], World Bank Policy Research Working Paper 3514, February 2005, p. 21
  2. ^ a b c d 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. ^ 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
  5. ^ a b Hong Kong WTO Special, CFD Bulletin, Dec 2005
  6. ^ Water privatization and regulation in England and Wales, by Caroline van den Berg 1997
  7. ^ Colin Robinson: A 'crisis'in water? The wrong sort of privatisation, Economic Affairs, Volume 18 Issue 2, June 1998, Pages 25 - 29
  8. ^ THE CORPORATION, documentary, (part 18 of 23) "Expansion Plan."
  9. ^ Public Citizen - press room: "The World Bank’s water conference comes just weeks after the announcement by a secret World Bank trade tribunal that it would not allow the public or media to participate in or even witness proceedings in which Bechtel is suing the government and people of Bolivia for $25 million. The panel, whose chair was appointed by World Bank President James Wolfensohn, rejected a petition calling for an opening of the case, endorsed by more than 300 citizens groups from more than 43 countries. (Click here to view a release issued by the petitioners at the time of the decision.)"
  10. ^ Earthjustice - news: "The President of the tribunal arbitrating the case responded last week to a petition filed by Oscar Olivera and a coalition of other Bolivian citizens and public interest organizations seeking to participate in the case. (View the petition) The President's letter asserted that the tribunal had no power to permit affected citizens to participate, a stance inconsistent with other arbitral tribunals and U.S. courts, where interested parties are regularly allowed to submit "friend of the court" briefs. The letter also indicated the tribunal's rejection of the groups' requests that documents and hearings in the case be open to the public. (View the letter denying access) The tribunal has one member appointed by AdT, one appointed by the Bolivian government, and a third – the tribunal's president – appointed by the President of the World Bank. "The panel explicitly rejected all of our requests for public participation in this closed-door process," said Martin Wagner, an attorney for the US-based law firm, Earthjustice. "It is inexcusable that a panel considering an issue as fundamental as the right to water should be able to exclude the very people whose rights will be affected by the case."
  11. ^ Olivera.pdf at TheCorporation.com
  12. ^ PSIRU on UK water privatization (Microsoft Word format).

Sources

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