User:Niyeze/Water privatization

Water Privatization

Water privatization is short for private sector participation in the provision of water services and sanitation. Water privatization has a variable history in which its popularity and favorability has fluctuated in the market and politics. One of the common forms of privatization is Public-Private Partnerships (PPPs).[1] PPPs allow for a mix between public and private ownership and/or water and sanitation sources and infrastructure management. In 2011, it was estimated that 13% of the world’s population was served by the private sector in one form or another. Like any other system, the privatization of the water system has its supporters and opposers due to varying reasons that are going to be discussed below.

Private sector participation in water supply and sanitation is controversial. Proponents of private sector participation argue that it has led to improvements in the efficiency and service quality of utilities. It is argued that it has increased investment and has contributed to expanded access. They cite Manila, Guayaquil in Ecuador, Bucharest, several cities in Colombia, and Morocco, as well as Côte d'Ivoire and Senegal as success stories.[1][2][3] Although the United Nations stated that water is a human right, critics, however, contend that private sector participation led to tariff increases, and privatized water systems are incompatible with ensuring the international human right to water with the belief that public water will no longer be public. Continuously, proponents argue that privatization may not only increase efficiency and service quality but also increase fiscal benefits. For instance, people who spent a significant amount of hours to find a source of clean water would have time to get educated and work, which would increase the overall economic growth because more time is allocated towards building one's potential rather than on fetching water from miles away. On the other hand, the opposing side has different perspectives on why water should not be privatized. For instance, opponents mention how the drive for profits will not necessarily make private sectors work efficiently as previously believed. Additionally, aborted privatizations in Cochabamba, Bolivia, and Dar-es-Salaam, Tanzania, as well as privately managed water systems in Jakarta and Berlin, are highlighted as failures. In 2019, Austria forbid the privatization of water provision via its constitution.[4][5][6][7][8][9] Water privatization in Buenos Aires, Argentina, and in England are cited by both supporters and opponents, each emphasizing different aspects of these cases.

History

Privately owned water utilities were common in Europe, the United States, and Latin America in the mid and late 19th century. Their importance gradually faded away until the early 20th century as they proved unable to expand access and publicly owned utilities became stronger. A second global dawn of private water utilities came in the early 1990s in the aftermath of the Thatcher privatizations in England and Wales, the fall of communism, and the ensuing global emphasis on free-market policies. The World Bank and the International Monetary Fund played an important role in this process through the conditionality of their lending.

Going back to the beginning of the concept of privatizing water in England and Wales, the emergence of the first private water companies dates back to the 17th century. In 1820, six private water companies operated in London. However, the market share of private water companies in London declined from 40% in 1860 to 10% in 1900. In the 1980s, their shares all over England and Wales was about 25%. The tide turned completely in 1989 when the conservative government of Margaret Thatcher privatized all public water and sewer companies in England and Wales. In Scotland, local governments dominated by the Labour party kept water systems in public hands.

Meanwhile, the water sector in France has always been characterized by a coexistence of public and private management, with their respective shares fluctuating over time. The two largest private companies are Veolia Environnement, formerly the Compagnie Générale des Eaux and then Vivendi Environnement, and Suez Environnement, formerly Lyonnaise des Eaux and then Ondeo. The Compagnie Générale des Eaux was founded in 1853 and Lyonnaise des Eaux in 1880. In the late 19th century, municipal governments, dissatisfied with high tariffs and the lack of expansion of networks to poor neighborhoods, did not renew private concessions and created instead municipally-owned utilities. The share of private water operators declined to 17% in 1936. The share of the private sector gradually increased to 32% in 1954, 50% in 1975 and 80% in 2000 using a new model: Instead of the concession contracts, which gave the responsibility to finance investments to the private company, the new lease contracts (affermages) made the private operator only responsible for operation and maintenance, while major investments became a responsibility of the municipalities. The French water companies also escaped the nationalizations after the war and later under President François Mitterrand, because the central government did not want to interfere with the autonomy of municipalities and was unwilling to finance heavy investments. The water supply of Paris was privatized in 1985 when a conservative mayor awarded two lease contracts, each covering one half of the city. In 2010, a socialist mayor remunicipalized the water system of the French capital.

Prevalence

Prevalence of Public-Private Partnership

There are widely differing estimates of the number of people served by private water companies. The World Bank estimated that, as of 2007, about 270 million people received water from private companies in more than 40 countries, including about 160 million in developed countries and 110 million in developing countries. The report did not include estimates of the number of people served by private companies on the wastewater side. The Pinsent Masons Water Yearbook uses a broader definition, including also wastewater services. More importantly, it also includes cases where a private company operates a water or wastewater treatment plant on behalf of a publicly owned and operated utility that serves the final customer. Based on this broader definition and taking into account the growth of both population and water privatization between 2007 and 2011, it estimates that the private sector served 909 million in 62 countries or 13% of the world population in one form or another. This includes 309 million people in China, 61 million in the United States, 60 million in Brazil, 46 million in France, 23 million in Spain, 15 million in India, and 14 million in Russia. In England and Wales, the entire population of 55 million is served by private companies. In addition, in Chile, the Czech Republic, Armenia, and four African countries – Côte d'Ivoire, Ghana, Gabon, and Senegal – private companies provide water services to the entire urban population. In Hungary, they serve almost half the population. In Algeria, Colombia, Germany, Italy, Malaysia, Mexico, Morocco, Poland, and South Africa less than half the population is served by private companies. In the Philippines, Indonesia, Bulgaria, Estonia, and Cuba private water companies serve only the capital city. 24 countries, such as Argentina, Bolivia, and a number of small countries like Guyana or the Central African Republic, had reverted to public management as of 2009. However, 84 percent of contracts awarded mostly in the 1990s were still active. on the other hand, in many countries, such as Japan, Canada, Egypt, Pakistan, or Scandinavia, there are no private water companies. Nicaragua, the Netherlands, and Uruguay have even passed laws banning water privatization. Similarly, in Italy, in June 2011 a law favoring water privatization was repealed by an overwhelming majority of Italians through a referendum. In 2019, the City of Baltimore, Maryland became the first major city in the United States to ban water privatization.

TABLE IN BETWEEN

A World Bank report lists the following examples of successful public-private partnerships in developing countries: the full privatization in Chile; the mixed companies in Colombia; the concessions in Guayaquil in Ecuador, Brazil, Argentina, Eastern Manila in the Philippines, Morocco, and Gabun; and the lease contracts in Côte d'Ivoire, Senegal, and Yerevan in Armenia.

Small-scale operators: the other private sector

Beyond water privatization, which involves contractual relationships between a government and formally established large companies, there is also "the other private sector" in water supply consisting of small-scale, often informal local operators. They exist in most cities in the Global South and sometimes provide a large portion of the city's population with water. For example, a study of six Latin American countries showed that they provide water to 25% of the population in seven cities. In Africa, they serve an estimated 50% of all urbanites. They mainly operate in slums, serving the people who are not catered to by the city authorities. Many small-scale water operators provide water through tanker trucks or animal-drawn carts. Others operate water distribution networks fed by wells, as it is the case in Asunción, Paraguay, and in Sanaa, Yemen. Small-scale operators can be owned by individual entrepreneurs or can take the form of cooperatives, as it is the case in Honduras. Small-scale operators do not always comply with technical norms and the quality of the water they provide or their tariffs are often not regulated. More often than not, their tariffs are significantly higher than those of public water utilities. This can attributed to either profiteering or simply the high transportation costs expended during the distribution of water. They typically lack capital to further expand their network. However, in a few pilot cases – such as in Kenya, Uganda, Cambodia and Vietnam – international aid agencies have provided them with grants to increase access, often in the form of output-based aid.

Motives

The government of Cuba entrusted the water supply of Havana to a private company in order to improve service quality, showing the diversity of motives behind water privatization.

The motives for water privatization vary from one case to another, and they often determine which mode of privatization is chosen: management and lease contracts are used to increase efficiency and improve service quality while asset sales and concessions primarily aim to reduce the financial burden or to expand access. Ideological motives and external influences also play a role, with market-liberal ideology favoring privatization, left-leaning ideologies opposing, and both conservatives and centrists falling in between, often based on local and business-minded considerations. Usually, several of the above motives are combined.

Increasing efficiency and improving service quality

Water privatization is seen by some as a solution to improving poorly managed public water utility systems. Symptoms of poor management can include low water bill collection, high water losses (known as non-revenue water), and intermittent water supply, sometimes lasting only for a few hours a day or a few days per week. In Algeria, Saudi Arabia, Colombiaand Cuba increasing efficiency and improving service quality were important motives for water privatization. In these cases, the argument to privatize water is predicated on the belief that by adopting a market-based approach to the management of water, the service provider will be incentivized by profit to increase efficiency and improve service quality. Some critics argue that this belief is misguided because the water utility sector is typically monopolized by one private company. They claim that this fact counteracts many of the advantages associated with the market economy because there is no competition between multiple water service businesses to drive prices down and levels of efficiency up.

External influences

External influences, such as from the World Bank and the International Monetary Fund (IMF), often play a role in the decision of governments to privatize water, as was the case in Bolivia and in several African countries. This influence may take the form of structural adjustment programs, whereby a development loan is given on the condition that the receiving country privatize their water utility system. Other aid agencies have also supported water privatization. These include the Inter-American Development Bank (e.g., in Ecuador, Colombia and Honduras), the Asian Development Bank (e.g., in China), the European Bank for Reconstruction and Development in Eastern Europe, German development cooperation through KfW (e.g., in Albania, Armenia, Jordan and Peru), French development cooperation (e.g., in Senegal) and British development cooperation (e.g., in Tanzania and Guyana). Critics claim that these external influences are problematic and argue that influencing water privatization is part of a broader movement of Western powers imposing neoliberalism on countries in the Global South. In the UK, the World Development Movement campaigned against the support of water privatization through aid from the UK.

Fiscal motives

In some cases, where access is already universal and service quality is good, fiscal motives dominate, as it was the case in Berlin, Germany, and in Chile. In Berlin the state government sold a 49.9% share of its water utility in 1999 for 1.69bn Euros in exchange for a guaranteed profit for the private shareholders amounting to the interest rate on 10-year government bonds plus 2 percent, as specified in a contract that was kept confidential until the state government was forced by a referendum to make it public. As a result, tariffs increased (15% in 2004 alone) and the state government's revenues from the company declined compared to the situation before privatization (168m Euro profit for the state in 1997 compared to a 10m Euro loss in 2003). In Chile, where no wastewater treatment plants existed prior to privatization, the government's desire to finance their construction off-budget drove privatization in 1998.

Fiscal motives for water privatization are also common in countries where water access and service quality is poor. In cities with rapidly growing slums, it is very expensive for the government to expand their water utility system infrastructure at the pace of the growing population. Furthermore, maintaining the good condition of old infrastructure is also expensive. Thus, if a significant portion of public funds is not allocated to maintenance, pipes and waste water treatment plants can fall into disrepair. For some countries, the cost of managing a public water utility system becomes unaffordable. In these cases, privatization can be seen as a possible solution for governments to attract national and international private investment.

Impact of privatization

The evidence concerning the impact of water privatization is mixed. Often proponents and opponents of water privatization emphasize those examples, studies, methods and indicators that support their respective point of view. As with any empirical study, results are influenced by the methods used. For example, some studies simply compare the situation before privatization to the situation after privatization. More sophisticated studies try to compare the changes in privately managed utilities to those of publicly managed utilities that operate under similar conditions during the same period. The second group of studies often use econometric techniques. The results also depend on the choice of the indicator used to measure impact: One common indicator is the increase in access to water supply and sewerage. Other indicators are changes in tariffs, investments, water-borne diseases or indicators for service quality (e.g. continuity of supply or drinking water quality) and efficiency (e.g. water losses or labor productivity).

Impact on access

When it comes to impact on access to safe and clean water, it is inevitable to bring up public-private partnerships and tariff into spotlight, as they are one of the main factors determining one's ability to access water. A before-and-after comparative study by World Bank analyzes how access, quality of service, operational efficiency and tariffs have evolved under 65 public-private partnerships for urban water utilities in developing countries. The study estimates that "PPP projects have provided access to piped water for more than 24 million people in developing countries since 1990". Therefore, PPP had been a key significant in helping improved service quality of access to water.

Apart from PPP, tariffs are also another important factor that directly impact one's access to safe and clean water. In some countries, water privatization can hinder the accessibility of water. When for-profit companies invest in the water system, the desire to make returns on the investment can create a top-heavy distribution system. They increase tariffs to earn more profits, which consequently reduces the accessibility of the resource for poor households since the poor are not able to pay high tariffs. In other word, investments are only made to improve accessibility in richer districts where the people can pay the tariffs; the water company's need to make adequate returns is met by supplying water only to those who can pay.. However, in other countries such as Nigeria and Ghana where the governments fail to distribute access to water to the people, water privatization lead to expansion of services to low-income districts.

Impact on health

One of the most effective measurement to analyze the effectiveness of water privatization is child mortality rate since children are more likely to be negatively affected by contaminated waters. This suggests that water privatization affects people's health in some extent. A study of water privatization's impact on health finds that between 1991–1997 in Argentina, areas where child mortality was upwards of 26% fell to just under 8% after water was privatized. This occurred due to the regulations private water companies were held to which were more rigorous than their government-controlled counterparts. Along with this, development of water infrastructure in impoverished areas at the hands of private companies also positively affected child mortality rates. The study claims that governments are prone to privatize water companies, among other reasons, to better the quality of the water provided to the country’s citizens.

In Argentina, water privatization did not fulfill many promises the citizens were expecting. This includes the expansion of sewerage treatment and connections and the reduction of the price of water, which actually increased. Along with this, the private water companies in Argentina needed help from the Argentine government to bypass regulatory agencies after it treated to cancel their contract due to conflicts of interest. It is also worth noting that many worker unions were opposed to privatizing water but their pleads were largely ignored by the Argentine government.

The impact of water privatization on the amount of carcinogenic found in water is highly debated. In some cases, such as the case in the state of North Rhine-Westphalia, Germany, public water systems are likely to invest more money into making water quality good. Water companies working on a commercial basis might find it too costly to implement systems to better the water quality beyond what is necessary by law. Thus, posing a greater threat of containing harmful cancer-causing substances in the water.

Impact on tariffs

Although the impact on tariffs cannot be fully concluded since each country has different policy on tariffs, water tariffs tend to be increased under privatization. For instance, in Buenos Aires and in Manila, tariffs first declined, but then increased above their initial levels; in Cochabamba or in Guyana, tariffs were increased at the time of privatization. However, there are some other cases that tariffs under water privatization did not increase in a long run, typically in Sub-Saharan Africa, where most of investments are funded through development aid. For example, tariffs remained stable in Senegal, while in Gabon they declined by 50% in five years (2001–2006) and by 30% in ten years in Côte d'Ivoire (1990 to 2000).

In addition, initial tariffs have been lower than cost recovery levels in most cases, sometimes covering only a fraction of the cost of service provision. The magnitude of tariff increases is influenced by the profit margin of private operators, but also to a large extent by the efficiency of utilities in terms of water losses and labor productivity.

However, comparing water expenditure between private and public management in the U.S., a study of household water expenditures in cities under private and public management in the U.S. concludes that "whether water systems are owned by private firms or governments may, on average, simply not matter much."

Impact on efficiency

According to a World Bank study in 2005, the most consistent improvement made by public-private partnerships in water supply was in operational efficiency. The study reviews the impact of private management on the efficiency of water utilities in many countries from many continents including Africa, Latin America, Asia, and Eastern Europe. In addition, most evidences from the study suggests that "there is no statistically significant difference between the efficiency performance of public and private operators in this sector.". However, a 2008 literature review by the Asian Development Bank shows that of 20 studies reviewed, only three show concrete evidence on technical efficiency improvements or cost reductions under private management. Therefore, by 2005, private operator, at least, made an indirect contribution to financing by improving efficiency, making it possible for utilities to finance investments internally instead of having to rely on more debt.