Water Privatisation

23 Apr 2016
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Water Privatisation has suddenly come to mean big bucks in India. With water resources in the country fast depleting and the government throwing up its hands, at least five global Corporates are ready to tap the over $ 2,000 million market. They have already set up shops in several States and are confident of seeing their projects approved, with the central government literally rolling the red carpet to welcome them. (Shiva and Jalees 2003)

To facilitate “private partnerships,” the ministry of urban development in May 2003 released a set of guidelines to State governments for creating a “welcoming atmosphere” in the drinking water sector.

Neither the guidelines nor the National Water Policy, 2002, which advocates more private involvement in the water sector bother to see the result of such corporatization elsewhere in the world. As in Bolivia, where riots broke out in the city of Cochabamba after a 35 per cent increase in water bills, such experiment have been contentious almost everywhere. According to a study compiled by David Hall, director of the Public Services International Research Unit at the University of Greenwich, privatisation of water of the Philippines, Germany, Brazil, Nairobi and Argentina have led to a tremendous increase in water prices, triggering public outrage. Making profit on people’s most basic needs is the dream of many corporate executives. (Shiva and Jalees 2003)

Global players are keenly watching the developments in India and are slowly seeping into the sector. Degremont, a subsidiary of France’s Suez, has projects in six cities of India and has plans for further expansion. The company is dealing in treatment of water exclusively. Future expansion will depend on the kind of trade environment the government creates.

Degremont has a project in Delhi; the Sonia Vihar treatment plant is being developed by the company on a Build Operate and Transfer (BOT) contract for a fixed period of seven to ten years during which its profits are guaranteed by the government.

While private companies like Degremont have the government subsidizing their profits, other international agencies are looking forward to the civic bodies reforming their tariff structure to pay back loans.

It perceives water not as a fundamental right of the people, but as a commodity the government can no longer afford to make available to its people free of cost or at subsidised price. This approach, according to Himanshu Thakkar of the South Asia Network on Dams, River and People (SANDRP), is fundamentally flawed. “Water is a natural resource and the government owns it only because it promises to make it available to people. On what basis has the government made water a commercial product? On what basis are the private companies selling bottled water to people? Who has allowed them to make profit out of this natural resource (Joshi, 2003)

i, 2003) The answer to shrinking water resources and growing needs, according to Thakkar, does not lie in privatisation but in community participation and transparency on the part of the distributing agencies. Conservation efforts in India have been pioneered not by the government but by the community leaders like Anna Hazare and Rajender Singh. The irony, says Thakkar, is that while the government claims that it does not have any money to make infrastructure improvements in the existing maintenance and distribution system, it is willing to subsidise profits for the foreign trade companies in the water sector.

It is like privatising national assets and nationalizing private losses. The country is being sold and nobody has the courage to speak out. Why would a multinational invest in water without expecting you to pay back several timed the amount?

Nevertheless, Indian policy-makers justify privatisation as a necessary step for reforms in the water sector. “Everyone looks at it as a natural resource for which nobody should be asked to pay. The problem is that the water, which reaches your house has to be first taken to the treatment plants, has to be treated and then piped to homes. All this costs money. Where is that going to come from?” says Planning Commission (Joshi, 2003).

Access to a fair share of clean, healthy water is a basic human right and indeed the basis of our existence. According to the World Health Organization, 60 per cent (3.6 billion) of the world’s population lacks access to essential sanitation facilities. It is estimated that in the next quarter of the century, the proportion of the world’s population living in countries with significant water-stress could rise from 34 per cent (1995 figures) to 63 per cent. This would mean that water related conflicts would increase, as communities try to fulfil their basic needs.

Although, less than ten per cent of the world’s water systems are currently under private control, at the present rate it is possible that the top three MNCs, i.e., Suez and Vivendi of France and RWE-AG of Germany, alone will control over seventy per cent of the water system in Europe and North America in a decade.

Vivendi that earned $ 5 billion a decade ago in its water related revenues had increased its profits to over $ 12 billion by 2002. RWE, which moved into the world market, with its acquisition of Britain’s Thames Water, increased its water revenue by a whopping 9,786 per cent in ten years. All three are among the top one hundred corporations in the world. Together, their annual revenue in 2001 was almost $ 160 billion, and is growing at ten per cent a year – outpacing the economies of many countries in which they operate. They also employ more staff than most of the government's (Barlow, 2003).

The state has a great duty vis-à-vis distribution of drinking water. Our rivers are sacred, so too our lakes and dams, which serve several social uses. Aqua robbery by corporates is becoming common. The core principle of the public law is that the state is a trustee of all natural resources and is under a legal duty to protect them. These are resources and are meant for public use and cannot be converted into private ownership (Iyer, 2003).

The ancient Roman Empire developed a legal theory known as the “Doctrine of Public Trust.” The public trust doctrine primarily rests on the principle that certain resources like air, sea, water and the forest have such a great importance to the people as a whole that it would be wholly unjustified to make them a subject of private ownership. The said resources being a gift of nature, they should be made freely available to every one irrespective of the status of life. The doctrine enjoins upon the government to protect the resources for the enjoyment of the general public rather than to permit the use for private ownership or commercial purpose.

The Ganga or Narmada belongs to the people and the state cannot abandon its fiduciary obligation. It is unconstitutional, unethical and violative of human rights to sell or negotiate disposal of publicly owned water resources for mineral water rackets by industrial giants. Equally dangerous, mischievous and mala fide are permissions granted to macro corporates to dig dam to the bowels of earth, pump up waters in enormous quantities and leave the lakes and neighbouring wells deprived of the blessing of nature.

Serious questions are raised when the public properties are given to the corporations. Public funds bear the burden of public accountability (Dhawan, 2003).

Water and international financial institutions (IFIs) like the World Bank, Asian Development Bank and IMF have required developing countries to open up their water distribution to private sector investment and foreign companies as a condition of rescheduling debt. Bolivia, for example, had to accept comprehensive water privatisation as a condition of receiving new loans. And it doesn’t start or end with just drinking water. Large dams are mostly built with the support (or pressure) of IFIs like Asian Development Bank, affecting not only drinking water but also the livelihoods and homes of hundreds of thousands of people.

The IMF and the World Bank, along with other financial institutions, support a ‘full costrecovery’ principle. Financing criteria favour multi-utility service providers from many development providers, and this is also influencing the development of the water multinationals taking over other sectors.

As no one can survive without water, the multinational water companies have discovered a profitable market. The biggest multinational water companies come from Europe – Vivendi, Suez-Lyonnaise, Thames Water.

These companies have a record of corruption and bribery, pollution, and ignorance for the health and safety of both their employers and their customers. Extensive interlinks exist between executives from major water companies, the government and other sectors, mainly banking and international finance.

Vivendi is the world’s largest water service provider through its subsidiary, Generale des Eux, and operates in 90 countries. Suez Lyonnaise des Eaux has operations in 120 countries, supplying water to 72 million people. The water industry is expanding rapidly the range of their activities and the geographic reach of their services. (Shiva and Jalees 2003)

Main strategies of entry

● Entering into public-private partnership or joint venture with an institution on the desired region. For example, Vivendi and RWE Group became major parties in 1999 in a consortium covering 49.9 per cent privatisation of Berliner Wasserbetriebe, resulting in the largest water sector privatisation company.

● Buying a share in an existing entity in desired region and eventually turning it into a wholly owned subsidiary. Vivendi has made it very clear that it wants to acquire other water companies’ assets and operate them.

● Buying smaller operations that have established a presence in a geographic region or have developed new technologies.

Target areas within the water sector

The corporations are targeting four areas within the water sector. They are:

Water and waste, Water services,
Water treatment,
water-related construction and engineering,
Innovative technologies.

This can be targeted in several ways, such as developing internal capacity by acquiring subsidiaries with expertise; developing formal partnerships with other multinationals in other sectors; and entering joint ventures or one-contract partnerships with corporations in other sectors to work on individual projects.

Because of the management complications of big companies, many a times regional governments maintain ownership because of the corporation’s lack of necessary regional .

knowledge and wish to retain involvement in the former public sector projects. But more often, exclusive control is given to the corporation. Virtually, all successful international efforts to privatise water have focused on privatising the ownership of the existing infrastructure; a growing trend is to attain rights to water access.

WTO and Water
Water is treated as a service, under the General Agreement on Trade in Services (GATS) under WTO – water distribution and collection, waste water and so on. Under the WTO, water would be merely a tradable service. Among other problems arising, water is an essential part of agriculture, but not discussed within that framework. Instead of ministries and other bodies working with agriculture, rural development and so on, trade negotiators and multinational corporations formulate water regulations. MNCs are not interested in water availability for small farmers and communities but simply of making more profits, selling their services as the solution to the world’s water problems.

By subjecting water access to market trends and WTO decision-making processes, an agreement like GATS is likely to exacerbate the world’s water problems. Minority interests – mostly those of global corporations and foreign investors – would take precedence, with potentially devastating implications for fragile ecosystems and the poor communities.

Water as such is not a part of the current GATS agreement. The European Commission (EC) has now introduced a clause on “environmental service” with dead-end environmental services to whisk problems under the carpet instead of taking precautionary measures. The force behind this, are as described before, water MNCs lobbying behind the scenes in the European Commission and also USA. Key players are the likes of European Services Forum and US Coalitions of Service Industry that almost dictate the trade policy according to their needs.

European Commission

Leaked documents from the European Commission revealed an ambitious agenda for services liberation. EC is requesting WTO Members to open up a whole of sectors, including water as ‘environmental service.’

Requests concerning the water sector made to SAARC countries including India, Indonesia, Malaysia, Pakistan, Philippines and Thailand all dealt with water collection, purification and distribution services through mains, except steam and hot water; wastewater services and treatment, remediation of contaminated/polluted water.

Most Favoured Nation Treatment

National treatment is one of the core principles in the World Trade Organization. It means that domestic and foreign companies should be given equal treatment, i.e., the same benefits. Conditions of competition should not be in favour of Member’s domestic services industry. Another core principle is the Most Favoured Nation (MFN) treatment, which means that members must give other members’ “treatment no less favourable than that accorded to like service and service suppliers of any other country.” MFN treatment prohibits preferential arrangement among groups of Member States in certain sectors or of reciprocity provisions, which confine access benefits to trading partners granting similar treatment.

Thirsting for Profits

The Global Corporates are thirsty for profit as shown by the following examples (Shiva and Jalees 2003):

● The World Bank estimates the global market for water to be worth $ 800 billion.
● The price of one litre bottled water could deliver 3,000 litres of tap water to homes.
● Ten corporate giants are vying for control, including French based corporation Vivendi, SuezLyonnaise des Eaux and Bouygues (Saur); US based Enron (Azurix); German based RWE Group; and UK based companies Thames water, United Utilities, Severn Trent, Anglian Water, and the Kelda Group.
● Four of the top 10 water companies are ranked among the 100 largest corporations in the world by the Global Fortune 500: the RWE Group (no. 63), Vivendi (no. 69), SuezLyonnaise (no. 70) and Enron (no. 85).
● Vivendi and Suez-Lyonnaise are considered the General Motors and Ford Motor in the global water industry. Suez operates in 120 countries and Vivendi in 90 countries around. Together, US $ 10 billion out of their combined revenues of US $ 70 billion comes from water service alone.
● The global water industry is going through constant rapid changes. Between 1994 and 1998, there were no less than 139 water related mergers and acquisitions. In 1999, the rate of acquisitions and mergers reached record levels, including the acquisition by Vivendi of the US Filter Co., valued at over US $6 billion.

Externally Aided Projects in Urban Water Supply and Sanitation in India

So far, 15 projects have been implemented with World Bank/French assistance. The Ministry of Urban Development also supports external aided projects in the water supply and sanitation sector (Website of Ministry of Urban Development and Poverty Alleviation, Government of India, 26 December 2002). Currently, 19 projects are in different stages of Implementation. The details are in tables.

Projects Implemented
Projects Under Implementation

Some Myths and Reality

World Over, WTO and the World Bank have been pushing for privatisation of water, as in other sectors. In India too, there is a strong push in that direction. For example, in States like UP, Karnataka, Maharashtra and Rajasthan, various World Bank Projects are pushing in this direction. In States like Gujarat, Madhya Pradesh, and Chhattisgarh, Asian Development Bank is pushing in this direction.

Following are some examples (of course, there can be more such instances) to show the reality as against the myths propagated in support of water sector in WTO agenda (A dossier by South Asia Network on Dams, Rivers and People, Delhi 2003).

Myth 2: NP would lead to more efficient Water Sector.

Reality: The people of Nairobi, Kenya, for example, were forced to fork out over R (Rands) 160 million when Nairobi’s water was privatised to French multinational, Generales Des Eaux. Soon after the company, they decided to install a new (but not budgeted for) R 1.5 billion billing and revenue collection service. Although the Mayor complained, the company proceeded and put water prices up by 40 per cent in order to pay for the new system. During this time, 3,500 municipal workers were replaced by 45 foreign staff who earned massive salaries from a total R 13.6 million in the second year of the contract, rising to R 31.2 million per year by the end of the contract.

Privatisation of water was also found bad for the poor of Guinea. Before privatisation in 1989, fewer than 40 per cent of the urban population had access to piped water. The Government was short of funds and needed donor finance. Private participation was a condition of World Bank lending. The work force was cut almost in half form 504 employees to 290 and right after privatisation, water prices were increased. The connection rate rose only by 9 per cent by 7 years leaving over 30 per cent of Guineans still without water. The high price of water meant people could not afford to get connected; it was difficult for even wealthy people to pay.

Myth 3: NP would provide clean water.

Reality: The most recent example is the World Bank’ role in creating the conditions that caused the current cholera epidemic in South Africa.

Myth 4: NP would provide equitable access to water.

Reality: The World Bank’s insistence on full cost recovery service cut-offs to those unable to pay forced a number of communities to access unclean water sources in South Africa recently.

The World Bank has funded some rural water schemes in Ghana. These have failed because the Bank demanded that rural communities pay upfront cash amount towards constructing the water system. “The policy has resulted in excluding poor communities incapable of paying from enjoying their right to consume potable water,” says the CAP-Ghana of Water.

Myth 5: NP would provide sustainable water services.

Reality: Biwater, which privatised Nelspruit’s water, withdrew from a Zimbabwean water privatisation project when it became clear that citizens could not pay the tariffs that would be required for Biwater to make a profit.

Myth 6: NP would mean less corruption.

Reality: The World Bank’s preference for massive projects led to the exceedingly and unnecessary expensive (and fatally corrupt) Lesotho Highlands dam project, which caused water price to jump, forcing even more communities to be a cut off. Twelve multinationals are being prosecuted for paying bribes in connection with huge water engineering contracts for the water supply scheme. [The trial began in Lesotho Government for what is expected to be a very complex and costly trial.]

In France, the home of ‘delegated management’ (the World Bank’s favourite form of privatisation), the major multinationals have been convicted of bribery. In Milan, in neighbouring Italy, police are investigating politicians’ alleged role to have received bribes from a private company for a concession to build a new sanitation plant.

In Indonesia (during the infamous Suharto’s regime), Jakarta’s water was privatised through a French and a British consortium: both were in partnership with companies owned by Suharto’s relatives and cronies.

Some of the World Bank Researchers note: “Our empirical research provides clear evidence of the importance of public procurement corruption, defined as efforts to secure public contracts through payment of kickbacks to officials, as an oft-used channel of influence as well.” “…the extent to which firms with foreign direct investment and transnationals are also involved in playing public procurement kickbacks and engaged in other forms of corruption.” …“Conventional recommendations of economic and trade liberalization advocated to address administrative corruption will not suffice.”

The two dominant water multinationals, Suez-Lyonnaise and Vivendi, are convicted in corruption cases.

Myth 7: NP would make water sector economically viable.

Reality: The World Bank’s preference for massive projects led to the exceedingly and unnecessary expensive (and fatally corrupt) Lesotho Highlands dam projects, which caused water prices to jump, forcing even more communities to be cut off.

Myth 8: NP will create competitive market, to the advantage of consumers.

Reality: Water and Sanitation sectors by their very nature create monopolies in their respective service areas.

There are only four European multinationals that have the monopoly worldwide on water for profit. One of these, French Vivendi, has recently started raising water prices in the poorest countries of the world because they need extra cash to inject into a Hollywood studio they acquired recently.

Myth 8: NP has been successful elsewhere.

Reality: In Europe, water privatisation has been failing for decades, and in several towns water has been “re-municipalised” or taken back from whichever multinational messed up the service.

In Africa, recent research conducted by London-based Greenwich University’s Public Service International Research Unit uncovered that where water was privatised, it was as disastrous as the European experience.

Elements of Water Supply Privatisation

Privatisation of water supply can involve any or all components from the source of water (say a dam), filtration and distribution, to the collection, treatment and disposal of wastewater and sewage. Hence the term normally used is Water Supply and Sanitation (WSS). The privatisation itself can be at various levels and of various types. A brief summary is given below (Dharmadhikary, 2002):

Service Contracts – Involves short-term contracts for provision of specific services. For example, metre reading and billing. No financial risks are involved, and also there is no direct legal relationship with the consumer.

Lease / Management Contract – As the name suggests, either the private company leases out of the facility from the civil authority, or the latter appoints the company for managing the facility. In either case, the ownership remains public; private company is normally not responsible for new investments or expansion. Some commercial risk is involved in so far as day-to-day operations are concerned.

BOOT Contracts – Build Own Operate Transfer Contract in which the private company builds some part of the infrastructure - say the treatment plant, or filtration plant – and runs it for a regular charge on the system. Normally, these would be long-term contract, with a purchase agreement that would guarantee a minimum demand (the equivalent of the “take-orpay” clause of Power Purchase Agreement (PPAs) in the power sector).

Concessions – Long term contracts in which the private company takes full charge of the system, takes responsibility for the provision of the service and is also responsible for expansion, new investment, recover of bills, etc.

Divestures – Where the Government divests its equity in a utility that is then bought off by a private company. This may be full or part divesture.

In most cases, the establishment of an independent regulator, whose functions normally include setting the tariffs, is a part and parcel of privatisation.

While the private sector participation in water supply is just beginning in India, it has been extensive in Latin America and Southeast Asia. What are the implications of the privatisation of water supply? To understand this, we need to look also at the experience of water privatisation in other countries.

Bolivian Experience in Water Privatisation

It is unlikely that many would have heard of Cochabamba before 1999. Till this time, the city was probably best known for the El Cristo de la Concordia, an immense statute of Jesus Christ, higher than the Cristo del Corcovado in Rio de Janeiro in Brazil. The beautiful Andean city of Cochabamba in Bolivia lies in a fertile valley at 2,558 metres above sea level, surrounded by the Tunari hill, the Alalay lagoon and the San Sebastian hill (Dharmadhikary, 2002).

In 1999 began the story that was to bring a different sort of notoriety to Cochabamba. In 1999, the whole system of water supply for this city was handed over to a consortium of private companies called Aguas Del Tunari, led by the American corporation Bechtel. The water supply system in the city was in a mess, plagued by chronic shortages, and most of the poorest neighbourhoods did not have access to piped supply. Privatisation of water supply was projected as the only solution to solve its many problems. Brought in with the intention of improving the water supply in the city, Aguas Del Tunari was given extraordinary special considerations to attract it to invest in the city.

The Rs.12,500 crores concession (contract) was for 40 years, and assured the company a rate of return on investment of 15 per cent, linked to the consumer price index of the USA. It also gave the company full rights to all the water in the district. The immediate result was that the water charges doubled, and then trebled. On the outskirts of the city, some of the communities had built their own cooperative water supply systems based on common tube wells and distribution networks about 5 years before the concession was signed. Aguas Del Tunari was given the right to install metres on the wells of these community systems, and not only that, charge the people for the metres too. The rapidly rising prices resulted in the average worker being charged about 25 per cent of his/her salary as the monthly water bill As the prices rose, the company declared – without any hesitation or remorse – that it would disconnect all those who could not pay for the water.

As the anger spread, the people took to the streets. The crowd captured the central plaza in the city. Instead of mediating between the people and the company, the Government brought in the army to suppress the people. The main leaders of the movement were arrested. The struggle became more intense – people started calling it la Guerra del aqua – the Water Wars. One day in April 2000, as the army confronted the people, a 17 year-old boy, Victor Hugo Daza was killed. This was the turning point in the struggle. There was no looking back after this, and the company finally had to leave the country.

A Jolt and a Wake Up Call

Cochabamba came as a huge shock to those advocating privatisation of water supply. Since about a decade and a half, the winds of privatisation and globalisation have been blowing all over the world. Around the globe, sectors that have traditionally been in the public domain are being privatised. These include power, transport, railways, insurance, and water.

The company has now filed an arbitration proceeding in the International Centre for the Resolution of Investment Disputes (ICSID), a dispute resolution mechanism created by and located in the World Bank. Aguas Del Tunari / Bechtel is suing Bolivia for 25 million US dollars (Rs.120 crores) for losses. The proceedings in this Centre are carried out in total secrecy and the common people, including people affected/to be affected by its decision have no say. Further, Bechtel has resorted to fudging to take its claims to this centre. It has claimed itself to be a Dutch Company to take advantage of a Bolivia-Dutch treaty, which invokes the ICSID in case of any trade dispute. Bechtel shifted its registration to Holland only after the Cochabamba concession was signed. In early September 2002, several hundred organisations from all over the world wrote to the World Bank to conduct the proceedings of this arbitration in public, and allow the people of Bolivia to become parties to the proceedings.

Structural adjustment programmes have forced country after country to adopt the programme of LPG – Liberalisation, Privatisation and Globalisation. It is being argued that LPG is the only path to economic development. The reasoning given for this is that the Governments no longer have the funds required for the huge investments necessary in these sectors. Further, Governments have proved to be inefficient, corrupt and must make way for the more efficient private sector.

Since water is such a vital part of the economy and infrastructure, it is not surprising that there has been an enormous push for the privatisation of water services. As a result, in many parts of the world, the water sector has seen large-scale privatisation. The events in Cochabamba came as hard reminder that the rosy picture of privatisation of water services also had plenty of thorns. And Cochabamba is not an isolated case. As it happened in Cochabamba, it also helped focus the world’s attention on many similar, albeit not so dramatic, cases.

Past few years have seen growing push in India for bringing in private companies in a big way in the water sector. This privatisation of the sector raises a large number of issues. It is necessary that this be preceded by intense debates, discussions and in-depth examination. Otherwise, who knows how many Cochabambas may take place in India?

Failure of Water Privatisation in Manila

The privatisation six years ago of Manila’s 120 years old Metropolitan Waterworks and Sewerage System (MWSS) was the world’s first and largest such effort. International funding agencies have since upheld the Manila System as a success story urging other Asian countries to adopt the model.

But if the Philippine NGOs like Freedom from Debt Coalition and the Institute for Popular Democracy are to be believed, Manila is a basket case of privatisation’s failure. While the water supply has improved for the city’s wealthy, tariffs have skyrocketed 150 per cent. Many communities do not have water connection. The private companies are not concerned about water conservation and have reneged on their commitments (Chinai, 2002).

The privatisation of MWSS was carried out, notwithstanding opposition from civil society groups, among them the Freedom from Debt Coalition (FDC). Among the issues raised by FDC
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