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You are here: Home | Water resources | Water resources | Analysis | Is the exit of private investors from the water sector bad news for the poor?

Is the exit of private investors from the water sector bad news for the poor?

By Dr Sudhirendar Sharma

Activists have long lobbied to get both big water firms and the World Bank out of the water sector in the developing world. They may just have succeeded, with the three biggest global players announcing their decision to withdraw. Isn't it time civil society proposed a viable alternative to the Bank and the private sector?

A recent issue of The Economistsays that activists, who have long wanted big water firms out of the water sector, may just see their wish granted. The world's three biggest water companies, which have never been interested in rural projects that can never turn a profit, are now shy of urban projects too. "Even if consumers paid up, as many do not, the social, regulatory, political and currency risks are just too high. And with an army of critics on the watch, they risk bad publicity in the rich world as well. The result is likely to be a lot less private-sector involvement in the future," says an editorial in The Economist, August 28, 2004.

Public outcry against water privatisation across the world, in the Philippines , Paraguay , Bolivia and Argentina to name a few countries, may thus have forced an early exit for private investors in the water sector. The Economist wonders if this isn't bad news for the poor!

Yes, it will be bad news if the world's 1.1 billion poor, currently uncovered by public water supplies, fail to gain access to safe water. With the problem of access likely to swell three times in the next two decades, the Millennium Development Goal of providing access to safe water and sanitation seems ambitious. As most developing countries' governments have a resource crunch and the promised donor support is falling short, private investors may hold the key to providing capital for improving access to water.

The World Bank has long called for private-sector skills and money to be brought in. But the anti-capitalists allege that the apex global lending institution is hand-in-glove with private multinationals. Analysing the global water situation vis-à-vis privatisation, The Economist argues that it is often forgotten while referring to the classic case of Cochabamba in Bolivia that the story had the failure of the city's public water supply at its core, on account of a serious resource crunch.

That resources continue to be scarce across the developing world is glaringly evident. It is true that it has become increasingly difficult, if not impossible, for developing countries to raise the annual $ 15 billion investment in the water sector out of their own resources. No wonder, while in the developed world the stuff comes 24/7 from the tap, in poor countries drinking water trickles from taps, communal standpipes, the water-seller's cart, wells, boreholes, streams or puddles.

But then why do activists want big water firms out of the developing world even if it means less cash flow to maintain domestic supplies? Because control over every conceivable water source with the sole motive of making profit and increasing efficiency has been at the cost of equity -- the poor who cannot afford higher costs of water are left out. Though activists resent inequity in water distribution for justifiable reasons and have protested this inequity vociferously, they do precious little to pressurise their own municipal authorities to improve water services and address inequities that already exist.

At the unbelievable low tariff of Rs 1.6 per cubic metre of water, piped water supply remains inequitable in Delhi , where 1,600 unauthorised colonies and 1,100 slums have yet to be covered. Though every water connection is manned by an average of 21.4 persons, tariff collection at the best of times is only 66%. No wonder high overhead costs, poor cost recovery and inefficient service delivery contribute to significant pilferage, inequitable coverage and unreliable water supply in the capital of the country.

Delhi is a microcosm of a much larger systemic malaise. With political forces shying away from definitive decisions to transform the system, vested interests are quick to prescribe privatisation as an antidote. And yet the activists who contest the inherent inequity of privatised water supply rarely confront the prevailing rot in the public water supply!

Opposing big water firms may prove counterproductive unless the required capital is raised from alternative sources. With three of the notorious water giants -- RWE Thames Water, Suez and Veolia Environnement -- pulling out of the water sector, the result is likely to be a lot less private-sector involvement in the future. The adverse publicity of the past decade notwithstanding the relentless World Bank is back in the water business, having raised its present investment of 4% in water to 9.5%.

The crucial question is: is the World Bank's re-entry with its 'high-risk-high-reward' strategy a better substitute for the notorious multinationals? With the water crisis being the result of a financing crisis in many developing countries, the World Bank's return to financing the water sector seems inevitable. Since the premier lending institution is committed to a reform process that calls for raising the cost of water to twice or thrice the present rate, the news is indeed 'bad' for the poor.

Since the anti-capitalists disagree with the Bank's re-engagement on the one hand and oppose big firms' handling of public water supply on the other, the challenge before them is to create a third front that does not compromise the rights of the poor over water. Whether the third front is a refurbished public sector or a more socially responsible domestic industry remains to be seen. However, the onus is on the activists to propose a viable alternative.

InfoChange News & Features, November 2004