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World Bank shifts gear on water privatisation

By Darryl D'Monte

There appears to have been an imperceptible shift in the World Bank's stand, away from privatisation being the only answer to the world's water crisis, towards a more pragmatic approach of public-private investments. On World Water Day, March 22, Indian non-government organisations and civil society groups will review trends towards private investments in the country

Not very perceptibly, the World Bank appears to be shifting its stand on advocating privatisation as the solution for providing water in cities. At a recent meeting for Water Week, in Washington, Kathy Sierra, vice-president and head of Network Infrastructure at the Bank, opened the three-day event by asserting that there was change towards pragmatism on this front. Privatisation was not "the only answer" -- there was the full spectrum of public-private mix of investments instead. She stated that investment in equity in water utilities was no longer favoured; management contracts were. "What would it take for the private sector to come back (to this sector)," she asked, clearly indicating that it had of late retreated on this front. Only a few days earlier, a senior World Bank official, Shekhar Shah, reported in New Delhi how the Bank had "learned the hard way" that it was not correct to leave it to the private sector.

At the Washington meet, Brendan Martin from the non-government organisation Public World in the UK asked whether the Bank had changed from the dogmatism of the past -- that privatisation was the panacea for providing adequate drinking water -- to a newfound pragmatism. Speaking at a session on 'Civil society organisations: a dialogue in search of a language', he noted that "the 1990s dogma, especially regarding the role of the private sector, had been consigned to history"; there was now a new mindset. While he welcomed the fact that the Bank -- possibly under the dispensation of President James Wolfensohn, whose term is about to expire, was ready to "repudiate past mistakes," he asked whether the Bank and the IMF, which had advocated such policies, were prepared to assume responsibility for the consequences of their actions.

He called for reparation for historical injustices: there were not only gaps in resources within countries and between countries but also failures of governance. Several countries had cut their budgets in the social sector as a result of Washington's conditionalities. He wondered how the UN's Millennium Goals -- which seek to halve the 1.2 billion in the world without water and 2.4 billion without sanitation, by 2015 -- would be met without rich countries contributing more as overseas development assistance.

The distance that the World Bank has taken on the role of the private sector in water supply can be gauged from Wolfensohn's remarks at the second World Water Forum and Ministerial Conference at the Hague in 2000. "We also need financial innovation if we are to meet the enormous demands for water," he said. "The World Commission on Water (WCW) estimates that investments will have to double over the next 25 years, from some $ 70 billion today. That cannot be done unless the private sector plays a much larger role in the provision and financing of water services.

"Yet most water utilities in developing countries are still financed and run by governments. A few of them are well managed. But in most cases, they lose half their water through leakage, and generally provide terrible service...In recent years a number of countries have made a decisive change. In many cities -- from Abidjan, Cote d'Ivoire, to Buenos Aires, Argentina -- the authorities have transferred the water utilities to private companies. The most obvious advantage is that the private sector brings money -- about $ 30 billion during the 1990s. It also brings know-how. But, more important, the private sector brings transparency and accountability because, for the first time, there is a contract between supplier and consumer."

On this very last count -- transparency -- private contracts awarded to water companies hide more than they reveal. While it is true that public utilities are seldom sensitive to the needs of consumers, particularly those who are not served by water and sewerage connections, experience shows how privatisation has proceeded without public scrutiny. A document titled 'Water in Public Hands' by David Hall, commissioned by Public Services International in the UK in 2001, cites how the World Bank has acknowledged that, "there is very little competition in water. Not only are water systems natural monopolies but the private part of the industry is dominated worldwide by just two multinationals -- Vivendi [which has media interests as well] and Suez-Lyonnaise [now with a subsidiary called Ondeo]. A third French multinational, SAUR, holds a dominant position in Africa.

"A few contracts have been obtained by some UK companies, Thames Water (now owned by the German conglomerate RWE), Anglian Water and International Water (jointly owned by two construction multinationals, Bechtel of the USA and Edison of Italy). Attempts by the USA company Azurix -- owned by Enron -- to break into the market have been a failure. Some of the privatisations have happened without any competitive tendering at all, even between the private sector companies. For instance, all the private concessions in the Czech Republic, Hungary and Poland upto 1997 were awarded without any competitive tendering process..."

These contracts resulted in higher prices -- the most notorious case being the town of Cochabamba, the second largest in Bolivia. Aguas del Tunari, a consortium jointly owned by Bechtel and United Utilities, took control of the city's waterworks without any competitive bidding. The company announced increases in tariffs of upto 150% and officials threatened to cut off connections of defaulters. Protests erupted the following year and army troops were called in. Ultimately, five people died in these water riots and the government cancelled the concession. Aguas del Tunari has filed a claim for a reported $ 25 million in losses. The case, according to a book titled The Water Barons , published by the International Consortium of Investigative Journalists (ICIJ) in the US, is before the International Center for the Settlement of Investment Disputes, which is part of the World Bank Group.

Discussions on the deal began in 1995, Christopher Neal, the Bank's external affairs officer, told the ICIJ. "The Bolivian government agreed, as a matter of policy, with the Bank's view that [privatisation] was needed there." According to the Bank's lead water engineer for Latin America, however, the Bank opposed the Cochabamba deal with Aguas del Tunari because it believed that it was not financially viable. Neal told the ICIJ that "the Bank is not ideological" about privatisation, but the ICIJ believes that "privatisation is the hallmark of many of its loan projects. Lending about $ 20 billion to water supply projects over the last 12 years, the World Bank has not only been a principal financier of privatisation, it has also increasingly made its loans conditional on local governments privatising their waterworks." The ICIJ's study of 276 World Bank water supply loans from 1990 to 2002 showed that 30% required privatisation -- the majority in the last five years.

The irony is that in the US itself public utilities deliver some of the best quality water at affordable prices. Attempts to privatise supplies, even by French companies, in such cities as Atlanta and New Orleans have failed. But the Bank has used its formidable financial muscle power to coax governments around the world -- in cities like Buenos Aires, Manila and Jakarta -- to tender long-term concessions to the major private companies. At least in the first two cities, the companies have had to withdraw after volatile foreign exchange fluctuations rendered their contracts unviable -- shades of the Enron debacle in India.

It is revealing that the full thrust towards privatisation emanates not from the Bank, which is still subject to considerable public scrutiny, but from French private interests, backed wholeheartedly by the French government. At the third World Water Forum in Kyoto in 2003 -- the fourth will be held in Mexico City next March -- the report of the World Panel on Financing Water Infrastructure was released by Michel Camdessus, a Frenchman who previously headed the IMF. Titled 'Financing Water for All', it made a strong case for governments to provide guarantees against foreign exchange fluctuations and political uncertainty -- once again, echoes of Enron -- to ensure the smooth functioning of private investment in the water sector in developing countries.

It is not accidental that France has the biggest multinational water companies. The Camdessus report waxed eloquent about increasing investments in providing water, an overwhelming emphasis on money as the main obstacle in this sector. "Yet, while over the next 50 years more than half of mankind is threatened by 'water stress', the dream of pure water for all continues to unite humanity...How could it be otherwise?" the report asked. "This is basically a question of giving our brothers and sisters what they need to drink. The Universal Declaration of the Rights of Man, in its first article, sets each person the overriding duty of 'acting towards others in a spirit of fraternity'.

According to Camdessus: "Financial flows, our main concern, need to at least double. They will have to come from financial markets, from water authorities themselves through tariffs, from multilateral institutions, from governments, and from public development aid, preferably in the form of grants." He went on to argue that, "the sovereign risk on projects, including foreign exchange risk, is a key disincentive that must be addressed if water projects in emerging markets are to attract international loans and equity." He went on to say: "The prospect of private sector participation in its various forms can be a powerful spur to the reform of public water agencies, whether it actually happens or not...Water projects can be financed by combining public funds with private financing in transparent and acceptable ways".

The Camdessus report was roundly criticised by many civil society groups at Kyoto and after. A statement issued at Kyoto by several people, including Himanshu Thakkar of the South Asia Network on Dams, Rivers and People in Delhi, Minar Pimple of Yuva in Mumbai and Ashish Kothari of Kalpavriksh in Pune, differed with the entire vision of the World Commission on Water (WCW), which guided the overall deliberations in the historic Japanese city. It accused the report of being the culmination of an effort "controlled from the start by a small group of aid-agency and water multinational officials, mainly from the Global Water Partnership, World Water Council, World Bank and Suez-Lyonnaise des Eaux.

"The key conclusions of the report," it alleged, "that there is a global water shortage crisis which can only be solved with a massive increase in private funding for water projects in developing countries, backed by guarantees from the World Bank and other aid agencies, was predetermined...[The assumption is that] all public enterprises are necessarily incompetent, and all private water suppliers eager to serve the public good...The WCW analysis glosses over the fact that the problem is less one of global shortages, either of water or investments, than one of mismanagement and skewed political priorities. The crisis is one of over-consumption, waste, pollution, watershed degradation, rampant dam building, poorly conceived and operated infrastructure projects, corruption and inequality...The extra water required to ensure a minimum basic domestic supply to all the world's people in 2025 is only 1% of current water withdrawals."

The Bank itself appears to have rethought its position. At the meeting in Delhi, Shekhar Shah pointed out that the issue was not to apply technocratic solutions: "It's not a matter of fixing leaking pipes," he said, "but the institutions that fix them. It's not what to do, but how." Even if the Bank no longer favours outright privatisation, private interests are eyeing the colossal market that drinking water -- and sanitation -- provides in a growing country like India. Previous attempts by French companies to enter Bangalore, for example, were unsuccessful. According to French diplomats in India, the earlier BJP-led central government in New Delhi had been discussing whether it was possible to provide sovereign guarantees to such investments, on the lines of Camdessus' recommendations, and they are awaiting the current regime's response to such overtures.

Meanwhile, non-government organisations led by Vandana Shiva and others are staging their deliberations on World Water Day, on March 22, in Delhi, where they will review trends in the country towards private investment. They say: "In Delhi, the government had announced an increase in tariff hike effective from December 1, 2004, and the World Bank is driving it towards privatisation. The first step towards privatisation of water in Delhi was the setting up of the Sonia Vihar Plant by Suez Ondeo Degremont. The same trend is prevalent in Madhya Pradesh, Uttar Pradesh, Kerala, Bangalore, Chennai, Mumbai, etc. The World Bank has announced around 20 water-related projects."

One project to keep an eye on will be the Water and Sanitation Urban Programme in Bangalore, which is rated as a Millennium Development Goal International Alliance initiative. It concerns the overhaul of the sewerage system, among other things, and involves Thames Water. This is a company that has attracted considerable adverse comment for its outright purchase of London's water sector assets. It remains to be seen whether this will provide a backdoor entry into the Garden City's water supply system.

InfoChange News & Features, March 2005