The Last Drop

Water privatisation has long been promoted as the only way to develop clean water supplies in the global South. But with several high profile failures and revolts, multinationals are pulling out.

May 1, 2006
8 min read


Oscar ReyesOscar Reyes is an associate fellow at the Institute for Policy Studies and is based in Barcelona. He was formerly an editor of Red Pepper. He tweets at @_oscar_reyes


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The south east of England is currently experiencing a peculiarly British drought. It is raining – less than average, admittedly – but enough to ensure that 915,000 litres of water per day can still be lost from the city’s creaking pipes.

But London’s livid lawn-waterers are not the only of Thames Water’s 70 million customers worldwide whose taps have run dry. Over 9,000 kilometres away, the citizens of Jakarta, Indonesia, have regularly complained of poor service and frequent water disruptions, including several days without water, since the city’s water company was taken over by Thames Water and French multinational Suez in 1997. Water rates there have been hiked by up to 30 per cent per year.

Double-digit price rises are also promised in Britain, and the company’s record of investment in the two countries is similarly unimpressive. But while Thames continues to make a £250 million annual profit domestically, its international operations are in trouble. The company is withdrawing from investments outside Europe and the German company RWE, which owns Thames, has recently put it up for sale.

A similar pattern is being repeated across the water sector. Veolia (formerly Vivendi), the world’s largest water company, is saddled with major debts. Suez, the second largest water company globally, is also being sold and is busily withdrawing from markets it deems politically risky. And for good reason: in March, the Argentine government cancelled the contract of the company’s disastrous Aguas Argentina subsidiary, citing poor water quality and the company’s failure to meet investment targets. Its Aguas del Illimani operations in El Alto, Bolivia met with a similar fate (see Nick Buxton, page 23 of the print version).

While it may be premature to talk of the end of water privatisation, that project has gone badly awry: ‘Due to the political and high-risk operations, many multinational water companies are decreasing their activities in developing countries,’ concluded the UN’s second world water development report, published in March.

What a difference a decade makes. In the 1990s, the World Bank, IMF and regional development banks (cheered on by the water corporations) pushed privatisation as the only solution to meet development goals. Instead of seeing access to potable water and sanitation as a basic right, a pre-condition for a dignified livelihood – they sought to impose ‘full cost recovery’ mechanisms, charging a market rate for water. Water was seen not as a basic resource but as an exploitable commodity. Subsidies were scrapped, and prices were hiked. In Bolivia, for example, the arrival of Bechtel in Cochabamba heralded an instant 60 per cent price increase.

The results in Bolivia are well known: successive ‘water wars’ saw the unpopular concession contracts scrapped and stimulated the rise of a new, more radical government. But this was by no means an isolated case. In June 2002, the Paraguayan parliament indefinitely suspended a privatisation scheme for the state-owned water company, Corposana (now called Essap), which was proposed in accordance with IMF targets for the country. Local struggles in Nkonkobe (Fort Beaufort), South Africa and Poznan, Poland, saw privatisation projects scrapped, while a successful campaign in Grenoble, France, saw the re-municipalisation of the city’s water services. Most recently, in November 2005 popular pressure led to the scrapping of a World Bank-funded privatisation project in Delhi, India.

But multinational withdrawals have not simply come from popular pressure. Contracts in the Central African Republic, Chad, China, Gambia, Malaysia, Mali, Tanzania and Uganda have all been terminated after the private water operators failed to invest adequately (if at all) in new connections. In Mozambique, Vietnam, and Zimbabwe, meanwhile, privatisation was abandoned when the companies themselves decided to withdraw.

As this list of failures grows, the arguments to justify privatisation have also melted away. The competition myth – the idea that the market system could bring efficiency savings by introducing competition – was the first to go. Even if this neoliberal theory was correct, it has rarely been tested because Suez, Vivendi, Thames, SAUR and Anglian – the world’s largest water companies – are connected by a web of joint ventures designed more to protect their interests than stimulate ‘market conditions’.

The myth that the private sector brings investment has also started to crumble. ‘Private companies only invest where they can make a profit, not where there is the greatest need,’ says Peter Hardstaff, head of policy at the World Development Movement (WDM). This is backed up by WDM’s recent Pipe Dreams report, which shows that the private sector globally manages to make just 900 new water connections per day – falling some way short of the 270,000 per day new connections needed to meeting the Millennium Development Goal of halving the number of people without sustainable access to water and basic sanitation by 2015.

Against this backdrop, the private water multinationals have increased their efforts to influence global water policy with the establishment in October 2005 of AquaFed, a new corporate lobby group headed by Gerard Payen, a former CEO of Suez’s water division. It has already run into controversy, when it emerged that draft documents for the World Water Forum’s ministerial declaration originated from Payen’s computer.

Through corporate lobbying, the major water companies are pressurising the development banks – which use public funds to bankroll most development projects – to stand as guarantors against ‘political risk’ (the chance that the people might react unfavourably to price hikes) and losses arising from currency fluctuations. In effect, they are hedging their bets: urging the development banks and donor governments to offer terms that guarantee private investments, while at the same time threatening to withdraw altogether if these demands are not met. Yet this cannot mask the fact that the privatisation model has largely failed. For all the promises and projections, the reality remains that 90 per cent of the world’s water is still supplied by the public sector.

‘In a world where the multinationals are withdrawing, it is obvious that the public sector has to play a more important role,’ says Emanuele Lobina of the Public Services International Research Unit. ‘But public sector operations are created to provide a local service, and don’t have the same vested interest as multinationals in trying to promote their practices around the world.’

The opponents of neoliberalism are starting to respond. At the World Water Forum in Mexico City in March, an unprecedented 30,000 people marched in defence of water as part of a global commons, rather than a commodity. Beyond this, an International Forum in Defence of Water and a symposium on Public Water for All, heard exchanges of practical schemes to make this a reality. Public-public partnerships (PUPs) are at the centre of these proposals, encouraging public sector and community co-operation on a not-for-profit basis.

These are sometimes born out of necessity. For example, much of the water infrastructure in Caracas, Venezuela, was developed informally by residents with no formal land rights. So participation there, which takes the form of communal water councils, is essential if water providers are to understand how the system has been developed. ‘This wasn’t an urban planning issue,’ says Santiago Anconada, who advises the country’s minister responsible for participatory water management. ‘The water councils developed to map the situation on the ground. But they are as much part of the overall reformulation of power in the country.’

This emphasis on participation is increasingly widely shared elsewhere in Latin America. ‘Public means much more than the state’, says Alberto Munoz, of the Provincial Assembly for the Right to Water (APDA) based in Rosario, Argentina. He adds that citizens increasingly ‘demand participation in decision-making that ensures effective democratic control’.

In Brazil, the National Association of Municipal Services of Water and Sanitation (ASSEMAE) has played a key role in co-ordinating partnerships between authorities and civil society groups. Silvério da Costa, president of ASSEMAE, argues that this has helped the spread of socially controlled sanitation services in the country: ‘Actions that are not possible by a small municipality may be possible by a group. We are calling this arrangement a public-public partnership. But our experience in Brazil is that genuinely public water delivery must go beyond consultations with users to involve control over key financial decisions and citizens’ participation in setting priorities.’

‘We need to learn a lot from active participation in the South, especially now that we are seeing de-privatisation in Europe, including in parts of France and Italy,’ concludes Satoko Kishimoto of the Transnational Institute, based in Amsterdam. Reversing privatisation is not yet on the political agenda here in Britain, with few political actors yet campaigning for it and the water regulator Ofwat ensuring that the existing private water companies’ contracts are not up for renewal until 2027. But as Thames continues to lose up to a third of its water, and hosepipe bans likely to spread more widely, it is time that these lessons were learnt in Britain too.

For more information see www.waterjustice.org

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Oscar ReyesOscar Reyes is an associate fellow at the Institute for Policy Studies and is based in Barcelona. He was formerly an editor of Red Pepper. He tweets at @_oscar_reyes


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