Water Privatization?

Question

What are the cons and pros?

Answer 1

Water privatization is a short-hand for private sector participation in the provision of water services and sanitation, although more rarely it refers to privatization of water resources themselves. Because water services are seen as such a key public service, proposals for private sector participation often evoke stronger opposition than for other sectors. Globally, more than 90% of water and sanitation systems are publicly owned and operated. There are two main types of private sector participation in water supply and sanitation, sometimes known as the "British Model" and the "French Model". The British model consists of privatising both the assets (water and sanitation network, treatment plants and so on) and the operation of the assets, whilst in the French model, the assets remain publicly owned. The British model is largely limited to England and Wales (the system is still public in Scotland and Northern Ireland), with only isolated examples elsewhere.

For the more common "French model" of keeping assets public and privatising service operations, there are three major types, in order of increasing risk transfer to the private operator: management contract, under which the private operator is responsible only for running the system, in exchange for a fee (usually performance-related). Investment is typically financed and carried out by the public sector, but implementation may be delegated.

lease contract, under which assets are leased to the private operator, who recoups the cost from end users. Investment is typically financed and carried out by the public sector, but implementation may be delegated.

concession, under which the private operator is responsible for running the entire system, including planning and financing investment. Concession contracts usually run for 20-30 years.

An additional structure, a BOT (Build-Operate-Transfer), exists for the carrying out of specific new investments, usually the construction of new water or wastewater treatment plants. The BOT contract involves the private partner constructing the plant and then running it for a number of years (during which payment is received for the treatment capacity provided) before handing it over to the public water company. The risk for the private company for these is often relatively low, especially when contracts relate to capacity provided (rather than services provided) and the water company takes the demand risk.

All these structures can be considered public-private partnerships. In some cases, the operating company is a joint venture between the public owner of the assets and the private company, which usually has at least day-to-day management control.

Reasons for privatization

Typically there are four reasons for attempting to involve the private sector in water supply and sanitation:

mobilizing financing for investment

need for technical expertise

increasing efficiency

improvement of service quality

In developing countries, during the 1990s there has sometimes been pressure from international financial institutions such as the World Bank and IMF to introduce private sector participation in water supply and sanitation, for example through the imposition of loan conditionalities.

A recent World Bank paper summarised evidence on efficiency: "For utilities, it seems that in general ownership often does not matter as much as sometimes argued. Most cross-country papers on utilities find no statistically significant difference in efficiency scores between public and private providers." Note: exact quote missing - link does not function

Currently, commercialisation or the corporatisation of water supply systems is more popular in developing world due to the failures of water privatisation in some developing economies and the lack of interest by multinational water companies in commercially unattractive water supply systems.

The term “privatization” covers a wide spectrum of water utility operations, management, and ownership arrangements.(1) There have been at least three models of water privatization:(1)

“Outsourcing” means both private contracting for water utility plant operation and maintenance (O&M) and private provision of various services and supplies, such as laboratory work, meter reading, and supplying chemicals.

“Design, build, and operate (DBO)” means negotiating a contract with a private firm for coupling design and construction services with comprehensive operating agreements for new, expanded, or upgraded facilities.

“Asset sale” means the sale of government-owned water/wastewater assets to private water companies.

In the United States, the contracting of O&M to a private provider has been more common than the sale of utility assets to private companies. No major U.S. city has sold its utility assets in recent decades, although some smaller water utilities have done so. Implications of Privatization of Water Utilities Here are examples where privatized water utilities have posed risks of rate hikes, negative economic impacts, inadequate customer service, and harm to natural resources: http://www.serconline.org/waterPrivatiza...

Multinationals

Privatization is often associated with multinationals. According to Masons Water Yearbook 2004/5, 545m people (9% of the world population) were served by private providers. The number has declined since then after private concessions in Argentina and Bolivia have been cancelled. Of the three biggest multinationals active in the sector

Suez serves 117.4 million people around the world;

Veolia Environnement, 108.2 million;

RWE, 69.5 million (before selling its major water subsidiary, Thames Water, to Kemble Water

The next biggest players are Aguas de Barcelona (35.2 million); SAUR (33.5 million); and United Utilities (22.1 million). Exceptionally, none of these are U.S.-based. Of the big three, Suez and Veolia are French-based, and RWE is German, although its water subsidiary (Thames Water) was originally British.

However, increasingly, domestic water operators are entering the market in Middle Income Countries (e.g. Brazil, Colombia, Malaysia, and China). In addition, public utilities are going overseas and entering contracts that do not require investments (e.g. management contracts). Examples of these include Rand Water (South Africa) and Vitens (The Netherlands) winning the management contract in Ghana. The lines between public and private are thus blurring.

Anti-water-privatization campaigns

Privatization proposals in key public service sectors such as water and electricity are in many cases strongly opposed by opposition political parties and some civil society groups. The opposition viewpoint is often centred around the worries that privatization will lead to monopolies forming and that profits would be valued over service. According to PSIRU, the research arm of Public Services International which is opposed to privatization under any circumstances, this has been the case in England and Wales.[2] Usually campaigns involve demonstrations and political means; sometimes they may become violent (eg Cochabamba Riots of 2000 in Bolivia). Opposition is often strongly supported by trade unions. Other recent examples include Ghana and Uruguay (2004). In the latter case a civil-society-initiated referendum banning water privatization was passed in October 2004. A law banning privatization of public water supply was also passed in the Netherlands in September 2004, with broad cross-party support