Poisoned Spring: EU promotes privatisation of water in developing countries


December 9, 2008 15:20 | by Steve McGiffen

In the recent negotiations around the World Trade Organisation's General Agreement on Trade in Services (GATS), the European Union asked 72 WTO member states to open up water delivery and waste water management to international competition. This request was not made with the interests of people in developing countries in mind. Its aim was to help European Transnational Corporations to enhance their profitability.

This is not a guess based on content analysis. It was known that when the latest round of GATS negotiations got under way, the Commission simply asked the TNCs for their wish-list. They sent them a questionnaire asking them what they wanted. I know a lot of campaigners and researchers who are committed to keeping water in the public sector. None received a similar questionnaire. Nor did MEPs, supposedly the elected representatives of the people, who have no right to do more than comment on trade policies, incidentally. The Commission also made it clear that they would be willing to offer support if corporations experienced hindrance when it came to access to water.

Bringing water supply within the rules of the WTO would have made privatisation effectively irreversible, closing off the development of alternative models. Fortunately, the attempt was a failure, and water supply and water services remain exempt from normal WTO rules. It failed not because of a change of heart, but because of two developments.

One was that trade union pressure succeeded in preventing the EU from opening its own water sector to foreign competition. The other was the fact that TNCs had had their fingers burned by too many failed privatisations.

Though the EU continues its aggressive promotion of the interests of its corporations regardless, those corporations are themselves showing little interest in pursuing an agenda of water privatisation which has proved an unreliable and troublesome source of profit. This is partly because of public resistance, which has been vigorous and sustained in many EU countries but even more so beyond.

The results of this have been heartening.

In South Africa, a water contract was nullified following a campaign.

In Paraguay, the national parliament voted overwhelmingly to suspend indefinitely the privatisation plans for the state-owned water company.

In Brazil, the National Front for Environmental Sanitation (FNSA) brings together trade unions, public sector managers, professional associations, NGOs, consumer groups and other social movements in a campaign committed to keeping water supply and sanitation in the public sector.

Researchers from the Public Services International Research Unit (PSIRU) at Greenwich University in London have listed twenty-nine successful campaigns against privatisation, seventeen in developing countries, including nine in Latin America.

Eight campaigns were in EU countries - both 'old' and 'new' member states - and the rest in North America.

The campaigns involved, in a range of combinations, much the same elements as those participating in Brazil's FNSA: trade unions, consumer and citizens' groups, environmentalists, progressive political parties, organisations representing small business people, and various NGOs with specific concerns over the likely impact of privatisation.

Despite all of this, talks on the Economic Partnership Agreements (EPAs) have also included proposals for the opening of the water sector. These EPAs are the bilateral agreements with ACP countries which have been made necessary by the failure of the Doha round.

What is clear is that the Commission retains a blind commitment to privatisation as a 'solution'. The EU's policies in relation to its poorer neighbours show a similar zeal for privatisation, again going beyond anything which has been agreed at WTO level. So-called Neighbourhood Policy action plans include a number of references to encouraging privatization as an objective in neighbourhood countries.

As the UN's Human Development Report 2006 pointed out, 'in countries with high levels of poverty among unserved populations, public finance is a requirement for extended access regardless of whether the provider is public or private.' This is the key to understanding how private corporations hope to 'profit' from supplying the poor with water. The money will come out of the pockets of western taxpayers in the form of development aid. Instead of going to the people development aid is allegedly intended to help, large slices of this money will go to the shareholders of transnational corporations. This is scarcely 'profit' by the normal definition. It is, rather, a handy way of transferring public money into private pockets, of filling the corporate trough at the public expense.

That the drive to privatisation is essentially ideological is clear from the record. While the private sector was touted as a means to facilitate investment and enhance efficiency it has in practice exhibited economic problems and distortions characteristic of monopolies including management inefficiencies, restricted competition, corruption, excess pricing and restricted access, excess profits and low water quality, and problems in delivering development objectives.

Examples include

o Trinidad and Tobago, where delegation of the management of the islands' water to a subsidiary of British water corporation Severn Trent was brought to an end after five years in which there had been 'no significant improvement in the reliability of supply and coverage of sewerage.'

o In Puerto Rico, a contract to manage the water and sewerage authority was given to a subsidiary of Générale des Eaux (now Veolia). The contract was criticised in a report issued by the Puerto Rico Office of the Comptroller in August 1999, for "numerous faults, including deficiencies in the maintenance, repair, administration and operation of aqueducts and sewers", while the authority's operating deficit had rocketed 'without any noticeable improvement in the service.'

o In Côte d'Ivoire, a subsidiary of another French water corporation, SAUR/Bouygues, was in 1987 given the contract to supply the entire country with water, no competitive tendering process having taken place.

o In the Philippines, on taking over water management, a subsidiary of British corporation Biwater increased water rates to industrial customers by 400%.

o In the Argentine province of Tucuman, when another subsidiary of Générale des Eaux was granted a 30-year concession to supply the region, water tariffs doubled. Despite this the company failed to accomplish the planned investment programme allowing the water supplied to turn brown.

A report prepared by US group Public Citizen investigated cases in which 'showcase water privatisations have suffered major losses' and found examples of what it described as 'fiascos' in Buenos Aires, Manila, Atlanta and Cochabamba.

As the report concludes, '(it) has now become clear... that the major multinational water corporations have no intention of making a significant contribution to the capital needed to ensure access to clean and affordable water. The rhetoric of private sector financing is a myth.'

A study of water privatisations in Africa has demonstrated that the main effects were increased prices and disconnections, concluding that these 'must mean that the poorest segments of society are likely to be the main losers from the privatisation process.'

One reason for these recurrent problems is the simple fact that in the water sector privatisation does not bring competition. Both the world market and the privatised water sector in the EU are dominated by a very small number of TNCs. Worse still, they often operate jointly and give any outsourcing contracts to their own subsidiaries.

Water privatisers will tell you that, though competition may be impossible in the market, it can be replaced by competition for the market. Experience shows, however, that the awarding of long-term contracts leads inevitably to corruption. It also hands enormous power to TNCs, because once you have gained control of a water supply you have those dependent on it in the palm of your hand. This leaves governments in a weak position when contractual obligations are not met.

In developing countries the key public service objective is usually to extend the service. Recent studies in Cartagena (Colombia), Cordoba (Argentina) and La Paz (Bolivia) have all shown how private operators systematically avoid making the investment in such extensions, despite contractual obligations and political demands, because they regard such connections to the urban poor, who can only afford water with cross-subsidy, as too risky - not profitably sustainable.

Pressure from donors to privatise services has led numerous developing countries to try to encourage private investment, often in the face of corporate indifference. Because of increasing reluctance by TNCs to invest in water in developing countries, these countries have responded by allowing corporations to cherry-pick those parts of the system which they can run at a profit. This usually means a management contract, in which the foreign corporation manages water supply, including metering, billing and payment collection while the state continues to take responsibility for infrastructure. Such contracts operate in South Africa, Mozambique and a number of west African countries.

Amongst the donors responsible is the European Union. Based on a scheme originally devised by a panel chaired by one-time IMF director Michel Camdessus, the central feature of the EU's plans for its development aid to the water sector has been the diversion of moneys to promote the entry of European private water corporations into markets in developing countries and transitional economies outside the EU. Shortly after the Kyoto World Water Forum the European Commission released proposals for the establishment of the European Water Fund. It was initially to be worth €1 billion and would be used to finance investments in the ACP countries. The proposal envisaged using a mix of 'guarantees, risk insurance, soft loans, etc'' as a means of facilitating the intervention of EU operators and sought to build on the EU Water Initiative (EUWI) launched at the UN's Johannesburg Rio+10 Summit the previous year.

This 'Initiative' was designed to rechannel over €1.4 billion from EU development aid funds into the financing of water supply Public-Private Partnerships (PPPs) in Africa, Latin America and the former Soviet Union. One member of the EUWI finance panel was James Wimpenny, author of the Camdessus Report, while Alan Hall of the private sector Global Water Partnership was coordinator of its financing working group and was also one of the authors of the corporate-controlled World Water Council's paper on governance and water, presented at Kyoto.

Behind the scenes, the Commission was developing these initiatives in close collaboration with trans-national corporations in the water sector. Confidential documents obtained by campaigners under a freedom of information procedure have revealed how the European Commission has from the early stages had close consultations with major water TNCs about the EUWI.

Suez was particularly active, which may have been helped by the fact that Ives Thibault de Silguy, the Suez board member liaising with the Commission, is very much at home in Brussels: from 1994 to 1999, he was himself a European Commissioner. The Commission also involved Suez and other water sector TNCs in preparing its negotiating position for the WTO Doha Round, stating at the time that "the main objective... for the negotiations is to reduce the barriers which European operators face in third countries' markets."

The 2005 statement by Christian NGO Tearfund that "Not a single extra person has received safe water or sanitation through the initiative" remains true.

The EU and many of its member states are also among the biggest enthusiasts for World Bank funding mechanisms linked to privatisation conditionalities, such as the Public-Private Infrastructure Advisory Facility (PPIAF). Established in 1999 by the World Bank, the United Kingdom and Japan, the PPIAF has been used as the instrument for funding water privatisation processes in thirty-seven countries in the developing world. The UK remains by far the biggest donor, but the Facility has also received moneys from the European Union and from other EU member states: Sweden, the Netherlands, Germany, France and Italy.

PPIAF ignores possible public sector solutions and concentrates on advising developing countries as to how they can privatise their water supply and, hopefully, attract foreign direct investment to that end.

We are told repeatedly that privatisation will help connect more people to the water supply. Yet in fact, almost none of the private sector's involvement with water is even aimed at achieving this.

Most private contracts, notably lease and management contracts, involve no investment by the private company in extensions to unconnected households. In one region, South Asia, not a single additional household has been connected to the water supply as a result of private sector investment. Private water companies do not bring new sources and volumes of investment finance - they rely heavily on the same sources as are available to the public sector.

The evidence debunks one of the most important myths concerning water privatisation, namely that private finance will play an important role in delivering progress towards the water and sanitation Millennium Development Goal. On the contrary, it has not done so up to now, and is unlikely to do so in the future. The poorest countries, the poorest cities and the poorest neighbourhoods have been shunned. Sub-Saharan Africa and South Asia have together received only one per cent of total private sector water investment.

The need to turn a profit has also meant that for poor customers, connection is far from the end of the story. If they can't pay, they go back to being thirsty as pre-pay meters and disconnections deprive people of their supply. And as privatisation is almost invariably accompanied by massive price increases, failure to pay is the common consequence.

The European Commission's involvement in PPIAF contradicts its stated practice and philosophy which is laid out in a set of recommendations for reforming state enterprises published in 2003.

This, in the Commission's own words 'does not attempt to settle the debate on the advantages of different forms of ownership of enterprises - public, private or PPP. Rather it argues for the essential importance of looking objectively at all the options and their sequencing and selecting the one that best meets the needs of the particular country and field. This needs to pay careful attention to the capacity and resource constraints of the country.' It also notes the need to 'take into account the employment and social consequences'. The PPIAF's privatisation-only policy is thus seriously at odds with the principles outlined in the Communication.

The EU has now established its own version of PPIAF, the Private Sector Enabling Environment Facility. Farmed out to a private consultancy, WYG International, and presided over by the ACP Secretariat and the European Commission, the €20 million Private Sector Enabling Environment Facility (PSEEF) seeks to go beyond PPIAF's scope. Its aim is to boost the private sector in the ACP countries under the broader ACP Business Climate facility, known as 'BizClim'.

BizClim's website states that it is dedicated to 'improving legislation, institutional set up and financial measures (the rules of the game) relating to the enabling environment of the private sector in ACP countries or regions and to the reform of SOEs [State Owned Enterprises] - and to do so by focusing on possible support to ACP governments or regional institutions'. According to critics, however, this advice invariably concerns contraction of the public sector in favour of private firms.

Nevertheless, BizClim seems to have met much the same problem as did PPIAF: the private sector is simply not interested in investing in the poorest countries or the poorest communities, even with the active financial encouragement of the European Union. At the root of the problem is the simple fact that the poor cannot afford to pay the full cost of the water they need, so that until we achieve a more equal world, means will have to be found to pay for it.

Nothing in the experience of thirty years of neoliberalism has offered the slightest evidence that subsidising private corporations is an efficient means of achieving this. What we are up against is not evidence but ideology, and this ideology is killing people. Investment in water supply and sanitation should surely be the priority for development policy.

The United Nations has produced a list of potential benefits of improved water management which demonstrates this. This goes beyond the provision of fresh, clean water to households and places where people gather, whose health benefits will be obvious to anyone, especially anyone who has ever been deprived of these things for any length of time. They include other relatively obvious gains, for example for agricultural and horticultural production. Less obviously, improved water management can lower the incidence of disease, including by reducing mosquito habitats and also pollution.

All of these have clear knock-on effects by improving human health and therefore productivity, school attendance and even, as a result of reducing the number of women and girls obliged to spend large parts of their day carrying water to their homes, making a contribution to achieving progress towards greater gender equality. If these gains are to be realised, the first priority must be a clear recognition that water is a unique public good. And that access to it is a human right.

There is no single, inflexible model for best practice in the delivery of water or the provision of sanitation. Circumstances differ, in terms of social, economic, cultural, political, environmental and geographic realities. The model must therefore be adapted to these realities, but in each case it will be a public ownership model with a high degree of popular participation and democratic control. Profiting from a good or service that is vital to life is inappropriate, because the profit system can only function where the ultimate threat is withdrawal of the good or service in question. Private corporations must prioritise the interests of their shareholders. These can be served only by maximising profit, and where the consumers in question are too poor to pay, such profits can be garnered, if at all, only through public subsidy.

Public money spent in this way can be spent much better in the direct provision of water and sanitation.

If the state spending this money is itself poor, a large slice of it will be development moneys funded from the taxes paid by citizens of rich northern countries.

I believe I can assert with confidence that my fellow taxpayers will share my preference for our money to be spent in ways which benefit those whose lack of access to water and sanitation means that they live with the constant threat of thirst, hunger and disease, rather than those who live with the threat of a lower-than-average share dividend.

Steve McGiffen is editor of Spectrezine. He is writing a book on EU water policy with Kartika Liotard, MEP. This article is adapted from a speech which McGiffen gave to students of New York University at NYU's base in Paris on 5th December, 2008. The book, Poisoned Spring will be published by Pluto Press in May, 2009.

see also http://www.spectrezine.org/Editorial/water.htm