Private sector and water supply

Naren Prasad, ESCWABeirut, 19 November 2012

The two faces of water

• Undeniably a fundamental necessity for life– Often referred to as a human right– Usually not a legally recognised right, but a statement of priority

• Unavoidably an economic good– Clearly is a market for water, with longstanding history– Monopoly so has special economic position– Regardless of whether ownership is public or private

Why PSP in water?

• Globalization & neo-liberal policies, Washington Consensus• Emphasis on market, fiscal discipline, liberalization (trade, investment, finance), deregulation, decentralization, privatisation, reduced role of state, decrease welfare state, flexible labour market, restrictive fiscal policies• Increased role of PS in delivering social services & public utilities, including water

Current Issues• PS in water is controversial in development

discourse• Three positions:

- Government failed so PS can solve problem by market principles (IFIs, bilateral donors, OECD countries, TNCs)

- PS improves efficiency, extension, more investment, help governt. budget deficits

- Prob. of low level-equilibrium- Water a common good and should not be in hands of

the PS- Water as basic necessity, unlike other goods- State should provide this service

- Water as economic good & human right

Global water statistics– Over 1 billion do not have access to safe drinking

water worldwide and over 2 billion do not have access to sanitation services

– Goal 7 of the MDG: « Halve by 2015 the proportion of people without sustainable access to safe drinking water and sanitation »

– 83% have access, but…• Others pay very high prices, or use unsafe water (over 1

billion)• 2 million die per year due to diarrhoeal diseases (90%

children under 5, 4,000 children die each day due to water born diseases)

• Cycle of poverty & disease (povertydeprivationusing unsafe waterdiseasesinability to workincreased poverty

– Poverty trap could be overcome by having access to safe water

Challenges for water sector

• Infrastructure:– reducing leakages, replacement/expansion of networks, technological innovation

• Financial:– sustainable and equitable tariffs, efficient revenue collection, investment

• Environment and health:– public health needs, conservation, environmental management

• Socio-political:– having affordable price, transparency, accountability, expansion of coverage

• Managerial:– improving efficiency and productivity, capacity building, efficient procurement.

• Solution: Reform water sector through PSP

PSP worldwide 2012

050

100150200250300350400450

WesternEurope

C&E Europe ME & Africa South&Central

Asia

South EastAsia

Oceania NorthAmerica

LatinAmerica

05101520253035404550

population 000 % population

968 million 14% population

Number of contracts

020406080

100120140160

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

Number of contracts 1991-2011

East Asia & Pacific

Europe & Cent Asia

Latin America

MENA

South Asia

Sub-Saharan Africa

PSP worldwide

• PSP introduced in different regions for different reasons:• Asia: to reduce budgetary deficits, increase economic growth, develop capital markets and improve services.• Latin America: excessive political interference in public utilities and corrupt government.• Africa: due to financial burden and to increase access to water for the poor.• Central & Eastern Europe: ideological grounds, shift from communism to market economy.• Europe: except France & UK, water is mainly supplied by the public sector• USA & Canada: PSP remains limited• Middle East:

Types of contract

Concession contract

Joint ownership

Full privatization

BOT

Management contract

Service contract

Lease/affermage

Degre

e of P

SP

Type of contract

Why controversial?

• Lack of regulatory capacity on the part of the state– Lack of regulatory bodies– Lack of regulatory context– Including (or because of?) the wider political and legal context

• Resulting in– Economic problems due to difficulties of context (corruption, lack of legal certainty, etc)– Problems with enforcement of social targets– Lack of investment in lowest-income countries

Privatization: Results so far

– Mixed results in developing economies: very few of them had success and the majority did not achieve privatization objectives– Emerging trend of failures in water privatization

– Buenos Aires, Atlanta, Manila, Cochabamba, Jakarta, Nelspruit, La Paz, Kenya, Ghana, even UK– Many projects cancelled and others renegotiated

– Some of the major water companies are withdrawing from developing countries• Foreign capital only interested in large markets with limited risks • Cherry-picking

• These difficulties lead to question PS in water– Political economy & social structure are important in success/failures

• privatization may not make sense, depending on local setting

• Failure due to weak/lack of regulation• Mainstream still considers PS valid! • PS provides goods & services with little regulation• Regulation has different meaning since it is deeply embedded in local cultural & institutional setting

different in developing & developed country setting

Privatization: Results so far

PS and the poor in water supply

– Conflict between (social development, public health, environment and poverty) with (PS motives)– Is the profit seeking motive of the private sector reconcilable with providing services to the poor?

• How to make PS deal with poor customers?• What role for social policy & regulation?• How can the diverging interests between the public sector, private sector and consumers be reconciled?

Widet definition of regulation

• The legal context for the provision of water– Includes the constitutional and statutory framework– Rule of law, legal certainty, lack of corruption, independence of the judiciary– Regulatory bodies established to regulate the sector– Actual contractual arrangements in place– Social policies created and implemented by the state

State responsibility

• State responsibility for– the social element of water supply– the economic and legal context for the sector

• Creation of a water sector policy that includes social policy, to guarantee the social aspect of the water business, particularly in the context of political and economic challenges

Is a human right to water an answer?• Varying constitutional ‘rights’ to water:

– Uganda (1995) the state ‘shall ensure that … all Ugandans enjoy rights and opportunities and access to … clean and safe water’

– Gambia (1996) ‘The State shall endeavour to facilitate equal access to clean and safe water’

– Zambia (1996) ‘ The State shall endeavour to provide clean and safe water’

– South Africa (1997) ‘Everyone has the right to have access to … water’

– Ethiopia (1998) ‘ Every Ethiopian is entitled, within the limits of the country’s resources, to … clean water’

Research findings

• UNRISD’s project on Commercialization, privatization and Universal Access• Argentina, Bolivia, Chile, Finland, India, Philippines, & South Africa• Targets not met• regulation is failing• Fear of PS, Not transparent and population not consulted• Takes the inquiry further & investigate how PS deals with the poor (access, affordability)• Brazil, Burkina Faso; Colombia; England and Wales (& Scotland); France; Hungary; and Malaysia• Explore social policies & regulation and their results• Are governments/IO adopting appropriate policies for water supply

Conclusions

• Previous research shows, regulation is often ineffective in developing countries• We argued that social policies should be given priority over strict “regulation”• Private sector tries to dismantle existing social policies or resists to social policies• Has negative impact on affordability

Policy implications

• Our findings, growing number of failures of large-scale privatization, and increasing public pressure against privatisation• Rethink the strategy of private sector participation in water supply. Was it oversold?• Any reform intending to increase coverage (either through commercialization, PSP, additional investment or increasing efficiency) should be accompanied by appropriate social policies (and not the usual regulation only)

Private sector involvement in water may succeed with…

• Regulatory reform – Institutions– Contractual arrangements– Economic governance

• Social policies capable of implementation

• Rule of law (legal certainty, civil liberties, reduction in corruption, independent judiciary)

References• Prasad, N. 2008. Social policies and private sector participation in

water supply: beyond regulation, Palgrave/Macmillan• Prasad, N. 2007. Privatisation of Water: A Historical Perspective,

Law, Environment and Development Journal, no.3/2, p. 217-235• Prasad. N. 2007. Social Policies and Water Sector Reform, Markets,

Business and Regulation Programme Paper Number 3, United Nations Research Institute for Social Development (UNRISD)

• Prasad, N. 2006. Privatisation Results: Private Sector Participation in Water Services After 15 Years, Development Policy Review, vol. 24, no. 6, pp 669–692,