Water privatization

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Water privatization is a short-hand for the privatization of water services, although more rarely it refers to privatization of water resources themselves. Because water services are seen as such a key public service, proposals for privatization of them often evoke stronger opposition than for other sectors. Globally, over two-thirds of modern water and sanitation systems are publicly owned and operated.

Contents

[edit] Types

There are two main types of water privatization, 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 usual privatization structure 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 investment, usually the construction of specific 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 may involve public-private partnerships, where 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, where it does not have a majority of shares.

[edit] Reasons for privatization

Typically there are specific reasons for any given water privatization. The most common are

  • financing needs for investment
  • elimination of subsidy
  • need for technical expertise
  • efficiency concerns

In developing countries, there has often been pressure from international financial institutions such as the World Bank and IMF to privatise water, for examples through the imposition of loan conditionalities. A recent example is Ghana's water privatization.

A recent World Bank paper [1] 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."

[edit] Multinationals

According to the industry bible Masons Water Yearbook 2004/5, 545m people (9% of the world population) are served by private providers. Of the three biggest multinationals active in the sector

The next biggest players are clearly second-tier: Aguas de Barcelona (35.2 million); SAUR (33.5 million); SABESP (25.1 million), and United Utilities (22.1 million). Exceptionally, none of these is U.S.-based. Of the big three, SUEZ and Veolia are French-based, and RWE is German, with its major water subsidiary (Thames Water) based in the UK.

[edit] 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 civil society groups. 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. Opposition is usually strongest to water privatization - as well as Cochabamba (2000), 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.

[edit] References

[edit] Further reading

  • Ann-Christin Sjölander Holland (2005), The Water Business: Corporations versus People, Zed Books, ISBN 1-84277-564-2
  • Matthias Finger & Jeremy Allouche (2002), Water Privatisation: Transnational corporations and the re-regulation of the global water industry, Spon Press, ISBN 978-0-415-23208-1

[edit] External links

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