Privatization of water services --
answer to scarce commodity?

Winter Casey
THE WASHINGTON TIMES

Published 7/29/2002

The privatization of water is becoming a dire issue in a world where the resource is increasingly becoming a scarce commodity.
More than 1.2 billion people — nearly one in five — do not have clean water to drink. Of those, 250 million have contracted water-related diseases.
A recent report by the Council on Hemispheric Affairs, a Washington-based think tank that deals with Latin American affairs, says that global water consumption doubles every 20 years. By 2025, it says, the demand for water will exceed supply by 56 percent.
"The availability and commidification of water and the way it is sold and distributed," the report says, will be "one of the leading social issues of the midcentury."
The International Conference on Water and the Environment, held in Dublin in 1992, stirred controversy when it concluded: "Water has an economic value in all its competing uses and should be recognized as an economic good."
The World Bank, International Monetary Fund (IMF) and World Trade Organization (WTO) are increasingly looking at the privatization of water supplies as an effective method of making water accessible to poor countries.
They argue that in many cases, private companies that function much like electric or gas utilities in the Western world could do a better job than governments in providing water.
The World Bank says that often the private sector can distribute water to people in greater supply at lower cost than government bureaucracies.
Despite long-run advantages of private investment, international lending institutions urge governments to buffer initial price increases that often accompany privatization.
"Without strong, supported institutions, privatization will not be successful because it will not gain the support of the people. Therefore, there must be supervision and regulation for the private monopolies to be trusted," said one official at the Inter-American Development Bank.
The World Bank proposes public subsidies as a way to cover the connection costs for the poor, aiming for pricing policies that enable everyone to have sufficient access to clean water.
Nevertheless, talk of water being provided by private companies frightens liberal activist groups that are vocal on issues involving the Third World.
"Over the last five years their has been an increasing move to public-private partnership," says Sara Grusky, a water specialist at Public Citizen, a group founded by Ralph Nader.
Miss Grusky says institutions such as the World Bank allow businesses to bypass governments, move in and leave poor people "footing the bill."
"The governments feel very caught between a rock and a hard place, especially if they're democratic. The government must find a way to balance the concerns of its people with its desperate needs for international financial assistance," Miss. Grusky says.
In March 2000, the World Water Forum, an international conference organized by Egypt that met in The Hague, concluded that $105 billion per year in new investments would be needed to meet global drinking, sanitation, waste treatment and agricultural needs until 2025.
The forum also recommended that 95 percent of this capital come from private sources.
A frequent criticism of water privatization efforts is that decisions are often made with little or no input from the people most affected.
"The institutions and corporations make these decisions without any participation of the citizens of the countries and even with the absence of its leaders because the country is required to privatize on conditions of loan receipt and debt forgiveness," says Antonia Ajuhasz, project director of the International Forum on Globalization, a group of liberal scholars and activists.
"Large corporations like Vivendi and Bechtel have started to see the privatization as a big way to make money fast. It is a $4 billion business a year. Water profits have been skyrocketing," Mrs. Ajuhasz says.
In Cochabamba, Bolivia, resident German Jaldin paid 82 bolivianos for the use of 35 cubic meters of water in January 1999. The following year, after the community of Cochabamba sold the ownership of the water company to Aguas del Tunari, a subsidiary of the Bechtel Corp., Mr. Jaldin was forced to pay a 157.60 bolivianos for the use of 38 cubic meters of water.
With only a 10 percent increase in use, Mr. Jaldin's water bill jumped by over 90 percent.
"The privatization of water has left many experts critical of the World Bank," says Adam Mendelson, a research associate with the Council on Hemispheric Affairs.
"The privatization of water resources throughout the developing world may not only fail to provide greater access to clean water for the water, but it may also render the average consumer unable to pay for a previously affordable service," he says.
Protest movements have been springing up in some countries where water supply has been privatized, including South Africa, Uruguay, Bolivia, Brazil and most recently Peru.
Tova Maria Solo, a World Bank specialist on urban planning, says governments should not overlook the negative effects of discouraging or prohibiting small independent water providers from competing with larger corporations.
She says that by stifling competition, local officials force the small companies out of business and make it impossible for many residents to have access to clean water.
"The independent providers are important with continuing niches, even in cities where the utility provides good coverage. Their success in building and operating small networks challenges the belief that fixed water networks are a natural monopoly," she writes in a recent report.
A cooperative named Saguapac, located in Santa Cruz, Bolivia, operates both water and sewage services.
A study by the International Development Department of Birmingham University in England names it as one of the most successful water suppliers in Latin America.
The report says its organization, as a consumer-owned cooperative, helps shield it from political interference and also enables it to avoid legal delays often encountered by private companies.
Saguapac initially received two loans from the World Bank.
But like other cooperatives, it has difficulty qualifying for World Bank loans because governments are reluctant to guarantee the debts will be repaid.
Currently "Saguapac is the largest water utility in the world without receiving any form of government subsidy," says a recent analysis by the Council on Hemispheric Affairs.
"If the World Bank were truly interested in water policy reform, it would proactively facilitate Saguapac and other similar institutions that are both economically viable and dedicated to poverty alleviation," the council's Mr. Mendelson says.