Private sector and water supply

1. Private sector and water supply Naren Prasad, ESCWA Beirut, 19 November 2012

2. 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 The two faces of water

3. Globalization & neo-liberalpolicies, 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 Why PSP in water?

4. PS in water iscontroversial in developmentdiscourse Three positions: Governmentfailedso PS cansolveproblem by marketprinciples(IFIs, bilateraldonors, OECD countries, TNCs) PS improvesefficiency, extension, more investment, help governt. budget deficits Prob. of lowlevel-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 Current Issues

5. Over 1 billion do not have access to safedrinking 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 withoutsustainableaccess to safedrinking water and sanitation » 83% have access, but… Otherspayveryhighprices, or use unsafe water (over 1 billion) 2 million die per year due to diarrhoealdiseases (90% childrenunder 5, 4,000 children die eachday due to water borndiseases) Cycle of poverty & disease (povertydeprivationusingunsafe waterdiseasesinability to workincreasedpoverty Poverty trap could be overcome by having access to safe water Global water statistics

6. Infrastructure: reducingleakages, replacement/expansion of networks, technological innovation Financial: sustainable and equitabletariffs, efficient revenue collection, investment Environment and health: public healthneeds, conservation, environmental management Socio-political: havingaffordableprice, transparency, accountability, expansion of coverage Managerial: improvingefficiency and productivity, capacity building, efficient procurement. Solution: Reform water sectorthrough PSP Challenges for water sector

7. PSP worldwide 2012 968 million 14% population

8. Number of contracts

9. Number of contracts 1991-2011

10. PSP introduced in differentregions for differentreasons: Asia: to reducebudgetarydeficits, increaseeconomicgrowth, develop capital markets and improve services. Latin America: excessive politicalinterference in public utilities and corruptgovernment. Africa: due to financialburden and to increaseaccess to water for the poor. Central & Eastern Europe: ideological grounds, shift fromcommunism to marketeconomy. Europe: except France & UK, water ismainlysupplied by the public sector USA & Canada: PSP remainslimited Middle East: PSP worldwide

11. Types of contract

12. 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 Why controversial?

13. 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 Privatization: Resultsso far

14. Thesedifficultieslead 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: Resultsso far

15. 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? PS and the poor in water supply

16. 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 Widet definition of regulation

17. 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 State responsibility

18. 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’ Is a human right to water an answer?

19. UNRISD’sproject on Commercialization, privatization and Universal Access Argentina, Bolivia, Chile, Finland, India, Philippines, & South Africa Targets not met regulationisfailing Fear of PS, Not transparent and population not consulted Takes the inquiryfurther & 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 theirresults Are governments/IO adoptingappropriatepolicies for water supply Researchfindings

20. 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 Conclusions

21. Our findings, growingnumber of failures of large-scaleprivatization, and increasing public pressure against privatisation Rethink the strategy of privatesector participation in water supply. Wasitoversold? Anyreformintending to increasecoverage (eitherthroughcommercialization, PSP, additionalinvestment or increasingefficiency) shouldbeaccompanied by appropriate social policies (and not the usualregulationonly) Policy implications

22. Regulatory reform Institutions Contractual arrangements Economic governance Social policies capable of implementation Rule of law (legal certainty, civil liberties, reduction in corruption, independent judiciary) Private sector involvement in water may succeed with…

23. Prasad, N. 2008. Social policies and privatesector participation in water supply: beyondregulation, 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, References