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Water privatization

Keywords: water privatization
SOURCE: WIKIPEDIA

Water privatization is used here as a shorthand for private sector participation in the provision of water services and sanitation (the sale of water resources themselves is covered in the article on water trading). Private sector participation in water supply and sanitation is controversial. Proponents of private sector participation argue that it has led to improvements in the efficiency and service quality of utilities. It is argued that it has increased investment and has contributed to expanded access. They cite Manila, Guayaquil in Ecuador, Bucharest, several cities in Colombia and Morocco, as well as Côte d'Ivoire and Senegal as success stories.[1][2][3] Critics however, contend that private sector participation led to tariff increases and has turned a public good into a private good. Many believe that water is an unalienable human right (much like air or light) that cannot be privatized or used for personal profit. They quote the aborted privatizations in Cochamamba, Bolivia, and Dar es-Salaam, Tanzania, as well as the still privately managed water systems in Jakarta and Berlin as failures.[4][5][6][7] Water privatization in Buenos Aires, Argentina and in England is cited by both supporters and opponents, each emphasizing different aspects of these cases. Statistical studies comparing public and private utilities show little difference in performance between them.[8][9][10][11][12]
Even the figures about how many people receive water from the private sector are controversial: One source claims that 909 million people were served by "private players" in 2011 globally, up from 681 million people in 2007. This figure includes people served by publicly owned companies that have merely sourced out the financing, construction and operation of part of their assets, such as water or wastewater treatment plants, to the private sector.[13] The World Bank estimated the urban population directly served by private water operators in developing countries to be much lower at 170 million in 2007.[1] Among them only about 15 million people, all living in Chile, are served by privately owned utilities. The remainder are served by privately managed, but publicly owned companies under concession, lease and management contracts.

History


The Hampton water works serving London were part of the assets sold in 1989 as part of the privatization of water supply in England.
Privately owned water utilities were common in Europe, the United States and Latin America in the mid- and late 19th century. Their importance gradually faded away until the early 20th century as they proved unable to expand access and publicly owned utilities became stronger. A second global dawn of private water utilities came in the early 1990s in the aftermath of the Thatcher privatizations in England, the fall of communism and the ensuing global emphasis on free market policies. The World Bank and the International Monetary Fund played an important role in this process through the conditionality of their lending. However, some water privatizations failed, most notably in 2000 in Cochabamba, Bolivia, paving the way for a new pragmatism and a reduced emphasis on privatization.
In England and Wales, the emergence of the first private water companies dates back to the 17th century. In 1820, six private water companies operated in London. However, the market share of private water companies in London declined from 40% in 1860 to 10% in 1900. In the 1980s, their share all over England and Wales was about 25%.[14] The tide turned completely in 1989 when the conservative government of Margaret Thatcher privatized all public water and sewer companies in England and Wales. In Scotland local governments dominated by the Labour party kept water systems in public hands.

The water supply of Paris was operated by two private companies from 1984 to 2000, each serving one half of the city.
The water sector in France has always been characterized by a coexistence of public and private management, with their respective shares fluctuating over time. The two largest private companies are Veolia Environnement, formerly the Compagnie Générale des Eaux and then Vivendi Environnement, and Suez Environnement, formerly Lyonnaise des Eaux and then Ondeo. The Compagnie Générale des Eaux was founded in 1853 and Lyonnaise des Eaux in 1880. In the late 19th century, municipal governments, dissatisfied with high tariffs and the lack of expansion of networks to poor neighborhoods, did not renew private concessions and created instead municipally owned utilities. The share of private water operators declined to 17% in 1936. The share of the private sector gradually increased to 32% in 1954, 50% in 1975 and 80% in 2000 using a new model: Instead of the concession contracts, which gave the responsibility to finance investments to the private company, the new lease contracts (affermages) made the private operator only responsible for operation and maintenance, while major investments became a responsibility of the municipalities.[15][16] The French water companies also escaped the nationalizations after the war and later under President François Mitterrand, because the central government did not want to interfere with the autonomy of municipalities and was unwilling to finance heavy investments.[17] The water supply of Paris was privatized in 1984 when a conservative mayor awarded two lease contracts, each covering one half of the city. In 2010, a socialist mayor remunicipalized the water system of the French capital.

The water supply of Barcelona has been managed by a private company, Aguas de Barcelona, since 1867.
In Spain, private water companies maintained their position, budging the global trend during the late 19th and early 20th century.[17] The largest private water company in Spain is Aguas de Barcelona. Initially created by French and Belgian investors, it was sold to Spanish investors in 1920, only to gradually come back under French control in the early 21st century.[18]
In Germany, a British private water company had set up the first piped water system and treatment plant in Berlin in 1852, but the city, dissatisfied with the lack of investment in particular in sewerage, cancelled the contract in 1873.[19] In 1887 Gelsenwasser was created, which remains an important regional water supplier in the Ruhr district. The German water sector has always been dominated by municipally owned utilities. Despite this, the water system of Berlin was partially privatized in 1999 for fiscal reasons.
In the United States, 60% of piped water systems were privately owned in 1850. This share declined to 30% in 1924.[20] As of 2010, 2000 water and wastewater facilities in the U.S. were operated under public-private partnerships, a joint effort between the private group and the municipality it was operating in.[21]
European and local private water companies expanded in Latin America, Africa and Asia in the second half of the 19th century, all while their importance declined in Europe. In Uruguay, water supply was privately managed from 1867 to 1950; in Buenos Aires, Argentina, for a brief period from 1887 to 1891 and again from 1993 to 2006; in Cairo and Alexandria, Egypt, from 1867 to 1956; in Beirut, Lebanon, from the 19th century until 1951; in Shanghai, China, from 1875 to 1949; in Casablanca, Morocco, from 1914 to 1962 and then again after 1997; in Senegal until 1971 and then again after 1996; and in Côte d'Ivoire from colonial times until today without interruption.[22]
In Central and Eastern Europe, private companies expanded during the late 1990s, especially in Bulgaria, the Czech Republic, Hungary and Romania.

Forms of privatization

Broadly speaking, there are two forms of private sector participation in water supply and sanitation. In a full privatization, assets are permanently sold to a private investor. In a public-private partnership, ownership of assets remains public and only certain functions are delegated to a private company for a specific period. Full privatization of water supply and sanitation is an exception today, being limited to England, Chile and some cities in the United States. Public-private partnerships (PPPs) are the most common form of private sector participation in water supply and sanitation today.
The three most common forms of PPPs, in the order of increasing responsibilities for the private partner, are:
  • a management contract, under which the private operator is only responsible for running the system, in exchange for a fee that is to some extent performance-related. Investment is financed and carried out by the public sector. The duration is typically 4–7 years.
  • a lease contract, under which assets are leased to the private operator who receives a share of revenues. He thus typically bears a higher commercial risk than under a management contract. Investment is fully or mostly financed and carried out by the public sector. The duration is typically 10–15 years.
  • a mixed-ownership company in which a private investor takes a minority share in a water company with full management responsibility vested in the private partner.
  • a concession, under which the private operator is responsible for running the entire system. Investment is mostly or fully financed and carried out by the private operator. The duration is typically 20–30 years.
Concessions are the most common form of PPPs in water supply and sanitation. They are followed by leases, also called affermages, that are most commonly used in France and in Francophone West Africa. Management contracts are used in Saudi Arabia, Algeria and Armenia, among others. Mixed-ownership companies are most common in Spain, Colombia and Mexico.
A concession for the construction of a new plant is called a Build-Operate-Transfer (BOT) contract. Under a BOT contract the private operator signs an agreement with a utility that purchases treated water or wastewater treatment services.

Motives


Even the government of Cuba entrusted the water supply of Havana to a private company in order to improve service quality, showing the diversity of motives behind water privatization.
The motives for water privatization vary from one case to the other, and they often determine the choice of the mode of privatization: Management and lease contracts are used to increase efficiency and improve service quality, while asset sales and concessions primarily aim to reduce the fiscal burden or to expand access. Ideological motives and external influences also play a role. Often several of the above motives are combined.

Increasing efficiency and improving service quality

In Algeria, Saudi Arabia, Colombia and Cuba increasing efficiency and improving service quality were important motives for water privatization. Proponents argue that public utilities may be poorly managed. This can take the form of low bill collection, high water losses (non-revenue water) of more than 50% and intermittent water supply, sometimes lasting only for a few hours a day or a few days per week.

External influences

External influences, such as from the World Bank and the International Monetary Fund (IMF), often play a role, as it was the case in Bolivia and in several African countries. This may take the form of structural adjustment programs. Other aid agencies have also supported water privatization. These include the Inter-American Development Bank (e.g., in Ecuador, Colombia and Honduras), the Asian Development Bank (e.g., in China), the European Bank for Reconstruction and Development in Eastern Europe, German development cooperation through KfW (e.g., in Albania, Armenia, Jordan and Peru), French development cooperation (e.g., in Senegal) and British development cooperation (e.g., in Tanzania and Guyana). In the UK, the World Development Movement campaigned against the support of water privatization through aid from the UK.[23]

Fiscal motives

In some cases, where access is already universal and service quality is good, fiscal motives dominate, as it was the case in Berlin, Germany, and in Chile. In Berlin the state government sold a 49.9% share of its water utility in 1999 for 1.69bn Euros in exchange for a guaranteed profit for the private shareholders amounting to the interest rate on 10-year government bonds plus 2 percent, as specified in a contract that was kept confidential until the state government was forced by a referendum to make it public. As a result, tariffs increased (15% in 2004 alone) and the state government's revenues from the company declined compared to the situation before privatization (168m Euro profit for the state in 1997 compared to a 10m Euro loss in 2003).[19] In Chile, where no wastewater treatment plants existed prior to privatization, the government's desire to finance their construction off-budget drove privatization in 1998.

Prevalence

Prevalence of public-private partnerships


Prague is one of many cities whose water supply is provided by a private company
There are widely differing estimates of the number of people served by private water companies. The World Bank estimated that, as of 2007, about 270 million people received water from private companies in more than 40 countries, including about 160 million in developed countries and 110 million in developing countries. The report did not include estimates of the number of people served by private companies on the wastewater side.[1] The Pinsent Masons Water Yearbook uses a broader definition including also wastewater services. More importantly, it also includes cases where a water or wastewater treatment plant is operated by a private company on behalf of a publicly owned and operated utility that serves the final customer. On the basis of this broader definition and taking into account the growth of both population and water privatization between 2007 and 2011, it estimates that 909 million in 62 countries or 13% of the world population were served by the private sector in one form or another. This includes 309 million people in China, 61 million in the United States, 60 million in Brazil, 46 million in France, 23 million in Spain, 15 million in India and 14 million in Russia.[24] In England and Wales the entire population of 55 million is served by private companies. In addition, in Chile, the Czech Republic, Armenia and four African countries – Côte d'Ivoire, Ghana, Gabon and Senegal – private companies provide water services to the entire urban population. In Hungary they serve almost half the population. In Algeria, Colombia, Germany, Italy, Malaysia, Mexico, Morocco, Poland and South Africa less than half the population is served by private companies. In the Philippines, Indonesia, Bulgaria, Estonia and Cuba private water companies serve only the capital city. 24 countries, such as Argentina, Bolivia and a number of small countries like Guyana or the Central African Republic, had reverted to public management as of 2009. However, 84 percent of contracts awarded mostly in the 1990s were still active.[1]
List of countries with formal private sector participation in urban water supply with number and type of contracts
Country Cities Type and number of contracts Start date
France 9,000[25] Concessions and leases 1853[15]
England Entire country Full privatization (26) 1989
United States 73 million people, including through PPPs[26]
14% of water revenues without PPPs[27]		 Investor-owned and 2,000 PPPs[28] 1772 in Providence[29]
Côte d'Ivoire All urban areas Lease (1) 1960 in Abidjan 1973 country-wide
Gabon All urban areas Concession (1) 1997
Mozambique Maputo and other cities Lease (1) and management contract (1) 1999
Senegal All urban areas Lease (1) 1996
South Africa Mbombela and Dolphin Coast Concessions (2) 1992
Malaysia Selangor and Penang Concession (1) and full privatization (1) 1992
Indonesia Jakarta Concessions (2) 1998
Philippines Manila Concessions (2) 1996
Armenia Yerevan and others Lease (1) and management contracts (2) 2000
Brazil 65 cities in 10 states Concessions 1995
Chile All urban areas Full privatizations and concession (1) 1998
Colombia Barranquilla, Cartagena, Colombia and more than 40 other cities and towns Mixed-ownership companies and concessions 1996
Ecuador Guayaquil Concession (1) 2001
Morocco Casablanca, Rabat, Tangiers and Tetouan Concessions (3) 1997
Honduras San Pedro Sula Concession (1) 2000
Ghana All urban areas Management contract (1) 2000
Saudi Arabia Riyadh, Jeddah, Mecca and Taif Management contracts (3) 2008
Algeria Algiers, Constantine and Oran Management contracts (3) 2005
Cuba Havana Concession (1) 2000
China Shenzhen, Fuzhou, Lanzhou, Wuhu City and 23 others Concessions (22), full privatizations (3) and management contracts (2) 2001
Spain Barcelona and more than 1,000 other municipalities Mixed-ownership companies and concessions 1867
Romania Bucharest, Timisoara, Ploesti and Otopeni Concessions (3) and Lease (1) 2000[30] [31]
Bulgaria Sofia Concession (1) 2000
Poland Gdansk, Bielsko-Biała, Tarnowskie Gory & Miasteczko Śląskie, Dabrowa Gornicza, Głogów, Woźniki, Drobin and Toszek Full privatizations (4), concession (1), leases (2) and management contract (1) 1992
Estonia Tallinn Concession (1) 2001
Czech Republic Prague and 23 other cities Concessions (24) 1993 (reform) and 2001 (Prague)
Hungary Budapest, Szeged, Debrecen and five other cities and towns Concessions (8) 1994[32]
Germany Berlin Mixed-ownership company (1) 1999
Mexico Cancun, Saltillo and Aguascalientes Mixed-ownership company (1) and concessions (2) 1993
A World Bank report lists the following examples of successful public-private partnerships in developing countries: the full privatization in Chile; the mixed companies in Colombia; the concessions in Guayaquil in Ecuador, Brazil, Argentina, Eastern Manila in the Philippines, Morocco and Gabun; and the lease contracts in Côte d'Ivoire, Senegal and Yerevan in Armenia.[1]
In many countries, such as in Japan, Canada, Egypt, Pakistan or Scandinavia, there are no private water companies. Nicaragua, the Netherlands and Uruguay have even passed laws banning water privatization.[33] In Italy, in June 2011 a law favoring water privatization was repealed by an overwhelming majority of Italians through a referendum.[34]

Small-scale operators: the other private sector

Beyond water privatization, which involves contractual relationships between a government and formally established large companies, there is also "the other private sector" in water supply consisting of small-scale, often informal local operators who exist in most developing countries and sometimes provide a large share of the population of a city with water. For example, a study of six Latin American countries showed that small-scale private providers provide water to 25% of the population with water in seven cities.[35][36] Many small-scale water operators provide water through tanker trucks or animal-drawn carts. Others operate water distribution networks fed by wells, as it is the case in Asunción, Paraguay, and in Sanaa, Yemen. Small-scale operators can be owned by individual entrepreneurs or can take the form of cooperatives, as it is the case in Honduras. Small-scale operators do not always comply with technical norms and the quality of the water they provide or their tariffs are often not regulated. They typically lack capital to further expand their network. However, in a few pilot cases – such as in Kenya, Uganda, Cambodia and Vietnam – international aid agencies have provided grants to them to increase access, often in the form of output-based aid.[37]

Selecting private operators

Private companies are typically selected through international competitive bidding and need to have demonstrated previous experience. Selection is either done through a combination of price and quality, or solely based on price. In the case of a management contract, the price is the management fee (fixed fee plus performance-based fee); in the case of a lease it is the lease fee per unit of water sold; in a concession it is the water tariff; and in an asset sale it is the price paid for the company.[38] In some cases – such as in Casablanca in 1997 and in Jakarta in 1998 – private companies have been selected through direct negotiations without competitive bidding. In other cases – such as in Cartagena (Colombia) in 1995, Cochabamba (Bolivia) in 1999 and Guayaquil (Ecuador) in 2000 – only a single bid was submitted. If development aid agencies are involved in directly financing private sector participation, they systematically require competitive bidding. However, in some cases – such as in Timisoara, Romania – the European Bank for Reconstruction and Development has financed parallel investments, while a concession was awarded by the government after direct negotiations.[39]

Forms of regulation

Being monopolies, all water utilities – public or private – need to be regulated concerning tariff approvals, service quality, environmental compliance and other aspects. The awareness for the need to regulate typically increases substantially when profit-oriented private operators become involved: Monitoring the performance of both the private and the public partner, applying sanctions in case of non-compliance and dispute resolution become particularly important. The regulatory tasks depend on the form of private sector participation: Under a management contract the monitoring of the achievement of performance standards, on which the remuneration of the private company depends, is typically carried out by an independent consulting firm. Under a concession contract or in the case of an asset sale, tariff regulation through a regulatory agency or the government is a key regulatory function. Water concessions are frequently renegotiated, often resulting in better terms for the private company. For example, negotiations of concessions in Buenos Aires and Manila resulted in investment requirements being reduced, tariffs being increased and tariffs being indexed to the exchange rate to the US dollar.[40] The quality and strength of regulation is an important factor that influences whether water privatization fails or succeeds.[41] The tasks, form and capacity of the public entities charged with regulation vary greatly between countries.
Globally, regulation of private water companies is being carried out by the following types of public entities or, sometimes, a combination of them.
Type of entity charged with the regulation of private water providers Examples
Municipality or an association of smaller municipalities France and Spain
Specialized body at the city level set up to regulate a single contract Guayaquil, Ecuador; San Pedro Sula, Honduras; Jakarta, Indonesia (with some control by the national government in the latter case); Manila, Philippines; formerly in Buenos Aires, Argentina
Specialized regulatory agency at the supra-municipal sub-national level Public Utilities Commissions in U.S. states; some Brazilian states
Specialized regulatory agency set up permanently under law at the country level OFWAT in England; Water Superintendency SISS in Chile; Water Regulatory Commission CRA in Colombia
Specialized unit in a Ministry set up temporarily by decree Ministry of Water in Jordan
Ministerial department Ministry of Interior in Morocco

Examples of privatization

The best-known examples of water privatization in the late 20th century are those undertaken in England under Margaret Thatcher, the Manila and Buenos Aires concessions as well as the failed privatization in Cochabamba, Bolivia, which became a symbol of the struggle against globalization. Less well known, but just as relevant, are water privatizations in other countries, such as in Colombia.

England and Wales

Main article: Water privatisation in England and Wales
In England and Wales, water tariffs and profits increased substantially after privatization in 1989, but investments also increased and water quality in rivers improved.[42] Tariffs increased by 46% in inflation-adjusted terms during the first nine years after privatization. Operating profits have more than doubled (+142%) in the first eight years. On the other hand, privatization increased investments: In the six years after privatization the companies invested £17 billion, compared to £9.3 billion in the six years before privatization.[42] It also brought about compliance with stringent drinking water standards and led to a higher quality of river water.[42] According to data from OFWAT, the economic regulator of water and sewer companies in England and Wales, from the early 1990s until 2010, network pressure has improved substantially, supply interruptions have become less frequent, the responsiveness to complaints has improved[43] and leakage has been reduced.[44]

Manila, the Philippines

Main article: Water privatization in the Philippines

The private companies providing water in Manila have substantially expanded access of water supply to the poor living in slums.
Water privatization in Manila began in 1997 with the award of two concession contracts for the Eastern and Western halves of Metro Manila. The concessions represent the largest population served by private operators in the developing world.[45] As of 2010, the concession in Eastern Manila is highly successful and has led to significant improvements in access, service quality and efficiency: the population served more than doubled from 3 in 1997 to 6.1 million in 2009, the share of customers with continuous water supply increased from 26% to more than 98% and non-revenue water declined from 63% to 16%.[46] The concession in Western Manila failed when the company Maynilad went bankrupt in 2003. It was sold to new investors in 2007 and performance has improved since then.[47] The share of the population with access to piped water in Western Manila increased from 67% in 1997 to 86% in 2006[48] and the share of customers that enjoys 24-hour water supply increased from 32% in 2007 to 71% in early 2011.[49]

Argentina

Main article: Water privatization in Argentina

Water supply in Buenos Aires was provided by a private company from 1993 to 2006.
Water privatization in Argentina began in 1992 under the government of Carlos Menem as part of one of the world's largest privatization programs. Concessions were signed in 28% of the country's municipalities covering 60% of the population,[50] including in 1993 for the metropolitan area of Buenos Aires. After the 2001 economic crisis, under the government of Néstor Kirchner, almost all concessions were terminated, including in Buenos Aires in 2006. The impact of the concession remains controversial. The government and critics argue that the concessionaire failed to achieve the targets set under the concession contract in terms of expansion of access, investment and service quality.[51][52] Proponents concede that targets were not reached, but argue that a freeze in tariffs at the time of the devaluation of the Peso during the Argentinian economic crisis in 2001 violated the contract and thus made it impossible to achieve the original targets. According to the Argentinian economist Sebastian Galiani, the public company OSN had invested only US$25m per year between 1983 and 1993, while the private concessionaire Aguas Argentinas increased investments to around US$200m per year between 1993 and 2000.[53] According to the private concessionnaire Suez, during the 13-year-duration of its concession it extended access to water to 2 million people and access to sanitation to 1 million people, despite the economic crisis.[54][55] In July 2010 the International Center for the Settlement of Investment Disputes (ICSID) ruled that the Argentinian government unfairly refused to allow the private concessionaires to raise tariffs during the period after the devaluation of the Argentine peso in 2001 and that the private companies are entitled to damages. The private companies announced that they would seek US$1.2bn in damages.[56]

Cochabamba, Bolivia

Main article: 2000 Cochabamba protests

Cochabamba was the scene of violent protests against water privatization in 2000.
In the mid-1990s the government of Bolivia, under pressure from the World Bank, decided to privatize water supply in the country’s third largest city, Cochabamba. In the previous years, despite encumbered funds made available by the World Bank to support the public utility of Cochabamba, access to piped water in the city had decreased to 40%, water losses had remained high at 40% and water was supplied only 4 hours a day.[57] Those not connected to the network paid ten times as much for their water to private vendors as those who were.[58] This contrasted with the situation in Bolivia's second largest city, Santa Cruz, where a utility run as a cooperative had managed to increase access and improve service quality with the support of the World Bank. In Santa Cruz privatization had never been considered.[57]
In 1997 a first bid for a water concession in Cochabamba had been declared void at the request of the mayor of Cochabamba, Manfred Reyes Villa.[57] He wanted the construction of a large dam, the Misicuni dam, and a pipeline from the dam to the city to be included in the concession.[58] The World Bank had opposed the dam as unnecessarily expensive and subsequently ended its involvement related to water supply in the city.[57] Despite this, in the view of the public the World Bank remains inseparably linked to the Cochabamba privatization.
The government proceeded to bid out the concession, this time including the Misicuni dam. Only a single company submitted a bid, Aguas del Tunari, a consortium led by Bechtel.[59] The government accepted the bid and signed the concession.[58][59] The consortium was guaranteed a minimum 15% annual return.[58] In parallel, a law was passed that appeared to give a monopoly to Aguas del Tunari over all water resources, including water used for irrigation, communal water systems and even rainwater collected on roofs.[59][60] Upon taking control the company raised water tariffs by 35%.
Demonstrations and a general strike erupted in January 2000 in protest against the tariff increase and the perceived privatization of water resources. The government arrested the leader of the protesters, Oscar Olivera. But the protests spread to the entire country and the government declared a state of emergency in April. Protests still continued and several people were killed. In the midst of the turmoil the employees of Aguas del Tunari fled from Cochabamba.[58] The government finally released Oscar Olivera and signed an agreement with him stating that the concession would be ended.[61] The government then told Aguas del Tunari that by leaving Cochabamba they had abandoned the concession and parliament revoked Law 2029. The Cochabamba protests became a worldwide symbol of struggle against neoliberalism and the Cochabamba privatization is probably, both among activists against globalization and the general public, by far the best known example of the failure of water privatization.
The company, insisting that it had been forced out, filed a $40 million lawsuit in the International Centre for Settlement of Investment Disputes.[60] The proceedings, which were held behind closed doors, ended in 2006 with a settlement under which Bechtel dropped its claim.[62] With financing from the Inter-American Development Bank the city expanded its piped water system in the aftermath of the riots.[63] Nevertheless, under public management half of the 600,000 people of Cochabamba remain without piped water and those with it continue to receive intermittent service. Oscar Olivera the leading figure in the protests admitted, "I would have to say we were not ready to build new alternatives."[64]

Colombia

Main article: Water privatization in Colombia

Cartagena is one of the Colombian cities whose water supply is provided by a mixed public-private company.
Between 1996 and 2007, public-private partnerships for water and sewer services in more than 40 Colombian cities were entered into, serving more than 20% of the country's urban population. Most of the contracts were awarded in municipalities with highly deteriorated infrastructure, such as Barranquilla and Cartagena. The central government financed most investments through grants, thus reducing the need to increase tariffs. Water privatization in Colombia was largely homegrown, adapting models used elsewhere to the particular circumstances and culture of Colombia.[65] A model introduced from Spain, the mixed company with a majority stake by the municipality and a minority stake by a private operator, was particularly successful. Foreign water companies won some of the early contracts, but quickly sold a majority of their shares to Colombian operators. There was a significant increase in access under private contracts. For example, in Cartagena water supply coverage increased from 74 percent to almost universal coverage, while sewer coverage went up from 62 percent to 79 percent between 1996 and 2006. Half a million people gained access and 60 percent of the new connections benefited families in the poorest income quintile. To achieve universal coverage, the operator made extensive use of community bulk-supply schemes that provide safe water to the many illegal settlements that were expanding on the city’s periphery. However, there are no conclusive evidence showing that access increased more rapidly under private contracts than in the case of publicly managed utilities. In Cartagena, tariffs declined substantially, indicating that the operator passed on efficiency gains to consumers.[66][67][68]

Impact of privatization

The evidence concerning the impact of water privatization is mixed. Often proponents and opponents of water privatization emphasize those examples, studies, methods and indicators that support their respective point of view. As with any empirical study, results are influenced by the methods used. For example, some studies simply compare the situation before privatization to the situation after privatization. More sophisticated studies try to compare the changes in privately managed utilities to those of publicly managed utilities that operate under similar conditions during the same period. The second group of studies often use econometric techniques. The results also depend on the choice of the indicator used to measure impact: One common indicator is the increase in access to water supply and sewerage. Other indicators are changes in tariffs, investments, water-borne diseases or indicators for service quality (e.g. continuity of supply or drinking water quality) and efficiency (e.g. water losses or labor productivity).

Impact on access

A before-after comparative study by the World Bank analyzes how access, quality of service, operational efficiency and tariffs have evolved under 65 public-private partnerships for urban water utilities in developing countries. The study estimates that "PPP projects have provided access to piped water for more than 24 million people in developing countries since 1990". Interestingly and unlike it was expected by proponents of privatization, private operators contributed little in terms of financing, which was provided to a large extent by tariff revenues and development aid.[1] A study that compared changes under PPPs to changes that occurred in publicly managed utilities during the same period in Argentina, Bolivia and Brazil found that access to water supply and sanitation increased both for utilities under private and under public management to the same extent. The study concludes that "private sector participation, per se, may not have been responsible for those improvements".[8] Others have argued that privatization is often associated with increase in tariffs – which reduces the accessibility of the resource for poor households.[69] Often, water privatization can hinder the accessibility of water. When for-profit companies invest in the water system, the desire to make returns on the investment can create a top-heavy distribution system. In this scenario, the desire to supply poor districts decreases because the poor are unable to pay the tariffs, however small they may be. On the opposite end of the spectrum, investments are made to improve accessibility in richer districts where the people can pay the tariffs. In this manner, the water company's need to make adequate returns is met by supplying water only to those who can pay.[70] However, water supply privatization may in some cases lead to expansion of services to low-income districts. The urban poor who have no official access to water may have a relatively high willingness to pay because they may suffer from even higher tariffs typically charged by informal water vendors. [71]

Impact on health

A study of water privatization's impact on health, as measured by child mortality, found that between 1991–1997 in Argentina child mortality fell 8 percent more in cities that had privatized their water and sewer services compared to those that remained under public or cooperative management. The effect was largest in poorest areas (26 percent difference in reduction). The main reason was a greater expansion of access to water in cities with privatized utilities. This increase was concentrated in poorer areas that did not receive services before private sector participation was introduced.[72]

Impact on tariffs

In almost all cases, water tariffs increased in the long run under privatization. In some cases, such as in Buenos Aires and in Manila, tariffs first declined, but then increased above their initial level. In other cases, such as in Cochabamba or in Guyana, tariffs were increased at the time of privatization. In some cases in Sub-Saharan Africa, where much of the investments are funded through development aid, tariffs did not increase over a long period. For example, in real terms tariffs remained stable in Senegal, while in Gabun they declined by 50% in five years (2001–2006) and by 30% in ten years in Côte d'Ivoire (1990 to 2000).[73] These exceptions notwithstanding, tariff increases are the rule over the long term. However, initial tariffs have been well below cost recovery levels in almost all cases, sometimes covering only a fraction of the cost of service provision. Tariff increases would thus have been necessary under public management as well, if the government wanted to reduce subsidies. The magnitude of tariff increases is influenced by the profit margin of private operators, but also to a large extent by the efficiency of utilities in terms of water losses and labor productivity.
A study of household water expenditures in cities under private and public management in the U.S., however, concludes that "whether water systems are owned by private firms or governments may, on average, simply not matter much."[9]

Impact on efficiency

A World Bank study argues that the most consistent improvement made by public-private partnerships in water supply was in operational efficiency. Private operators thus made a strong indirect contribution to financing by improving efficiency, making it possible for utilities to finance investments internally instead of having to rely on more debt.[1]
An earlier World Bank paper reviews six empirical studies on the impact of private management on the efficiency of water utilities in Africa, Asia, Argentina and Brazil. It concluded that some studies did find evidence for higher cost-efficiency by private operators and for improvements as a result of privatizations, but overall evidence suggests that "there is no statistically significant difference between the efficiency performance of public and private operators in this sector."[10] A 2008 literature review by the Asian Development Bank shows that of 20 studies reviewed, only three show concrete evidence on technical efficiency improvements or cost reductions under private management.[11]

Profitability

An empirical study of 34 concession in nine Latin American countries during the 1990s, including 10 water concessions in 5 countries (3 in Argentina, 1 in Bolivia, 1 in Brazil, 3 in Chile and 2 in Colombia), has estimated the profitability of concessions compared to the cost of capital of private companies. According to the study, contrary to public perception, the financial returns of private infrastructure concessions have been modest. The average annual return on capital employed was 7 percent. For a number of concessions the returns have been below the cost of capital. On average telecommunications and energy concessions have fared much better than water concessions. Seven out of 10 water concessions had negative rates of return and two concessions had returns that were lower than the cost of capital of the private companies.[74] Nonetheless, private water companies do not exist for the benefit of the public. Rather, private water companies exist solely for profit. For that matter, tariffs must serve two purposes. Firstly, they must be able to maintain the system. Secondly, they must repay the dividends of the water companies shareholders. It is the latter use that tends to concern the opponents of privatization most since the public's money is not being fully used to maintain the water system itself.

Private water operators

Private water operators come in very different forms from multinational corporations to small enterprises. According to the Pinsent Masons Water Yearbook 2010–11, 909 million people (13% of the world population) were served by private operators. The largest private water companies are:
  • the French firm Veolia Environnement (Vivendi), serving 125.4 million in 2011;
  • the French firm Suez, serving 124.3 million people in 2011 with its US subsidiary United Water and its Spanish subsidiary Aguas de Barcelona;
  • the Spanish firm Fomento de Construcciones Y Contratas SA (FCC), serving 28.2 million people in 2011
  • the German firm RWE, serving 18.3 million people in 2011
  • the Italian firm ACEA, serving 18 million people in 2011
  • the British firm Thames Water, indirectly owned by Macquarie Group, an Australian investment bank;
  • the French firm SAUR, serving 12.4 million in 2011; and
  • the US firm American Water, serving 16.8 million in 2011
Domestic water operators have a strong presence in Brazil, Colombia, China, Malaysia, and the Philippines.
Public water companies also sometimes participate in bids for private water contracts. For example, the Moroccan state-owned water utility ONEP has won a bid in Cameroon[75] and the Dutch publicly owned water firm Vitens has won a management contract in Ghana.

See also

Countries with private sector participation in water supply as of 2012:
Countries which had private sector participation in water supply in the past:

References

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  3. ^ Bailey, Ronald:"Water Is a Human Right: How privatization gets water to the poor" Reason Magazine, 17 August 2005
  4. ^ Lobina, Emanuele; Hall, David (June 2003). "Problems with private water concessions: a review of experience". Public Services International Research Unit (PSIRU), University of Greenwich. Retrieved 18 June 2011.
  5. ^ Barlow, Maude:Blue Covenant: the Global Water Crisis and the Coming Battle for the Right to Water. New York, 2008. ISBN 978-1-59558-186-0
  6. ^ Lohan, Tara:Fighting the Corporate Theft of Our Water, AlterNet, 25 April 2007
  7. ^ Finger, Matthias & Jeremy Allouche (2002):Water Privatisation: Transnational corporations and the re-regulation of the global water industry, Spon Press, ISBN 978-0-415-23208-1
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