Water Privatization and Its Discontents

In 2000, the European Community proposed that water be included as an external pageenvironmental servicecall_made under the General Agreement on Trade in Services and outlined lifting restrictions on international trade in water supplies. That same year, Cochabamba, Bolivia's third largest city, experienced months of protest against the privatization of its municipal water supply. An international and far-reaching movement against the privatization and commoditization of water has been gaining ground in response to these events. This article discusses the controversies and viewpoints surrounding water privatization.

Water management needs an extensive infrastructure to be cost effective. Publicly run companies do not always minimize waste, promptly repair leaks or maintain safety standards.

Market liberalization arguments often contend that government ventures are inefficient and wasteful. Publicly run companies are slower to integrate new technologies and design innovations. Governments usually provide water for free or low cost. Users then are inclined to leave the tap running.

The absence of far-reaching infrastructure in much of the world exposes the poorest to market conditions anyway, according to Reason's external pageRonald Baileycall_made. Those who are not connected to a central water supply are subject to the whims and unpredictability of contractors and water vendors. Bailey points to the examples of Nigeria and Indonesia where the rural poor end up paying significantly more for their water than their rich urban counterparts. There is a further hidden cost when we consider how many people, particularly women, have to travel great distances every day to collect water. These costs could be avoided with the investment and expertise of the private sector.

Specific instances of full or partial privatization have yielded some undesirable results around the world, notably in Latin America. Common complaints have included public health problems from contaminated water or inadequate disposal of waste water.

The track record of privatized water supplies outside of North America and parts of Europe has been poor. With the exception of Chile, many of Latin America's experiments with private water were quickly abandoned. Proponents of external pageprivatizationcall_made argue, however, that often the companies were blamed for problems for which they were not responsible, or they were not given sufficient time to affect change.

Private companies who threaten to turn off the tap when customers can't pay create further concern. Soaring rates have occurred in several places where water privatization has been implemented. Though price increases may have been overstated by water activists, it is difficult to find examples of a more efficient, less wasteful private company actually lowering rates for the user or making significant savings for a government body. A limited number of large companies operate in a virtual oligarchy and, as such, competition and desired savings do not materialize.

Maintaining the transparency and accountability of private companies is also problematic. external pageShiney Varghesecall_made found that the world's largest private water companies were reluctant to provide information about their activities. These companies include RWE and Suez who are both active in several countries and number among the world's biggest companies.

The environmental network Friends of the Earth have gone further in their external pagereportscall_made. They claim that the world's largest water companies or their subsidiaries have been guilty of bribery, environmental damage and intimidation. Opponents of privatization feel that companies regularly put profits ahead of people and often fail to uphold safety expectations.

Water is naturally predisposed to monopolization due to the complex infrastructure and large amounts of capital involved in its management. The few multinational water companies that own or are invested in vast water resources on every continent underscore this fact.

Local level opposition to privatization and these large companies has taken several forms and achieved varying degrees of success. In Bangalore, India, residents formed a human chain around a lake to protest its privatization. Resistance movements have appeared in places as diverse as Stockton, California and Gauteng Province, South Africa. Water activist Rudolf Amenga-Etego has formed a highly effective and far- reaching movement to counter efforts to privatize water in his native Ghana.

Cochabamba, Bolivia is undoubtedly the most famous example of popular unrest in the wake of privatization. The anti-privatization camp claims this as a great victory, while pro-privatization advocates point to the poor supply of water in Cochabamba today as proof of the failings of the public system. The action was prompted after alleged disruption in service and price hikes.

As evidence in Cochabamba, many privatization advocates make the mistake of dismissing the interests of local people. The external pageInternational Development Research Centercall_made (IDRC) says that local level management of resources like water is generally more sustainable. In Chile or external pageSalta provincecall_made, Argentina, extensive consultation with consumers affected by privatization also seemed to alleviate tensions.

The gap between multinationals and local groups can sometimes appear to be unbridgeable. However, local groups can, and do, affect the success of multinational privatization.

Water management was passed from the private sector to the public sector in many municipalities in the US during the 19th century. The change of management was precipitated by concerns similar to those now cited for transfer back to the private sector: demand for external pageclean watercall_made surpassing supply and the need to make water safer.

In countries such as Chile and in parts of Australia, privatization has been controlled, limited and generally quite successful. When the government retains public control and ownership of the infrastructure, making limited-term maintenance and operation concessions to smaller, local private companies, the result tends to be palatable for all. This system has proven effective and is still evolving in the US.

However, in order to be a viable solution, it requires that a government can meaningfully regulate private companies, and smaller, local companies must have the expertise and resources to be useful. A limited privatization, carefully monitored by local government in close consultation with user representatives may ultimately prove to be the most effective approach.

It is worth noting Karen Bakker's thoughts on privatization in developing countries. While in developed countries privatization often proves controversial in and of itself, what is happening in the global south is different; in developing countries problems arise when national governments industrialize and internationalize resources that had been locally managed. In several cases in Latin America and Africa, the introduction of private companies has been viewed as a bid to wrest power from local people's hands.

In 1997 the World Bank pressured the Bolivian government to open the water system to the private sector as a external pagecondition for a loancall_made to improve the system's infrastructure. In 1999, in the city of Cochabamba, the Bolivian external pagegovernment ceded the drinking water servicecall_made to Aguas del Tunari, a transnational company whose controlling shareholder was a subsidiary American company, Bechtel Enterprises.

The 40 year agreement gave the company control over the entire municipal water network, exclusive water rights to the whole district and an annual return on investment of 15-17 percent. Recovery of costs was to be completely based on the tariffs for water and related services, leaving out the possibility of public subsidies. On the other hand, the Bolivian government demanded that the company assume the 30 million dollar debt of the previous municipal water provider, offer water to existing users, expand the sanitation system and provide the service in an accessible, fair and efficient manner.

The local population considered the pricing schemes inequitable and unfair. As a result, the presence of this transnational corporation and its management of the local water supply generated growing opposition from the local community. The company set fixed prices without any consideration for the great disparities of socioeconomic circumstances of the local community. Only a small and select portion of the local population could afford to consume the newly privatized water service. In addition, the community was concerned that plans to meter wells would lead to charges for water that Aguas del Tunari had not supplied, thus reducing alternative modes of access. Peasant groups in the vicinity of Cochabamba worried that the privatization arrangement did not adequately protect their customary uses of water, mostly for agriculture (Sanchez-Moreno, Maria/ Higgins, Tracy: No Recourse: Transnational Corporations and the Protection of Economic, Social, and Cultural Rights in Bolivia, in: external pageFordham International Law Journalcall_made 27 (2004), p. 1663-1805.)

This situation resulted in the build-up of local opposition to the private company. Organizations were created to oppose the company and its policies and to defend the rights of the local population. In March 2000 a popular poll organized by civil society organizations took place. The results showed that 90 percent of the population voted for the cancellation of the concession contract and for the state to carry on managing their water resources. The situation led to the mobilization of police forces against protestors and the declaration of a state of siege in the community. Finally, after such social disruption, the concession was cancelled.

Today, the situation remains troubled: A cooperative took over the water sector, and because of insufficient capital, it has not been able to expand its network. Furthermore, the consortium headed by Bechtel filed a complaint against Bolivia for wrongfully canceling the concession and for expropriating the consortium's water-system assets.