The Hindu Business Line : Water markets exclude the poor

"HOW is it that water which is so useful that life is impossible without it, has such a low price, while diamonds, which are quite unnecessary, have such a high price?"

— Adam Smith

Within the context of globalisation, Adam Smith has been acknowledged. In other words, from the 1992 Dublin Conference on the Environment to the 2000 Hague World Water Forum, the commodification and privatisation of the world's water has been presented as the only solution to universal access and environmental sustainability. If unnecessary, diamonds can fetch a price, why not lifesaving water?

Convinced that water should be suitably priced, the World Bank has relentlessly spearheaded a campaign to push the Dublin principle — that water is an economic, rather than social, good. With the aim of improving access and sustainability of dwindling supplies, water trading and promotion of private water rights have been pushed onto developing countries. Though aid-receiving countries have yet to accept water as an economic good, the World Bank is forcing the argument on developing countries through its water sector reforms.

An internal assessment by the World Bank acknowledges that a large external constituency of stakeholders still wants to maintain social water pricing.

But it is unwilling to give up and is indeed working to convince political leaders in several nations to move away from the concept of free water for all. The World Bank and its allies are pursuing a multi-pronged strategy to privatise water in the developing world.

The policy disguise

Strategic alliances between international financial institutions and global water companies have been turned into an effective strategy to provide `water to all'. The broader public interest objectives of the multilateral banks and UN agencies have helped rationalise the economic motive of the major water companies in this unholy alliance. Where the IMF and the World Bank see an end to water poverty through these partnerships, private companies see incredible profits.

Water is indeed a big business. The entire water sector, including wastewater treatment, is estimated at $200 billion. According to a 1999 OECD summary of Environmental Business International statistics, water utilities account for $73.2 billion out of the total global environmental market of $453 billion for goods and services. However, these figures seem a gross underestimation if water is considered as an input to agriculture and other industrial applications. The industry estimates global trade in water to be close to $7 trillion.

Unbelievably, the industry survives on the patronage of water-stressed consumers, whose numbers are likely to touch three billion, from the present 1.1 billion, in the next two decades. On the one hand there are cash-strapped municipalities struggling to maintain supplies and, on the other, governments are finding it hard to raise $31-35 billion annually to provide universal access to water in a shrinking international aid environment.

Since the historic Earth Summit in Rio de Janeiro, governments of the North have reneged on promises to contribute 0.7 per cent of their annual Gross National Product (GNP) to bring developing countries at par. According to OECD, official development assistance dipped to $53 billion in 2000 from $69 billion in 1992. Actual aid spending as a share of GNP slipped to a shocking 0.2 per cent in 2000.

The World Bank and the IMF have also slashed funding. The national co-financing of World Bank water projects was at its lowest during the 1990s. Given the global economic recession, the World Bank's current water sector portfolio of $5.3 billion is unlikely to show significant upward mobility. On the contrary, the World Bank is pressing for full cost recovery to realise debts and address budget deficits.

Significantly, the full cost recovery principle is a disguise to promote privatisation. Because it is easier to manipulate poor economies to set the trend, IMF imposed conditions of full cost recovery and/or privatisation in 12 of its 40 loans granted in 2000. Even if these countries were to raise foreign direct investments from sources other than the IMF and the World Bank, a seal of approval from these international financial institutions is an unwritten prerequisite. Consequently, these governments are forced to toe the line.

The backdoor entry

Although the privatisation of water utilities has backfired in some countries, a strategy of incremental privatisation has been developed to overcome public resistance and facilitate the backdoor entry of private companies. Since expansion and maintenance of public infrastructure have not kept pace with the rapid growth in demand, third party mediation is sought to raise the necessary funds for investments in the sagging public sector. Called Public-Private Partnership (P3), a typical P3 involves a joint venture between an MNC water company and the local government in which the former contracts to design, build and operate water-treatment and supplies for a pre-determined period. This will force governments to provide a congenial regulatory environment for the growth of the investing company and eventually prepare to hand over the water utility to the private sector.

In the last decade, over $25 billion has been invested in P3s worldwide, over 95 per cent being in the developing South alone. Development agencies and financial institutions often underwrite these forays by MNCs in the developing countries. The Asian Development Bank (ADB) has already initiated public-private partnership in ten Asian capitals, and the German Development Bank (KfW) has pumped in nearly $400 million into 26 public-private partnership projects across Albania, Montenegro and Jordan.

The main beneficiaries of the P3 are a handful of globally operating, market-dominant, multi-utility companies. Suez and Vivendi, water companies from France that together control more than 50 per cent of the global water market, netted a $10-billion profit last year. Corporate growth is the usual story of mergers and acquisitions. No wonder, therefore, that Vivendi is a conglomeration of more than 3,000 companies worldwide. In effect, there is little choice when the governments opt for public-private ventures.

The water sector is attractive not only because of high profits offered by a monopoly in a vital supply area, it gives the multi-utility concerns leverage for taking over other municipal services as well. Yet, water corporations remain leery of making long-term investments in water infrastructure projects in poor countries unless substantial reforms are also made to legal, regulatory and institutional structures. Consequently, the water sector reform process initiated by the World Bank is in direct response to the conditions laid down by the private sector for making investments.

Privatisation: Poor track record

The privatisation of water services has not had a successful track record thus far. Though it has been criticised for its anti-poor policy advice, the World Bank argues that increased cost recovery and privatisation will actually expand access to clean water. The multi-donor World Commission on Water for the 21st Century is convinced that "if the poor have to survive they must buy water for their daily needs".

But privatisation critics say the Bank's calculus is flawed. Higher tariffs for water mean the poor have to use less or go without. In Ghana, where privatisation has been in full swing, price increases (95 per cent) have already forced many people to cut down water consumption drastically. Public health officials link such reduced access to increased health risks. In South Africa, enhanced water tariffs forced people in the Kwagulu-Natal region to consume polluted river water — the resultant cholera outbreak claimed some 32 lives in 1999. Cut off from municipal systems, the poor are forced to buy water off the back of a truck and often get diseases responsible for some four million deaths per year.

However, protagonists of privatisation are not convinced. They contend that the poor manage to find money for water that can be parleyed into profits for reputable suppliers. In a bid to justify privatisation, a handful of studies is quoted to show that both the rural and urban poor are willing to pay higher fees to have a reliable water supply. World Bank sponsored studies indicate that urban poor already pay five times the municipal rate for water in Abidjan; 25 times more in Dhaka; and 40 times more in Cairo.

However, it is not clear if the poor can sustain paying the increased tariff for long. They might be paying so much that they can afford to buy cups of water to drink but not 40 litres per day, the minimum necessary to meet basic human needs on a daily basis.

By the inefficient handling of water resources and by allowing the municipal infrastructure to crumble, governments the world-over have made themselves and their poor citizens vulnerable to the onslaught of forces out to reap a huge windfall. It is a choice poor governments will find hard to make — choose the interests of the poor and lose, or raise resources for infrastructure and shun the poor? The World bank suspended a $46-million loan to Paraguay for not privatising its water sector. However, for accepting its pre-condition to raise water tariffs by 95 per cent the World Bank approved a similar loan of $110 million to Ghana in July 2001.

Developing countries' governments lack the capacities for effective negotiations. Reform agenda is rarely seriously examined. In contrast, most governments literally follow the dotted lines, mortgaging the interests of the poor in the process.

The argument that the private sector brings substantial additional investment holds little water either. To reduce their own risks, operators use low-interest loans from donors and development banks without which generating profit may not be possible. Furthermore, private companies are extremely prone to bribery and cronyism.

The new route

Once the reforms are implemented, it is impossible to undo them. On the contrary, international trade and investment agreements, within the purview of World Trade Organisation, help codify these reforms and bind them into a multilateral framework for comprehensive application, opening a new route to water privatisation. To date, much of the debate on the impact of the GATS (General Agreement on Trade in Services) on water has focussed on drinking-water supply.

No country has yet committed water supply services and consequently the WTO shrugs it aside as a non-issue. But the European proposals to encourage such commitments and the explicit obligation of all WTO members to expand this service treaty cannot be shrugged aside. The EU and many others define water supply as an environmental service.

Like most WTO Agreements, GATS limits the role of government and government agencies and gives safe passage to the service providers with a favourable regulatory framework. In the Doha summit, members agreed to initiate negotiations immediately on the reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services. Countries of the European Union are pushing for it to safeguard the interests of its growing water industry.

The assurance that `the WTO is not after water' is less assuring because virtually every aspect of designing, building and operating water supply is subject of services commitments made by many WTO member countries. Consequently, the non-inclusion of drinking water as committed service seems an eyewash.

Of all the WTO agreements, water resources are likely to be most directly affected as a result of GATS. For instance, GATS does not acknowledge conservation as a legitimate exception to justify interfering with the rights of the foreign service providers. . GATS clearly favours trade in services by minimising the capacity of governments to regulate or otherwise intervene in the market. But article 1:2 of GATS promotes `cross-border' trade in services as well: From a territory of one member to any other Member; from the territory of one Member to the service consumer of any other Member; and by a service supplier of one Member through a commercial presence of another Member to any other Member in other territory and so on. Thus, GATS has become a means of achieving corporate presence across territories.

The way out

Alternative approaches are essential for a comprehensive solution to the water-crisis. Public sector needs to be reformed to meet the challenge of privatisation, and correct deficiencies with structural and financial reforms.

Further, community-owned and managed systems need patronage and State support. While such initiatives do exist in several countries including India, privatisation is narrowing the space for the full-realisation of potential benefits of such initiatives. Such solutions are less expensive and more sustainable than the concepts of private and even public utilities. Also, public suppliers need to be given capital on low-interest rates.

Interestingly, crucial decisions about water privatisation and cost recovery are made without the knowledge and consent of citizens. Forced to sign on dotted lines, democratically elected governments in the developing world are at risk of survival on account of their reduced reliability. Neither the donors (World Bank or IMF) nor borrowing governments are obliged to publicly disclose information about loan agreements. However, this is contrary to Principle 10 of the Rio Declaration that entitles individuals access to information and judicial proceedings and to be involved in decision making.

Be it the World Summit for Sustainable Development in Johannesburg next week or the World Water Forum next year, national governments will have to confront businesses to swing the sustainable development agenda in their favour.

Unless countries are permitted to find their own solutions and to keep basic human services such as water under their control, sustainable human development is unlikely to be achieved.

(The author is a water expert attached to the Delhi-based The Ecological Foundation and can be reached at sudhirendar@vsnl.net)

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