Water giant Suez looks east to Croatia for profits

Representatives of the French multinational corporation Suez recently visited the Croatian city of Split, interested in investing in the public sector in particular water, gas distribution, electricity and garbage collection. Suez’s ambitions apparently extend far beyond the city borders to the whole of Croatia. The misinformed city government, influenced by business interests, seems ready to generously offer property belonging to the city to the French multinational.

At the same time as the visit by Suez representatives, a coalition of 133 NGOs sent an open letter inviting governments and donors to abandon the World Bank’s project of water privatisation through its Public-Private Infrastructure Advisory Facility (PPIAF). The experiences show that privatisation leads to increased prices, deteriorating of the infrastructure, and often a failure to serve areas where multinationals can’t get the desired profit.

Tena Erceg of Croatian magazine Feral Tribune talked to Olivier Hoedeman, a signatory to the open letter and a researcher and coordinator of Corporate Europe Observatory, whose main aim is monitoring the economic and political power of corporations and their lobby groups. Hoedeman has been involved in TNI’s Water Justice Project since its inception in 2002

Tena Erceg: Can you tell me something about the origins of the idea of water privatisation. When did it first appear, and what are the proclaimed benefits from privatisation, as opposed to water as a non-profit public service?

Olivier Hoedeman: Interestingly, modern piped water systems were first developed by private companies in the second half of the 19th century, but they often only served the wealthy parts of cities. When it became clear that these firms had no interest in universalising access to clean water and sanitation, these water systems were taken over by municipalities. By the beginning of the 20th century Western European countries, the US, Canada and so on, all had public water systems which were being expanded through public investments. France was the exception, although even there the expansion of access to piped water to cover the whole population was undertaken on the initiative of public authorities and with public finance. Water privatisation started re-emerging in the second half of the 1990’s as a result of a broader wave of neo-liberal ideology gaining ground, beginning in the UK, where Margaret Thatcher privatised water in the late 1980s. In the first half of the 1990s, international financial institutions like the IMF and the World Bank started advocating privatisation as the way forward for water supply in developing countries. This was the start of a decade of aggressive promotion of privatisation, primarily in developing countries and the former Communist world, based on two main arguments:
- that public water systems were ineffective and beyond repair, whereas private water multinationals were superior in terms of efficiency and technology
- that only the private sector could bring the needed investment for improving and expanding access to clean water

Who are the most important actors that promote water privatisation?

The IMF and a whole range of multilateral development banks, as well as specialized agencies such as the Public-Private Infrastructure Advisory Facility (PPIAF), but also donor governments, most prominently the UK and France. Also very significant are international think-tanks such as the World Water Council and the Global Water Partnership, not to mention the water multinationals themselves (first and foremost Suez and Veolia) and their lobby groups (such as AquaFed).

What is PPIAF and how does it operate?

The PPIAF is a multi-donor agency under the wings of the World Bank. It was established in 1999 with the exclusive mission to promote privatisation of water and other infrastructure services in developing countries. The PPIAF’s budget is fairly small compared to the World Bank as a whole, but it is spent very strategically on consultants developing exact recommendations for the form of privatisation to be promoted in a given city or country. And the context of policy conditionalities imposed by the IMF and various multilateral development banks is very significant. These [institutions] will in many cases only provide loans and grants on the condition that water is privatised; the PPIAF then steps in with “advice” on how to do this.

Who are the main benefactors of water privatisation?

Obvious benefactors are Western consultancies that get contracts for pro-privatisation “advice” and for developing the concession contracts as well as Europe-based water multinationals (the global top-ten of private water corporations is completely dominated by EU-based firms). Wealthy consumers in developing countries may also benefit as private water operators tend to concentrate on those parts of cities where the bills are likely to be paid.

Why do you oppose it?

Because water is a common good that can best be kept in public hands. As a natural monopoly service, it is extremely risky to leave the responsibility for water supply in the hands of profit-oriented private firms. The push for water privatisation is overwhelmingly ideology-driven, not based on rational arguments. There is nothing that the private sector can do which the public sector could not do better (with the right support); on the other hand there are things the public sector (with its public interest mission and the absence of profit-motive) can do which private firms can not. Democratisation of water management is entirely possible when utilities are in public hands, virtually impossible when privatised. In the debate about improving access to water in developing country, I believe it is entirely clear that water multinationals are ill-equipped to supply affordable water to the poorest (those that need it most).

How does water privatisation usually look like “in real life”? What happens once it gets under way, especially in poor countries?

The general picture is that private water firms fail to fulfill what they promised, including their contractual obligations. In cities like Jakarta and Manila, the private firms soon demand the revision of contracts on more favourable terms and for tariffs to be increased (reflecting a strategy of promising low prices and impressive improvements just to win the bid). In developing countries with weak governments, water multinationals (frequently supported by European embassies) have often managed to get their way in terms of price hikes, acceptance of non-compliance with contractual obligations and so on. In Jakarta, Suez and Thames water took over water management in the mid-1990s, promising to secure clean drinkable water for all; the result was disillusion: ten years later they have both left because they discovered they couldn’t make the profits they expected. Meanwhile they failed to invest in the promised improvements and the status of the water networks has hardly improved. In Manila, water leakage increased from 64% to 69% in the ten years French water giant Suez controlled the water systems there. The claims of private firms like Suez, that they were inherently more effective than the public sector and the solution to finance needs, clearly was a major illusion.

What is the position of the EU in water privatisation?

The EU’s position is very contradictory. Officially the European Commission is supposed not to have any preference between public versus private water supply, reflecting the fact that most EU countries have public water systems and only two have predominantly privatised water (the UK and France). In practice, the Commission exercises strong pressure to privatize. Inside the EU, the Commission has for several years attempted to get water delivery included under Single Market and competition rules, which would result in the obligation to liberalise and privatise water systems. Due to strong opposition, these attempts have failed until now. At the same time, the Commission has been able to advance privatisation (so-called public-private partnerships in which the management control is transferred to the water multinationals) in many Central and Eastern European countries that depend on EU grants. Also EU development aid has a pronounced privatisation bias. Only last year, the European Commission launched a new 20 million euro agency called the Private Sector Enabling Environment Facility (PSEEF). The PPIAF has been a major source of inspiration for establishing this new mechanism which will fund consultants to advice on how to privatise. At major international conferences like the World Water Forum, the Commission has over the last years failed to express any form of support for public water delivery, while consistently propagating public-private partnerships.

In spite of this the Norwegian government has recently withdrawn from PPIAF?

In the last few years there is a real change in the way governments look at water management issues. Particularly in Latin America, one government after other has closed the book on water privatisation, as a result of the disastrous experiences in countries like Bolivia, Argentina and Uruguay. During the last World Water Forum (Mexico City, March 2006), these and other governments for the first time formed a strong block to oppose the US and European pro-privatisation stance. In Europe, several governments are adjusting their aid policies for the water sector, while maybe not abandoning support for PPPs, then at least also providing support for public sector improvements, for instance through public-public partnerships (PUPs).

What are the alternatives to water privatisation?

The alternative, generally speaking, is to improve non-profit public water management through reforms that make public utilities more responsive to the water users. This can take many forms, from democratisation reforms where the users get a stronger say in the planning of the water services (this is becoming a trend in many Latin American countries) to reorganisation and training programmes focusing on the managers and staff. Public-public partnerships (on a non-profit basis) between public utilities can be an excellent way to help overcome weaknesses, whether they are technical problems, management and planning issues or other challenges. There are many examples of well-functioning public utilities both in rich and in poorer countries. It is becoming increasingly clear that the successful approaches of these utilities need to be widely shared and replicated. The UN, for instance, is developing a new mechanism with this goal, the so-called Global Water Operator Partnerships Alliance (GWOPA).

Suez – what can we expect if it enters our services market? Should we be worried?

There is good reason to be worried and at the very least to be sceptical about what Suez promises. Suez is the world’s largest private water multinational and its aggressive expansion agenda, particularly in the second half of the 1990s, has left a trail of privatisation failures across the world (El Alto, Buenos Aires, Atlanta, Manila, and so on). Suez has a record of making grand promises in order to capture new markets, but in practice it is at any time prioritising its profits at the expense of the water users. In France, the company is becoming increasingly unpopular because of over-pricing, for instance when it abuses its monopoly control of local water distribution to award contracts to Suez subsidiaries at higher than market cost. You should ask yourself what has been learned from the many failed privatisation experiments in other countries, why many cities in France and Italy are now re-municipalising water services because of bad experiences with private water firms. Have the other options for improving public water supply been seriously considered before deciding to privatise?

The interview was published in Croatian in Feral Tribune.

© Feral Tribune