The EU is the largest water donor in the world, providing € 1.4 billion of development aid per year. This Corporate Europe Observatory report looks at how the EU uses this funding to promote private sector water management.
However, these promises made in the European Parliament were quickly forgotten or ignored. Within six months Michel wrote to an NGO coalition correcting their perception that there had been a policy shift in favour of public services. Michel stated that NGOs had misunderstood the EU’s position on water services provision and simply ignored constructive civil society proposals. Hopes for a departure from neoliberal water policies were dealt another blow by the recent revelation that the European Commission has started funding (since 2005) the Public-Private Infrastructure Advisory Facility (PPIAF). The PPIAF has been very active in the water sector, funding, sponsoring and promoting pro-privatisation advice in at least 19 developing countries. The Commission’s decision to support such activities goes against the trend of various donor governments having begun to reconsider and even withdraw their support for the PPIAF because it exclusively offers privatisation advice, excluding other options. In addition to funding the PPIAF, the Commission has also launched its own mechanism based on a similar philosophy, the Private Sector Enabling Environment Facility (PSEEF) with a budget of €20 million.
Commission officials in defence of private sector water
A coalition of over 60 NGOs has said in an open letter at the occasion of World Water Day 2007 called on the EU to stop using aid cash for private sector projects, drop requests for water market access in trade talks and “greatly increase aid and public sector investment” instead. In an interview with the EUobserver.com newswire EU officials dismissed the NGO complaints, arguing that “it is ‘essential’ to get the private sector involved due to its huge spending power and the knock-on effect of other corporate investors following in the footsteps of water company pioneers to bring jobs and prosperity as well as basic infrastructure to deprived regions.” These comments fly in the face of the reality that water multinationals have over the last decade systematically failed to bring the promised investments in privatised water systems in developing countries. A European Commission aid department spokesman with a deeply unrealistic image of the record of Europe-based water multinationals stated that “You also need a good structure in terms of governance and transparency [of private water firms]. We Europeans are able to deliver this. We have a number of rules that we apply. The Chinese do it differently. What they have is basically an extension of their economic agenda – let’s be honest.”
For many years, development banks and national aid agencies have prioritised water sector reforms expanding the role of the private sector. However, the performance and track record of privatised water is very uninspiring. Commercialising a fundamental human need such as water has had serious negative impacts on the poorest communities across the developing world. Assessing privatisation experiences in Cote d’Ivoire, Guinea and Senegal, the 2006 UN World Water Development Report concludes that “increased tariffs had made water supplies unaffordable for many of the poorest sections of society, which led to people getting disconnected from water supply due to inability to pay. Experiences confirmed that very poor sections normally tend to be excluded from being part of a privatised service extension. Similar experiences have also been found in other places, such as in greater Buenos Aires, Argentina and in Bolivia.” Like in most other cases, these failed “public-private partnership” experiments were the responsibility of Europe-based water multinationals.
The Public-Private Infrastructure Advisory Facility
The PPIAF is a multidonor technical assistance facility launched in 1999 by the governments of the UK and Japan, and the World Bank (WB). The facility’s involvement in water and sanitation services is based on the assumption that the transfer of management to the private sector is the way to improve the situation of the poorest households. While experiences with water privatisation in numerous cities in developing countries have proven these assumptions to be dangerously flawed, the PPIAF sticks to its pro-privatisation mission. As an advisory facility, PPIAF does not itself fund infrastructure projects, but provides generous financial support for consultants advising on privatisation processes, including ‘consensus-building’ efforts targeting sceptics in governments, parliaments, media, business, civil society groups and the population at large. PPIAF only funds technical advice or consensus building activities when private participation is involved. It does not support initiatives that aim to keep water in the public sector. Meanwhile, there is no international facility dedicated to funding advice and other support for the improvement of public water operators.
European Commission involvement in PPIAF
After participating as an observer in the PPIAF’s annual meeting in May 2004 in Stockholm, the Commission in November that year received approval from EU governments to join the PPIAF (by means of a mandate from the European Council). Commission involvement in the PPIAF was formalised by means of an Administration Agreement with the World Bank (signed in May 2005), which granted a total amount of € 1 million from the 9th European Development Fund, to be spent before June 2007. Representatives of the Commission’s Europe Aid Co-operation Office (AidCo) also attended the PPIAF’s annual meeting in Bonn in May 2006, as well as the half-yearly Steering Group meeting held in Brussels in December 2005.
The European Commission’s involvement in the PPIAF in fact contradicts the Commission’s own 2003 recommendations for reforming State-Owned Enterprises in developing countries, which spells out a far less ideological approach. “Before deciding on a formula for reform”, the document states “governments would need to examine all the options, including restructuring within the public sector, PPP [public-private partnership, ed.], privatisation, and mutualisation”, and to assess their financial, economic and social consequences. The PPIAF’s privatisation-only policy is seriously at odds with the principles outlined in the Communication.
Aid money spent on consultants advising on water privatisation
In November 2006 the World Development Movement and FIVAS launched a very substantial and detailed report analysing the PPIAF’s involvement in privatisation processes in the water and sanitation sector in aid-recipient countries. It reports how PPIAF has funded water privatisation processes in at least 37, mostly poor countries. In at least 19 countries, the facility has funded technical advice on privatisation aspects, ranging from the changes required to domestic legislation, policy, institutions and regulations to better attract private companies, to option studies which recommend a precise form of privatisation. In some cases these studies recommend new schemes to replace already failed privatisations. Furthermore, in at least 16 countries PPIAF has paid consultants to support privatisation by means of “consensus building” work. In this category PPIAF actively interferes in internal democratic debates and deliberation on the provision of essential public services.
In at least 17 countries where PPIAF has funded activities in the water sector, water privatisation conditions had been attached to loans, debt relief or aid, by international financial institutions like the World Bank and the International Monetary Fund (IMF). While the World Bank usually follows up PPIAF studies with grants or credits for water supply projects which contain privatisation as a key element, in other cases conditionality pre-dated the involvement of PPIAF. Hence, despite its small-budget, PPIAF has a strong political influence and impact, and plays a very important role in the push towards water privatisation of several international donors.
In December 2006, European Commissioner Michel received an open letter from a wide range of civil society organisations asking the Commission to withdraw its support for the PPIAF. The letter described the PPIAF as “a relic of the 1990s when donors pinned their hopes on private water companies providing the finance necessary to solve the global water crisis.” The NGOs encouraged the Commission to explore far more promising approaches such as Public-Public Partnerships (PUPs), in which public water operators assist each other to improve efficiency and expand access to drinking water and sanitation.
In an official response in February 2007 Commissioner Michel, again, largely ignored these proposals. Instead he referred to the launch of a new Private Sector Enabling Environment Facility (PSEEF), which has been assigned the future performance of “some of the tasks currently undertaken through PPIAF”. As a result, the Commissioner stated, the renewal of the Commission’s contribution to PPIAF will be “subject to review”.
PPIAF funding and bureaucracy
Current PPIAF funders include all G8 members except for Russia, other national donor agencies plus a small number of multilateral donors, including recent arrival the European Commission. PPIAF received US $122 millions between 1999 and 2006 from its donors, of which around US $ 22 millions has gone to the water and sanitation sectors. Other infrastructure sectors funded by PPIAF are energy, telecommunications and transport. The PPIAF is governed by a Programme Council, which includes all contributors and is chaired by the World Bank´s vice president for infrastructure. On a day-to-day basis it is managed by a Program Management Unit (PMU).
PPIAF is highly dependent on the financial contribution from the UK government (DFID), especially as enthusiasm among other donors is cooling, partly due to the PPIAF’s controversial use of aid funds. The Norwegian government, which contributed € 2,85 million to the PPIAF since 1999, has recently decided to withdraw from PPIAF, as it no longer views “the fund as a means to solve the problem of access to water for the poor”. Such reduction in donors’ commitment, together with PPIAF increasing operating costs and the committed allocation of reserves from unused previous funds, could result in serious budgetary constraints for the PPIAF.
The EU’s Own PPIAF?
The implementation of the €20 million Private Sector Enabling Environment Program is officially in the hands of the Brussels-based ACP Secretariat (involved in the coordination of EU aid and trade relations with 79 African, Caribbean and Pacific – ACP – countries). In practice, however, the management of PSEEF has been sub-contracted to a private consultancy firm, the London-based WYG International. As is the case for the PPIAF, projects supported by the PSEEF are implemented by third-party contractors, selected from a pool of consultancies. The ACP-Secretariat and the Commission remain responsible for the approval of both requests and contractors, through a Steering and a Validation Committee. WYG International, which will receive € 2,8 million during the period 2006-2009 for running the PSEEF, has previously done contract work for the EU and for national development agencies. WYG International director Gordon Lamond is a water engineer, while WYG non-executive director Brian Duckwort is a former chairman of Severn Trent Water, the UK-based water multinational, currently bidding for water privatisation contracts in Nepal and elsewhere in developing countries.
While Commissioner Michel seems to want the PSEEF – recently renamed BizClim – to mirror the PPIAF’s interventions in the water sector, this new agency has a wider scope than the World Bank agency. Its projects are not only within the infrastructure sector: assistance is provided for a wide range of measures to boost the development of the private sector in the ACP countries.
This does include advising on reform options for State-Owned Enterprises, advice which in practice is limited to expansion of private sector participation. While PPIAF is at least theoretically acting on requests from recipient governments in developing countries, PSEEF/BizClim also acts on behalf of EU agencies and the private sector. For example, the European Commission delegation in Guinea Bissau has recently requested BizClim to undertake a “study on privatization and reform of State-Owned Enterprises” that would affect the electricity distribution arm of the Electrical and Water Company of Guinea-Bissau (EAGB).
How far has the PSEEF/BizClim advanced in taking on “tasks currently undertaken through PPIAF”, as announced by Commissioner Michel? The new body’s Online Documents Database tells us very little. Moreover, the head of BizClim’s Management Unit refused CEO’s request for access to documents which could have help clarify this question. Our initial assessment does show that BizClim projects, whether approved or under consideration, are primarily in the field of so-called ‘Public Private Dialogue’, policy framework analysis related to trade issues, and financial system development projects. According to the publicly available information, the BizClim portfolio does not yet appear to have expanded much into the water and sanitation sectors.
Louis Michel’s clear intention to promote PPIAF-style water and sanitation sector reforms in recipient countries through BizClim should however be a matter of great concern. It is remarkable that the European Commission seems to treat services of general interests – such as water supply – in developing countries as if these were just like any other sector of the economy. Efforts to support more vibrant local economies is one thing, privatising public services and handing over the management to multinational firms is something entirely different.
These worries are underlined by the fact that the BizClim is intended to act in synergy with for instance the EU-Africa Partnership on Infrastructure, the EU Energy Facility and the EU Water Facility, all of which involve very large amounts of EU aid funds and have a clear mandate to promote private sector participation in services delivery.
This underlines the fact that the new facility has a worrying set of double roles. In some of its ‘Public Private Dialogue’ activities, BizClim has the mission to work closely with business from Europe and the ACP countries in order to bring their interests and demands into the decision-making process. BizClim was for instance deeply involved in the preparation of conferences such as the EU-Africa Business Forum (Brussels, November 2006), and the ACP Business and Investment Forum (December 2006). These fora are partly intended to expand trade and investment opportunities by bringing together businesses from both regions, but there is also a strong and arguably controversial political dimension. This aspect of these activities matches the European Commission’s general strategy of teaming up with corporate lobby groups and inter-regional industry coalitions in international trade negotiations. Apart for hosting the websites of both business forum processes, BizClim (and in practice the consultancy WYG International) facilitated the pre-conference discussion papers on issues such as the controversial EPA trade negotiations.
For the EU-Africa Business Forum, BizClim worked closely with business coalitions such as UNICE, CSR Europe, the Association Industrielle Africaine and the African Business Roundtable; and several European Commission units. Also in this case the draft joint declaration (to be issued at the end of the Forum) was facilitated by BizClim, containing recommendations to governments about moving forward multilateral and regional trade liberalisation negotiations, or the use of EU development assistance to develop private infrastructure markets. The Commission was present in the EU-Africa Business Forum at the highest level, with speeches from Commissioners Michel and Mandelson, Director-General in DG Development Stefano Manservisi, and Director in EuropeAid Gary Quince.
BizClim also played a significant role in the ‘ACP Business and Investment Forum’, preparing the forum’s agenda, identifying speakers and providing the European and African businesses with information regarding the business climate”. The Forum was advertised as “an ideal opportunity for the private sector to speak to high-level leaders and officials”, de facto providing the private sector with privileged access to government officials, compared to civil society stakeholders.
BizClim’s role in promoting the political impact of private firms seems hard to reconcile with the Commission’s official “neutral stance on the ownership of any enterprise”. What this will mean for services of general interest – including water, education, health, etc. – in ACP countries is an issue that deserves intensive scrutiny in the months and year to come.
- In a critical assessment published in 2006, the NGO WaterAid concludes that the EU Water Initiative (EUWI) has been a failure, not the least because of its misjudged "focus on attracting private financing despite the proven disinterest of international investors in financing water and sanitation projects in developing countries." EU lets down the world's poorest, WaterAid website, accessed 28 March 2007.
The ACP-EU Water Facility (EUWF), launched in 2004 with an initial budget of € 500 millions (from the European Development Fund, EDF), is intended as a catalyst for increased private financial investment in the water and sanitation sector in the ACP countries, in conjunction with other EDF-funded instruments such as the Private Sector Enabling Environment Program (PSEEF) and multidonor facilities like the Public-Private Infrastructure Advisory Facility (PPIAF). See for instance Examination of Potential of the ACP-EU Water Facility – Encouraging Increased and Innovative Financing in Water and Sanitation, COWI A/S, September 2005.
- During his confirmation hearing in the European Parliament (6 October 2004), Louis Michel was asked what he thought of the pressure of EU on developing countries to liberalise water, education, healthcare and other sensitive sectors in the framework of the GATS negotiations.
- These proposals included the call for greater support for not-for-profit public-public partnerships. See the open NGO letter to Commissioner Michel and Commissioner Michel’s response.
- Corporate Europe Observatory first discovered the European Commission’s decision to start funding the PPIAF through documents obtained through the Dutch freedom of information law in September 2006. The Commission funding was confirmed in the PPIAF’s annual report for 2006, published in February 2007.
- The €20 million is for the operational period September 2006 to September 2009. Source: 1st Newsletter BizNews Oct-Dec 2006. The PSEEF recently opened a website: acpbusinessclimate.org.
- NGO statement World Water Day 2007, Brussels, 21 March 2007.
- NGOs attack EU water aid policy, Andrew Rettman, EUobserver, 15 March 2007.
- Second UN World Water Development Report: Water, a shared responsibility, UNESCO, 2006.
- According to the PPIAF’s Technical Advisory Panel (TAP), the facility “should be open to funding activities where public enterprise reform is seen as a first step toward some form of private participation”. Review of PPIAF activities completed during fiscal year 2005. Summary and Overview. April 2006.
- In Stockholm, the Commission announced its intention to join the PPIAF as a new donor. PPIAF. Quarterly Report: Status of Approved Activities (April1 – June 30, 2004), August 2004.
- Trust Fund Agreement, signed by Jose Luis Triminho, (previous) head of EC Unit C4 “Centralised operations for the ACP Countries”, and Katherine Sierra, Vice-president for Infrastructure, WB, on 02/05/2005. The € 1 million granted comes specifically from the € 20 million budget “Private Sector Enabling Environment Program”, allocated to the PSEEF.
- The European Development Fund (EDF) is the main instrument for providing Community aid for development cooperation in the African, Caribbean and Pacific (ACP) States. It is funded mainly by the EU Member States, and consists of several instruments, including grants, risk capital and loans to the private sector. The 9th EDF has been allocated € 13.5 billion for the period 2000-2007 (plus unexpended balances from previous EDFs, total € 9.9 billion), and will be followed by the tenth EDF (2008-2013). For further details, see: http://europa.eu/scadplus/leg/en/lvb/r12102.htm.
- AidCo is the European Commission department entrusted with the mission of implementing the external aid instruments of the Commission, which are funded by the Commission budget and the EDF. See, for further details, http://ec.europa.eu/europeaid/index_en.htm.
- Surprisingly, Robert De Vogelaere (Economic and Commercial Co-operation Programs Manager in C-4 Unit) stated in an e-mail to Corporate Europe Observatory (10/11/2006) that “members of the Commission staff attended meetings of the PPIAF in Bonn (2006) and Brussels (2005); however for reasons of budgetary constraints not in Stockholm (2004) nor Manila (2005). The Commission representative however attended these meetings as an observer”. On file with Corporate Europe Observatory (CEO).
The head of the PSEEF’s Program Management Unit, Mohamed Cherif, also attended the PPIAF meeting in Bonn. MHamed CHERIF To Attend The PPIAF Workshop, press release by Cute Solutions, 16 May 2006.
- The Reform of State-Owned Enterprises in Developing Countries with focus on public utilities: The Need to Assess All the Options, Communication from the Commission to the Council and the European Parliament. June 2003.
- Drown the Drain. How aid for water sector reform could be better spent, World Development Movement, November 2006.
- Examples include: generating support for a particular privatisation option, persuading media or civil society of the proclaimed benefits of water privatisation, or changing the opinion of parties not currently in support of the proposed privatisation plans.
- Other critique of the PPIAF’s performance described in the report, includes absence of meaningful participation; ignoring in-country good practice amongst public providers; lack of transparency; and an ineffective poverty focus.
- Open letter from the World Development Movement (on behalf of dozens of other NGOs) to Louis Michel, 18 December 2006.
- Commissioner Michel’s response. At the moment, European Commission support for the PPIAF is being managed by AidCo staff rather than the PSEEF management unit, despite the fact that the €1 million grant comes from the PSEEF budget. “Regarding the core and non-core activities supported by PPIAF and ACP coverage, I kindly invite you to talk to Robert De Vogelaere who is managing this activity.” E-mail from Mohamed Cherif, 15 February 2007. On file with Corporate Europe Observatory (CEO).
- Previously, a representative of AidCo told that CEO that the European Commission contribution is a one-off grant and that no further funding commitments had been arranged. “There are no indications that there will be a further contribution with EDF Funds to the PPIAF in the foreseeable future”. E-mail from Robert De Vogelaere from 20/11/06. On file with Corporate Europe Observatory (CEO).
- The UK has contributed more than 50 %, together with Japan and the World Bank almost 80% of total PPIAF funding. A complete list of donors, in order of the amount of funding provided (by 30 June 2006, in US $ millions), is as follows: United Kingdom, 62.96; World Bank, 16.28; Japan, 16.04; Sweden, 6.41; Switzerland, 6.25; Norway, 2.45; Netherlands, 2.50; Canada, 1.57; Germany, 1.38; France 1.31; Asian Development Bank (ADB), 1.25; United States, 0.75; European Commission, 0.59; Italy, 0.25; United Nations Development Programme (UNDP), in-kind contribution. From: PPIAF 2006 Annual Report, January 2007.
- Estimate based on the figures about spending on program activities by 30 June 2006, from “PPIAF 2006 Annual Report” as well as indications of spending in the water and sanitation sector, from “Program Manager's Report”, 7th PPIAF Annual Meeting. Bonn, May 23-24, 2006. For figures of both spending and the number of privatisation contracts in water and sanitation sector on a yearly basis, see Down the Drain. How aid for water sector reform could be better spent, World Development Movement. November 2006.
- Out of 15 listed donors, three have not provided any financial contribution in fiscal year 2006: UNDP, the US and Italy. From: PPIAF 2006 Annual Report, January 2007.
- Statement by Torbjørn Urfjell, the political adviser for the Minister of Development of Norway, during a meeting with WDM and FIVAS. See: Victory for UK campaigners as Norway abandons controversial water privatisation scheme, WDM News, 26 February 2007.
- For the first time ever, available cash ended in negative numbers in the 2006 Fiscal Year. From: PPIAF 2006 Annual Report, January 2007.
- See www.acp.int. ACP-EU relations are based on the Cotonou Partnership Agreement, which emphasizes both the development of the private sector and the integration of ACP states in the international trade as key for economic growth and poverty reduction. An independent evaluation concludes that Commission support to private sector development suffers from a serious contradiction between the goal of a more competitive and active business sector, and the achievement of co-operation and development goals. Evaluation of European Community Support to Private Sector Development in Third Countries, ADE S.A. December 2005.
- The following organizations are invited to join the PSEEF Steering Committee as observers: ACP Regional Institutions and ACP Private Sector Organizations, the ACP-EU Private Sector Support Instruments (CDE, PROINVEST…), the European Investment Bank (EIB) as well as UNICE and European Development Finance Institutions (EDFI), a group of fourteen bilateral institutions offering long-term private sector development finance. This and further information on the PSEEF’s structure, procedures and activities is available in Manual of Policies and Operating Procedures, 2006.
- Private Sector Enabling Facility, ACP Countries, website WYG International, accessed 28 March 2007.
- What we do – Sectors, WYG International website, accessed 28 March 2007. Activities include design, construction and operation of sewage schemes, as well as water basin management works.
- WYG International Appoints New Director, WYG International, 1 August 2005.
- See for example: Anti-poverty protestors ‘clean up’ Severn Trent, World Development Movement press release, 15 March 2007, and: Severn Trent Water International Helps Provide Developing Countries in Africa with Access to Clean Water and Adequate Sanitation Through Partners for Water and Sanitation (PAWS), Severn Trent press release, 8 September 2005.
- Actually, the PSEEF Funding Proposal assigns EUR 8 million (40 % of total budget) to “Regulatory framework and SOE reform”. PSEEF assistance also includes: Policy framework development in trade-related issues, which are involved in the on-going EPA negotiations; Public Private Dialogue; financial sector development; co-financing joint donor initiatives; research on best practices and dissemination-capacity building; as well as follow-up of recommendations. Source: PSEEF Financial Proposal, EuropeAid Co-operation Office, Brussels, April 2004. AIDCO C3/OC/jd/11967.
- “Indeed, we have approached the ACP Business Climate Facility for a possible study for the Electrical and Water Company of Guinea-Bissau. The study would not involve the water sector being focused mainly on electrical distribution. It is still under identification”. E-mail from J. M. Alves Pereira, on behalf of Franco Nulli, a representative of EC delegation in Guinea Bissau, March 13th 2007. On file with Corporate Europe Observatory (CEO).
- “Regarding BizClim documentation, we are doing our best to post all public documents on our website” Reply from M’Hamed Cherif, BizClim Management Unit Head, to CEO’s request for documents such as the PSEEF Working Program, Manual of Policy and Operating Procedures, and the Activity Report for April-June 2006. E-mail from 16th February 2007. Although those documents were available on-line two weeks later, this indicates a worrying lack of transparency around the new facility. Moreover, the on-line database is messy, also because documents are in some cases incomplete.
- 16 Projects approved or being screened for assistance, acpbusinessclimate website, accessed 12 March 2007. For several of the listed projects, no information is available.
- “This (EU-Africa Business) forum should be attractive and unique because of the strong commitment of the EU at the highest level to […] take into account private sector views and agenda while devising and implementing its own strategies in Africa. It will give the opportunity to influence both European and African public policies in order to improve the business opportunities and the business climate in Africa”. From EU-Business Forum - Concept Paper, written by consulted private sector representatives.
- See: EU-Africa Business Forum, Brussels, 16-17 November 2006 and BizClim Supports The ACP Business And Investment Forum, 27 November 2006.
- Examples of such co-operation are the Trans-Atlantic Business Dialogue and the EU-Mercosur Business Forum. However, the European Commission goes further in the case of EU-Africa relations, when PSEEF staff, paid with public funds, undertakes facilitation work to assist the private sector agreeing on common positions to target and influence both EU and African governments. PSEEF will also support the CARIFORUM-EU Business Forum and the Business Trade Forum EU-Southern Africa (BTFES), which target trade negotiations between these regions.
- Three discussion papers were prepared for the event in Brussels: Challenges & opportunities of economic partnership agreements, Good governance and corporate ethics and Interconnectivity (communications and infrastructure). Apart from the three mentioned texts, two more working documents, on “Introducing the development dimension” and “Options for liberalisation of trade in environmental goods”, where prepared for the meeting in Khartoum. At the time of writing of this paper, these documents were not (yet?) available on line.
- Suez is a founding member of CSR Europe, which is currently chaired by Etienne Davignon, Vice-President of Suez Tractebel.
- “Du côté de la Commission, plusieurs services seront impliqués dans les discussions, y compris les DG-Commerce et EuropeAid et des Unités à la DG DEV comme par exemple l’unité chargée des infrastructures (pour le sujet no. 2) ». Le Forum des Affaires UE-Afrique, Résumé de la réunion du 21 juin, 2006.
- EU-Africa Business Forum, Brussels, 16-17 November 2006.
- BizClim Supports The ACP Business And Investment Forum, 27 November 2006.