The mirage of public-private water
Public-private partnerships were heralded as a solution to the millions who still lack access to water, but after two decades the evidence is in: they have failed. An unprecedented surge of cities is now bringing water back under public control.
This week around 30,000 people will descend on Daegu, South Korea to attend the 7th 2015 World Water Forum (WWF). Often portrayed as a policy-making forum committed to the goal of water for all, the gathering of the international water community is really more of a trade show, dominated by private water companies who promote private-sector solutions to the global crisis. Their solution was happily imbibed by most of its delegates and proclaimed in many of WWF’s previous declarations.
Unfortunately on the ground, the promise of private water services has all too often turned into a mirage. Starting in 2000, increasing numbers of cities (from Atlanta to Accra, Berlin to Buenos Aires) have demanded a return to public water services as prices rose and services declined.
A book Our public water future: The global experience with remunicipalisation, published by Transnational Institute and other organisations this month reveals that over the last 15 years, 235 cases of water remunicipalisation have been recorded in 37 countries, impacting on more than 100 million people. Moreover the pace of remunicipalisation is accelerating dramatically, doubling in the 2010-2015 period compared with 2000-2010.
Most notably, even Paris has remunicipalised, even though it is home to two of the largest water multionationals in the world, Veolia and Suez. If even their home-town was turning them down, what did that say about these companies potential to deliver in places where the need for investments in infrastructure was much higher?
The most recent city to decide to remunicipalise is Jakarta, whose court in March annulled privatised water contracts for failing to protect residents’ human right to water. This court decision came after years of public anger at private operators Palyja (Suez is a major shareholder ) and Aetra’s record profit rates and dismal service record: their coverage never extended beyond 59% of the population, their leakage levels were an astounding 44%, and their rates increased almost fourfold.
In the face of growing criticism, the WWF has toned down its talk of privatisation – this year the language is all about “innovative investment”, promoted most typically through Public-Private Partnerships (PPPs). But on closer examination, this is another mirage. PPPs are not an “innovative” financing mechanism but a cherry picking exercise: one that allows water multinationals the most attractive contracts (and all profits), while governments assume the risks.
In the case of Bandung in Indonesia, for example, the PPP guaranteed a private company a 20% profit rate in exchange for an investment of $500 million in water infrastructure, that could only be paid back because of the presence of profitable local industries. But this cherry-picking means that the public sector is left operating only in regions where cost recovery is not possible – and it prevents the public sector – that can borrow at cheaper rates and is not required to pay back shareholders – to use earnings from more profitable districts to support extending service in less well-serviced low income areas.
Research by Public Services International Research Unit shows that despite the big expansion of PPPs in recent years, financing for all infrastructure across the world still predominantly comes from public sources, as high as 90 per cent.
Investment in the public sector can deliver far better results than public-private partnerships. “Our Public Water future” shows that the 235 cities (that have remunicipalised) provide better services - not only because they can reinvest all profits into infrastructure, but also because they are better placed to consider other issues such as labour rights, environmental conservation and democratic accountability. Undistracted from competing for markets, public water operators are also linking up through Public Public Partnerships to share learning and best practice, and build capacity of less well-resourced utilities.
In the flagship remunicipalisation of water in Paris, for example, in the first year of operations the new municipal operator Eau de Paris was able to realise efficiency savings of €35 million What is more, they are prioritising environmental conservation measures and have set up a unique body in which the public can have a say in how the company is run.
Not surprisingly, rather than embrace this progress, private water operators are doing their best to undermine it. As they try to seduce cities into signing PPPs, they may project images of everlasting supportive partnerships, but if a city decides to part ways, their behaviour is more like an angry jilted lover. In just the last week, Suez has said it will appeal and fight the Jakarta decision. At the same time, they also won an award for $405 million from Argentina after it cancelled its contract during the country’s economic crisis. Rejected by ever more citizens for profiteering from water, private water companies are now seeking to sabotage public water companies through legal costs and legal actions.
Their actions show the mirage behind the term public-private partnership. The reality is the partnership of a city and a company in delivering the right to water always holds the tension of conflict because the mission of a government and company are completely different.
If the World Water Forum is serious about its goal to implement solutions to the global water crisis, it should realise that the promise of private investment in water services was always a mirage. The private sector does not have the interest to invest in public infrastructure at the level needed, and has frequently turned out to be more expensive and less effective than the public sector in delivery. It is time for the World Water Forum to look at how it can boost investment in real public solutions that can deliver the human right to water for all.
Photo credit: Mirage by Boolahz (http://boolahz.deviantart.com)