Water privatisation fails to fulfil its promises

Developing countries are increasingly under pressure from international development institutions to privatise their water supplies. Yet privatisation has failed to produce its expected benefits.

Research from the International Institute for Environment and Development (IIED) warns that privatisation is unlikely to contribute to achieving the Millennium Development Goal of halving the number of people without access to water and sanitation by 2015. Despite its prominence in current debates only around five per cent of the world’s population is served by the formal private sector. Water privatisation in developing countries is concentrated in wealthier states, cities and neighbourhoods where companies know that users can afford to pay for new or improved services. Areas on the outskirts of cities, smaller urban centres and rural areas (home to some 80 per cent of the estimated 1.1 billion people lacking access to improved drinking water supplies) are often excluded from private contracts.

Over 80 per cent of the private water and sewage market is controlled by four multinational companies. Local operators in developing countries have often found it difficult to get into the market as they cannot raise sufficient finance. Contrary to the hopes of market reformers, privatisation has not eliminated political involvement or corruption. Bidding processes have not always promoted competition as some companies have underbid competitors with a view to subsequently raising charges or colluded with rival companies to win follow-on contracts.

Despite ongoing encouragement from development institutions the rate of privatisation is slowing. After underestimating risks and overestimating potential profits companies are becoming more wary of getting involved. Several large contracts have been terminated prematurely. Companies have failed to mobilise substantial private finance and most investment has come from development loans, government funding and user charges.

The authors also note that:

• Classifying service providers as ‘public’ or ‘private’ is unhelpful because it groups together very different types of organisations and ignores the way in which civil society organisations work with the state and the private sector.
• The public-private debate is highly politicised: positions are closely aligned with the interests of multinational water companies, trade unions and other actors.
• Indebted governments have little bargaining power when negotiating with development institutions and multinational water companies.
• The absence of investment contracts in sub-Saharan Africa (apart from South Africa) means that only the public sector and development assistance can plug the huge gaps in required investment.
• Privatisation has done little to address key obstacles to improved provision – including, for example, the ‘illegal’ tenure status of many urban settlements.
• Rapid transitions from public to private provision are undesirable as they often fail to address underlying issues or ensure public participation.

Many of the problems of water and sewerage utilities have nothing to do with whether they are publicly or private operated but hinge on the nature of governance and regulation. In most low-income urban areas it is the public sector which will remain responsible for financing water and sewerage provision for the foreseeable future. There is no justification for the continued promotion of private sector participation as a means of improving services in low-income areas. Imposing privatisation as a condition of development funding undermines both democracy and local capacity to address needs.

 

Source(s):
‘Are the debates on water privatization missing the point? Experiences from Africa, Asia and Latin America’ by Jessica Budds and Gordon McGranahan, Environment & Urbanization, vol 15, no 2, pp87-113, October 2003
'Privatization and the provision of urban water and sanitation in Africa, Asia and Latin America' by Jessica Budds and Gordon McGranahan, IIED, 2003

Funded by: UN Habitat, Swedish International Development Cooperation Agency (SIDA), Danish International Development Assistance (DANIDA)

id21 Research Highlight: 9 February 2004

Further Information:
Jessica Budds
School of Geography and the Environment
University of Oxford
Mansfield Road
Oxford OX1 3TB
UK

Tel: 44 (0) 1865 271919
Fax: 44 (0) 1865 271929
Contact the contributor: jessica.budds@geog.ox.ac.uk

University of Oxford

Gordon McGranahan
Human Settlements Programme
International Institute for Environment and Development
3 Endsleigh Street
London WC1H ODD

Tel: 44 (0) 20 7388 2117
Fax: 44 (0) 20 7388 2826
Contact the contributor: gordon.mcgranahan@iied.org

International Institute for Environment and Development (IIED)

Other related links:
'Managing markets: Using subsidies to regulate in favour of the poor'

'Thinking it through: why corporatisation could be a better way to regulate'

'Private sector participation in water supply: too fast, too soon?'

'Pro-poor’ water privatisation: ideology confounded in Bolivia?'

Water Privatisation - Aid Watch Campaign

'What water privatisation means for Africa'

Rural Development Services Network