Conditionality-driven privatisation of utilities: in the interests of the poor?

Does the privatisation of water and electricity relieve or exacerbate the quality of life of those on very low incomes? Are the pro-privatisers in the international financial institutions examining the links between privatisation and poverty? Does privatisation have a place in a poverty reduction strategy?

A paper from the University of Greenwich looks at the distributional impact of the privatisation of utilities. Arguing the need for more analysis of the privatisation-poverty connection, it marshals evidence from a range of developing countries to unpick the logic behind the World Bank’s conviction that Private Sector Development (PSD) inevitably contributes to poverty reduction, growth and efficiency.

PSD has a seemingly unstoppable momentum. Touted as a globally applicable vision of how to deliver basic services, privatisation of water and electricity has become a key element of aid conditionality. Qualifying for debt relief under the Heavily Indebted Poor Countries initiative requires indebted states to commit themselves to implementing Poverty Reduction Strategy Papers which are invariably pro-privatisation.

The paper argues that PSD can create an environment where the poor may lose in the push for privatisation as the drive for profit dominates private sector investment:

• Lack of investor interest has been a common feature of privatisation programmes. Instead of encouraging investment, privatisation has left governments offering tax breaks and other concessions to investors.
• Firms seek secure revenue streams. Therefore they buy profitable enterprises where consumers are not too poor to pay for services and/or they seek government guarantees.
• Firms take the most lucrative aspects of an enterprise that is privatised – for example in water, firms take on billing and metering but do not want responsibility for investment in infrastructure.
• The abrupt removal of public sector tolerance of illegal connections and over-staffing removes an effective social net.

The impact of utility privatisation on poverty can then be complex and is highly case-specific.

• Low-income consumers may benefit from privatisation if the private firm is willing to extend the service and they can afford to be connected to the network, and if the service provided is more reliable.
• However, the poor may lose out from privatisation if it results in price increases, if illegal connections are abolished and non-payers are disconnected, and if employment levels fall.
• On a macro level, a government’s fiscal position may deteriorate if it has to provide concessions to attract investors, pay the substantial costs of privatisation and it is left with loss making enterprises.
• Privatisation is just one possible option for the delivery of basic services. Public sector reform and corporatisation are others. Such approaches may be far better suited to meeting the needs of the poor. The private sector is not always best – there are numerous examples of private sector failures (for example, Dominican Republic electricity and Severn Trent in Trinidad).
• Blanket privatisation needs to be abandoned in favour of a case-by-case approach where the overall objective (such as universal service delivery for example) is the starting point.

Source(s):
‘Privatisation and poverty: the distributional impact of utility privatisation’, Centre on Regulation and Competition, Working Paper No. 16, by Kate Bayliss January 2002 Full document.

id21 Research Highlight: 17 January 2003

Further Information:
Kate Bayliss
Public Services International Research Unit
School of Computing and Mathematical Sciences
University of Greenwich
Park Row Greenwich
London SE10 9LS
UK

Tel: +44 (0)208-331-9933
Fax: +44 (0)208-331-8665
Contact the contributor: k.bayliss@gre.ac.uk

School of Computing and Mathematical Sciences, Greenwich, UK

Centre on Regulation and Competition
Institute for Development Policy and Management
University of Manchester
Crawford House, Precinct Centre
Oxford Road
Manchester M13 9GH
UK

Tel: +44 (0)161 275 2798
Fax: +44 (0)161 275 0808
Contact the contributor: crc@man.ac.uk

Centre on Regulation and Competition, IDPM, Manchester, UK

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'Privatisation in developing countries: an engine of growth?'

'Water privatisation in Africa: how successful is it?'

'Tapping the market. Can private enterprise supply water to the poor?' Insights #37

'PPPs, PWUs or PUPs? Alternatives to private sector water delivery'

'Competing for water: is integrated management an elusive goal?'

'Privatisation in Egypt and Tunisia: Liberal Outcomes And/Or Liberal Policies?' from GDNet

'The World Bank and privatisation: a flawed development tool?'