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.

Researchfrom the International Institute for Environment and Development (IIED) warnsthat privatisation is unlikely to contribute to achieving the MillenniumDevelopment Goal of halving the number of people without access to water andsanitation by 2015. Despite its prominence in current debates only around five percent of the world’s population is served by the formal private sector. Waterprivatisation in developing countries is concentrated in wealthier states,cities and neighbourhoods where companies know that users can afford to pay fornew or improved services. Areas on the outskirts of cities, smaller urbancentres and rural areas (home to some 80 per cent of the estimated 1.1 billionpeople lacking access to improved drinking water supplies) are oftenexcluded from private contracts.

Over 80 per cent of the private water and sewage market iscontrolled by four multinational companies. Local operators in developingcountries have often found it difficult to get into the market as they cannotraise sufficient finance. Contrary to the hopes of market reformers,privatisation has not eliminated political involvement or corruption. Biddingprocesses have not always promoted competition as some companies have underbidcompetitors with a view to subsequently raising charges or colluded with rivalcompanies to win follow-on contracts.

Despite ongoing encouragement from developmentinstitutions the rate of privatisation is slowing. After underestimating risksand overestimating potential profits companies are becoming more wary ofgetting involved. Several large contracts have been terminated prematurely.Companies have failed to mobilise substantial private finance and mostinvestment 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 oforganisations and ignores the way in which civil society organisations workwith the state and the private sector.
• The public-private debate is highly politicised:positions are closely aligned with the interests of multinational watercompanies, trade unions and other actors.
• Indebted governments have little bargainingpower when negotiating with development institutions and multinational watercompanies.
• The absence of investment contracts insub-Saharan Africa (apart from South Africa) means that only the public sectorand development assistance can plug the huge gaps in required investment.
• Privatisation has done little to address keyobstacles to improved provision – including, for example, the ‘illegal’ tenure status of many urbansettlements.
• Rapid transitions from public to privateprovision are undesirable as they often fail to address underlying issues orensure public participation.

Many of the problems of water and sewerage utilities havenothing to do with whether they are publicly or private operated but hinge onthe nature of governance and regulation. In most low-income urban areas it isthe public sector which will remain responsible for financing water andsewerage provision for the foreseeable future. There is no justification forthe continued promotion of private sector participation as a means of improvingservices in low-income areas. Imposing privatisation as a condition ofdevelopment funding undermines both democracy and local capacity to addressneeds.