Blog Categories: water privatization

Borrowing Trouble: Water Privatization Is a False Solution for Municipal Budget Shortfalls

Categories

WaterCommon Resources

See Food & Water Watch's report

 

See Food & Water Watch’s Report

Water privatization is not a real solution to government financial challenges. It is a one-shot ploy that masks the underlying problems and that delays the hard decisions necessary for real fiscal sustainability. Instead of reducing public bills or mitigating the financial burden on taxpayers, it increases the long-term costs borne by households and local businesses.The 2008 global financial crisis left many governments around the world with serious fiscal challenges. Eroded tax bases and growing health and retirement costs created or worsened local budget deficits across the United States, and a sovereign debt crisis rattled the European Union. Instead of confronting these problems head-on, a number of public officials across the globe sought to lease or sell public water and sewer systems to fund ongoing government functions or to pay down liabilities. That is, they have tried to use water privatization to create the illusion of having balanced the budget, when in fact they are just digging the hole deeper. 

The government’s primary objective in these privatization arrangements is to obtain a sizable upfront payment from the company or consortium that takes over the water or sewer system, often as a desperate response to a fiscal crisis. As a consequence, governments usually award contracts to the bidder that offers them the most money, instead of selecting the highest-quality or least-expensive option for households and local businesses. 

This money is not free; rather, it should be thought of as a loan. Residents and local businesses will have to repay it, with interest, through their water bills. In a 1997 report about wastewater privatization, the U.S. Environmental Protection Agency said as much: “In summary, any payments a local government receives from the sale or lease of a wastewater infrastructure asset represent a loan from the buyer or lessee which must be repaid with interest by the wastewater users in the form of additional user fees.”

Public-Public Partnerships: An Alternative Model to Leverage the Capacity of Municipal Water Utilities

Read the full report.

DOWNLOAD PDF

Clean drinking water and wastewater treatment are basic services that societies and governments provide. Water is a necessity for life, and safe water and sanitation are crucial for public health. In July 2010, the United Nations declared access to clean water and sanitation to be a human right. But recognizing the human right to water does not explain how to deliver this right to households. Even with this commitment to enhance water delivery and safety, an estimated 884 million people worldwide lack access to safe water, and 2.6 billion lack access to improved sanitation. Meeting this need requires significant investments in infrastructure and expertise. In the last 20 years, major multinational efforts have relied on private sector strategies in both developed and developing countries to provide water. These approaches have included encouraging public- private partnerships (PPPs) between public water utilities and private water companies.

Proponents of privatization promised increased investment and efficiency, but privatization has failed to meet these expectations. Instead, it often has led to deteriorating infrastructure, service disruptions and higher prices for poorer service.

A different model, called public-public partner- ships (PUPs), can be a more effective method for providing services. In contrast to privatization, which puts public needs into the hands of profit- seeking corporations, PUPs bring together public officials, workers and communities to provide better service for all users more efficiently.PUPs allow two or more public water utilities or non-governmental organizations to join forces and leverage their shared capacities. PUPs allow multiple public utilities to pool resources, buying power and technical expertise. The benefits of scale and shared resources can deliver higher public efficiencies and lower costs.

These public partnerships, whether domestic or international, improve and promote public delivery of water through sharing best practices. The partnerships can take many forms and may include networks of public water operators in different areas or non-governmental organiza- tions. As a public collaboration, no PUP partner can generate a profit through the partnership. In short, PUPs provide the collaborative advantages of private partnerships without the profit-extracting focus of private operators, and they promote the public interest mission of equitably delivering water services.

Although PUPs can be used for many public func- tions, including roads and electricity, they have particular applicability to water. Access to safe drinking water varies widely across the globe. The United Nations Millennium Declaration aimed to “halve the proportion of people who are unable to reach or to afford safe drinking water.” To meet that ambitious goal, more than a billion people will need to gain access to safe water and sanita- tion by 2015.

This tremendous undertaking will require both international cooperation and atten- tion to local needs. Public-public partnerships are uniquely suited to this task. The reason that PUPs work so well is that they retain local, public control of existing water systems. Public utilities are responsible for most water and wastewater services worldwide. In 2010, only about 12 percent of the world’s population had water or sewer service that was priva- tized in some way. The nature of water service as a public good and natural monopoly favors the public administration of water systems.

Food & Water Europe Applauds European Commission’s Investigation of Price Fixing by French Water Companies

Brussels–Just 50 days before the World Water Forum and the Alternative World Water Forum take place in Marseille, France, the European Commission has announced formal anti-trust proceedings against French water companies Veolia, Suez and subsidiaries Lyonnaise des Eaux and SAUR.

The Commission will examine whether companies have coordinated their behaviour in markets for water and wastewater services in France, in particular, with respect to elements of the price invoiced to final consumers. This follows several unannounced inspections at the companies in April 2010, where Suez was then fined €8 million for breaking a seal placed by the Commission during the inspection.

“Food & Water Europe applauds the European Commission for its actions,” said Food & Water Europe Executive Director Wenonah Hauter. “This investigation shows why our water services should be publicly owned. The first priority of private water companies is shareholders, not communities. Private operators are known for trimming costs in operation, as well as cutting jobs and raising rates in communities they enter with no consideration for transparency.

“Even though there is strong public resistance to privatization, the public sector is helping the private water companies by providing finance, developing strategies, and even investing in these companies. At the same time, the ownership of private water companies in Europe has become all the more concentrated, overwhelmingly dominated by Veolia and Suez.

“In times of austerity measures and financial crisis, it is all the more important that there is transparency on the pricing of water services, especially when the business of these companies deal with a common good such as water.

“This comes at a bad time for the French water companies who are preparing the World Water Forum in the name of the World Water Council and have already seen their shares drop by around 5 percent following the Commission’s announcement,” concluded Hauter.

Food & Water Europe is a program of Food & Water Watch, Inc., a non-profit consumer NGO based in Washington, D.C., working to ensure clean water and safe food in Europe and around the world. We challenge the corporate control and abuse of our food and water resources by empowering people to take action and transforming the public consciousness about what we eat and drink.

Contact: Gabriella Zanzanaini, +32488409662, gzanzanaini(at)fweurope.org