Problems with Privatization of Water Supply and Sanitation

Undermining Democracy and the Environment

1. Democracy

A. Lack of transparency and accountability

B. Secret contracts – the multinationals insist

2. Environment

A. Pollution

B. Excessive abstraction

1. Democracy

Privatised water concessions tend to undermine democratic accountability, and the multinationals systematically attempt to keep their contracts as commercial secrets.

A. Financial Irregularities and the FrenchLack of transparency and accountabilitySystem

Undemocratic rulers

Privatised water concessions have frequently been negotiated by the multinationals with undemocratic political leaders. One example is the water and electricity concession in Casablanca, Morocco, which was negotiated between multinationals and the late King Hassan II, without the involvement of the elected city council of Casablanca.[1] Another is the water concessions in Jakarta, set up under the military dictatorship of Suharto, which have since been renegotiated.

UK: secret decisions, no local accountability

Meetings of the boards of the water authorities in the UK were open to the public until the Thatcher government made these into closed sessions in the lead-up to privatisation. The water companies now have monopoly concessions in their regions, but these concessions are not awarded by municipalities, as in the rest of Europe, but under statute. The companies thus provide no reports at all to any elected public authority in the region they exploit.

France: “characterised by a lack of transparency”

The 1997 report by the Cour des Comptes, France’s national audit body, said that the move to privatisation was rarely properly evaluated by councils, and that contracts are ambiguous. As a result: "The lack of supervision and control of delegated public services, aggravated by the lack of transparency of this form of management, has led to abuses".[2]In the city of Metz, the water company did not submit any accounts for a period of 20 years.

"A substantial mistake was made in the figures for the invoiced amounts when the joint water authority of the valley of Auzon (Puy-de-Dome) renewed its water concession. Only the company with the water concession at the time knew the true situation - and it finally won a renewal of its contract for 12 years".

In Bandol-Savary (near Toulon), where OTV (a Geénéerale des Eaux subsidiary) was contracted to build and run a new water treatment plant, the plant ended up costing at least 15.3 million Francs more than it should. The final insult was that OTV arranged to charge the council twice over for the same treatment, every year. To the amazement of the regional auditor, the company tried to defend this on the grounds that the procedure had been agreed with the council.

A report being prepared in February 2000 on water services in Paris again declared that the whole system set up in the 1985 privatisation of water and wastewater services in Paris was "characterised by the absence of financial transparency"[3].

B. Secret contracts – the multinationals insist

Multinationals typically insist that the contract which defines their responsibilities under the concession be kept a commercial secret.

• The contract documents involving the multinationals invariably state that none can even see the terms without the permission of the multinational. A typical example of such a secrecy clause is in the contract between Suez-Lyonnaise’s subsidiary in South Africa, WSSA, and the municipality of Fort Beaufort, which prevents any member of the public from seeing the contract without the explicit approval of Lyonnaise des Eaux': “2.2.2: Confidentiality: the documentation contained herein has been developed exclusively by the operator (WSSA) and shall not be disclosed to third parties without the written approval of the operator."[4]

• Documents relating to the privatised Budapest Sewerage Company, where Vivendi is the multinational, are in fact kept secret, even from council officials, and Budapest City Council debates related issues only in closed sessions.[5] This despite the fact that the privatisation was financed by the EBRD, which states that it has a commitment to ensuring that consumers’ interests are “fairly balanced” with those of the municipal authorities and private sector parties (EBRD, 1999: 26) .[6]

• The contract between SAUR and Gdansk city council in 1992 proved so unsatisfactory that it was renegotiated a year later. The new version, however, is still not publicly available.[7]

2. Environment

There are two ways in which the environment can suffer from water privatisation:

• Worse pollution and environmental damage, as expenditure on safety is cut
• Excessive abstraction and consumption of water to enhance profitability

A. Pollution

• A major environmental disaster occurred in Puerto Rico, whose water system is managed by Vivendi. Residents are suing the authority and the multinational for allowing a reservoir to overfill so that it burst during the hurricane.[8]
• All the privatised UK water companies have been convicted of numerous pollution offences: between 1989 and 1997 there were over 250 convictions for pollution incidents. [9]
• The French companies too are offenders at home. Vivendi’s Générale des Eaux was convicted in 1994 for supplying water for a year and a half which was unfit for consumption due to excessive nitrates and pesticides.[10]

B. Excessive abstraction

Increasing numbers of privatised water schemes are linked to ventures to abstract more water through dams and reservoirs.

• Private operators are getting involved in bulk water supply schemes with ‘take or pay’ contracts, which guarantee profits by requiring consumption of water regardless of need. One example is the water supply BOT in Chengdu, China, involving Vivendi, and financed by the Asian Development Bank. [11]
• The huge Lesotho Highlands Water Project (LHWP) created a large commercial interest in selling water to South Africa regardless of environmental or consumer interests: “for consumers [in Johannesburg] to pay for the LHWP would mean raising the real marginal price of water dramatically. Moreover, while bulk water charges to municipalities rose by 35% between 1995 and 1998 in large part due to the LHWP...”[12]

• Following the 1989 privatisation of water in England and Wales, 20 water courses dried up in a few years because of over-abstraction. [13] In 1998, Suez-Lyonnaise des Eaux subsidiary Essex & Suffolk Water was convicted for illegal over-abstraction of water at five sites in Suffolk over a three-year period. “The company admitted 27 charges of illegal extraction and asked for 233 other offences to be considered”.[14]

Public Services International

Research by PSIRU, University of Greenwich, London SE10 9LS, UK

[1]Middle East Economic Digest 7 March 1997.

[2] Cour des Comptes (1997) La gestion des services publics locaux d’eau et d’assainissement.

[3] Le Canard Enchaine, 16/02/00.

[4] Agreement for Management, Operation and Maintenance of the Water and Sewage Systems of Fort Beaufort and Associated Customer Management, 05/10/95, p. 6.

[5] NEPSZABADSAG: 7 Dec 1998.

[6] European Bank for Reconstruction and Development (1999a) Municipal and Environmental Infrastructure – EBRD involvement to date in the MEI sector. London: European Bank for Reconstruction and Development.

[7] Interview with deputy mayor of Gdansk, March 1998.

[8] Interpress 13 Nov 1998.

[9] The Independent, 22/03/99.

[10] Les Echos 20.7.94.

[11] CHENGDU Generale des Eaux-Marubeni Waterworks Company Limited, in ADB Private Sector Project Profiles: .

[12] The Lesotho Highlands Water Project as seen from Johannesburg. Submission to the World Commission on Dams 11 November 1999, Cape Town by David Letsie and Patrick Bond.

[13] Martin, B. (1993) In the Public Interest? - Privatisation and Public Sector Reform.

[14] Water News, 14/08/98.