South Asia Watch on Trade, Economics & Environment (SAWTEE)

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Should water be privatised?
Published: The Kathmandu Post, 22 March 2004
By: Prashamsa Gadtaula

It was around four years back that Fortune Magazine stated, 'Water will be to 21st century what oil was to the 20th'. The statement holds immense relevance. Among all the 'hustle-bustle' and 'yours-mine' stories and other contentious issues across the globe, water lies at the heart of all. The world today is facing an alarming water crisis – one in six of the world's people has no access to clean water and twice as many lack adequate sanitation. In the mushrooming cities of the developing world, the growing gap between demand and supply leaves the poor – unserved. In rural areas, water for living would also mean water for crops to ensure food security. The United Nations predicts that by 2050, at least one out of four persons is likely to live in countries affected by persistent freshwater shortage.

These problems have now emerged as a global threat to humankind. Privatisation of services such as water is a private sector solution to these alarming problems. In the past few decades, many countries have seen a rampant increase in the privatisation of their public services, including water. But the question is – how good is privatisation in itself, particularly when it comes to water - a very basic necessity?

On the one hand, advocates of privatisation argue that it is necessary to combat state failings to provide basic services. They are also of the opinion that private investment is good for the ordinary people because the company pays for additional costs such as time and cost-overruns on their projects.

Evidences, on the other hand, present a different scenario altogether. Multilateral development banks such as the World Bank and the Asian Development Bank (ADB) are among the largest supporters of water-projects in developing and least developed countries, and also the most important international institutions in making policy for water sector. These institutions see the solution, to meet the basic need, not in public institutions solely. Therefore, they not only encourage private ownership but also make it a prerequisite in loan agreements and debt relief. The case of Nepal is a glaring example.

The ADB clamped down 'privatisation' of the water sector as one of the conditionalities for providing loans to the country. The loan to the country's one of the biggest projects with a budget of US$ 464 million - The Melamchi Water Supply Project - is provided under the same motto. The whole purpose of institutions, whose aim is to discourage debt by building independency for development, is defeated when the 'core value' of the institution is set at loose.

True that many state-owned-enterprises (SOEs) are delivering poor services, but in the absence of proper regulatory mechanism, privatisation fails to set a good record of delivery (as it often leads to higher prices) and often aggravates rather than relieves poverty (as it increases unemployment). More to the point, taking the case of Bolivia, the water sector was privatised in 1999, but much to the dismay of poor Bolivians, the tariffs after privatisation increased to unaffordable levels – up to one-third of their income! Fierce resistance by the people ousted the water profiteers and saw a victory in the 'water war' in January 2000.

The world then saw that privatisation fails miserably with the 'community' suffering as a consequence. It is, thus, clear that privatisation invariably increases inequality among the commoners by further supporting those who can pay for it - excluding the 'unserved' poor.

Even if SOEs do not deliver services up to the mark, they hold significance to the poor mass and the society. They at least ensure affordability and accessibility. But the privatised entities do not bother about these responsibilities. It is therefore ultimately the ordinary people who end up paying the increased cost resulting from water privatisation, as companies try to recover their investments by hook or by crook. Private corporations are motivated by profit rather than public service. These companies have no incentive to supply people with water who cannot afford to pay, and that is often the poor people who are deprived of their water right.

The Human Development Report 2003 states: 'Countries with 'good enough' services before privatisation often continue to do well after.' Then why fix what isn't broken? The current trend frustrates the ordinary people not only with the growth of privatisation but also with the arbitrary nature of its implementation.

The key point is that some basic needs like water always should be under the control of the State because it is its indispensable responsibility to deliver basic services to the public. Water is a 'basic right' of the people, not a 'commodity' to be sold. Decisions on its distribution should not be based on pure economics! 'The resource which is scarce, its value is high' The equation is not as simple as that.

The world today needs a water strategy, but the strategy should be based around approaches of human rights, keeping in view the environmental needs, local needs, local accountability and democratic control over the resource. The 'one size fits all' model is too outdated to be implemented wherever seen feasible. Depending upon the stages of development of a country, the workability of privatisation should be assessed. Just implementing, whether it works or not, is definitely not 'development'.

If this 'yours-mine' stories keep on happening, it won't be far that the world will witness yet another war similar to the one on Iraq; this time not for the 20th century 'oil' but for the 21st century water. Now it is high time that we decide: The essence of life – water: Should it be privatised?

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