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THE WORLD BANK AND WATER PRIVATISATION: PUBLIC MONEY DOWN THE DRAIN
EURODAD
18 September 2008
Belgium
Though the World Bank may be changing its formerly dogmatic approach
to full privatisation of the water sector, key cases in Tanzania,
Armenia, Zambia and India highlight that the Bank may not be learning
quickly enough and that the poor may be left both without improved
water and paying for botched privatisations.
At Water Week in Washington in May, Bank vice president Kathy Sierra
asserted that privatisation was not "the only answer" - there was
the full spectrum of public-private mix of investments instead. Only
a few days earlier, a senior World Bank official, Shekhar Shah,
reported in New Delhi how the Bank had "learned the hard way" that
it was not correct to leave it to the private sector.
But the statement by Lars Thunell, head of the Bank's private-sector
arm the International Finance Corporation (IFC), at World Water Week
in Stockholm in August shows that the Bank is still not interested
in pursuing public solutions to water provision: "We believe that
providing clean water and sanitation services is a real business
opportunity."
Currently the IFC's focus is on creating the right conditions
for private investors, including a $100 million fund, called IFC
Infraventures, to "provide risk capital for early stage development
of infrastructure projects in the poorest countries, but also to
encourage more public-private partnerships." Thunell also claimed:
"The debate is shifting. Instead of 'should the private sector be
involved in water?' the question is 'how can we work together for
sensible and fair solutions?'"
Tanzanians' nightmare
A fair solution has still not been reached in Tanzania, where the
Bank-supported privatisation of water services resulted in sharply
higher water prices, little improvement in supply and the eventual
termination of the contract with UK-based multinational Biwater in 2005
(see Update 55, 46). In August this year, the Bank's International
Center for the Settlement of Investment Disputes (ICSID) issued its
ruling in Biwater's lawsuit against Tanzania, and found that while
technical breaches of Biwater's investors' rights did occur, Biwater
was not entitled to compensation because the breaches were worth zero
in monetary value and the termination of the contract was inevitable.
"The Tanzanian water privatisation project was a scandal right from the
beginning," said Vicky Cann of the World Development Movement. "It is
absolutely right that this Court has found that Tanzania owes Biwater
nothing, but shocking that Biwater saw fit to drag the government of
such a poor country through the courts in the first place."
Even though the ICSID has refused Biwater's claim to compensation,
the Tanzanian people will have to carry the financial burden of
$140 million loan without benefiting from improvement in their water
sector. The lawyer who defended the Tanzanian government suggested
that the World Bank should pay reparations to Tanzania as "the whole
affair was the prescription of the World Bank. It will be fair that
they should pay the government".
At the very least, as Mussa Billengeya from the Tanzanian Association
of NGOs said, "The failure of this policy should be a lesson to the
World Bank, aid donors, and governments that privatisation is not a
solution for problems in developing countries. In fact, this failure
has added a burden to a country that is already struggling to reach
its international poverty target on access to water."
Armenia water corruption
In August US-based NGO Government Accountability Project (GAP) released
a new report investigating the corruption allegations facing the water
privatisation project in Armenia's capital Yerevan (see Update 57).
Armenia borrowed from the World Bank in 1998 to restore the Yerevan
water utility, with water-sector multinational ACEA eventually winning
the contract to take control of the facility. During the course of the
first two years, complaints about unreliable service and contaminated
water increased, and the exclusion of local vendors from ACEA tenders
led to allegations of corruption.
The GAP report validates the finding of an Armenian parliamentary
commission set up to investigate the project in 2004. The parliamentary
study revealed that the representative of the international operator
ACEA, in collaboration with corrupt state officials, had diverted
project materials and equipment to commercial enterprises for personal
gain. The study also showed that costly improvements to the systems
had been abandoned and replaced by improper for-profit schemes and that
the representative of the international operator had used his position
to establish a network for the purpose of embezzling public funds.
In 2007, the Commission sought advice from GAP after the Bank failed
to investigate the allegations. GAP has been equally unsuccessful
in getting the Bank's Department for Institutional Integrity to
investigate what seems to be a flagrant case of project-related
corruption. The Bank may be unwilling to take its share of
responsibility to redress the harm done or compensate citizens who
have lost millions in public funds.
Upfront investment needed
Privatisation and commercialisation of water in the developing
world has suffered - and still does - from several flaws. Companies
that took over contracts for water management soon realised the
lack of short-term profitability of a sector that required large
investment. Unable to fully offset their costs, the companies failed
to invest with negative effects on citizens who faced increases in
tariffs and declines in access. Often governments could not supervise
company performance or hold them accountable as proper regulatory
frameworks were not in place.
In a policy brief released by the UNDP-sponsored International Poverty
Centre in June, academics Hulya Dagdeviren and Degol Hailu conclude
that "So far, Zambia's liberalisation strategy has emphasised tariff
rationalisation. This has failed to ensure full cost recovery and
has further constrained affordability and accessibility. The correct
policy prescription is up-front public investment to renew and extend
infrastructure."
So why has the Bank not warmed to this policy prescription? A new
book analyzing the Bank's water privatisation agenda in India from
Indian NGO Manthan Adhyayan Kendra blames the Bank's structures for
producing knowledge (see Update 54, 53). Author Shripad Dharmadhikary
writes: "the Bank's process of generating knowledge is flawed and
exclusionary. It excludes common people, and their traditional
expertise and knowledge. The Bank's knowledge is frequently created
by highly paid, often international, consultants, who have little
knowledge of local conditions. The knowledge creation is mostly
directed towards arriving at a pre-determined set of policies -
privatisation and globalisation. This knowledge creation is often
selective, in that information, evidence or experiences that do not
support these pre-determined outcomes are ignored."
Based on case studies of the Indian water sector review in 1998, the
Bank-support Public-Private Infrastructure Advisory Facility (see
Update 56), water privatisation in Delhi, and a project for water
restructuring in the Indian state of Madhya Pradesh, Dharmadhikary
finds that "[the Bank's] policies have cut people's access to water,
led to environmental destruction, resulted in displacement and
destitution of people, stifled better options for water resource
management, have had huge opportunity costs, and privileged corporate
profits over social responsibility and equity."
Remunicipalisation wave
Though the World Bank seems to be unwilling to counsel countries
on how to reform public services, developing countries looking for
advice can now use a new web site on the de-privatisation of water
services. The so-called water remunicipalisation tracker provides
information on different cities globally that have successfully taken
back public control over water. It is a participatory initiative to
which global activists can contribute.
The site, promoted by European NGOs Corporate Europe Observatory
and Transnational Institute, says "It's apparent that a global
remunicipalisation wave is emerging." It indicates that "Approaches
differ depending on local circumstances but undoubtedly lessons
can be learned from the different but inspiring experiences of
remunicipalisation." That seems to be more than the Bank is willing
to offer.
EURODAD
18 September 2008
Belgium
Though the World Bank may be changing its formerly dogmatic approach
to full privatisation of the water sector, key cases in Tanzania,
Armenia, Zambia and India highlight that the Bank may not be learning
quickly enough and that the poor may be left both without improved
water and paying for botched privatisations.
At Water Week in Washington in May, Bank vice president Kathy Sierra
asserted that privatisation was not "the only answer" - there was
the full spectrum of public-private mix of investments instead. Only
a few days earlier, a senior World Bank official, Shekhar Shah,
reported in New Delhi how the Bank had "learned the hard way" that
it was not correct to leave it to the private sector.
But the statement by Lars Thunell, head of the Bank's private-sector
arm the International Finance Corporation (IFC), at World Water Week
in Stockholm in August shows that the Bank is still not interested
in pursuing public solutions to water provision: "We believe that
providing clean water and sanitation services is a real business
opportunity."
Currently the IFC's focus is on creating the right conditions
for private investors, including a $100 million fund, called IFC
Infraventures, to "provide risk capital for early stage development
of infrastructure projects in the poorest countries, but also to
encourage more public-private partnerships." Thunell also claimed:
"The debate is shifting. Instead of 'should the private sector be
involved in water?' the question is 'how can we work together for
sensible and fair solutions?'"
Tanzanians' nightmare
A fair solution has still not been reached in Tanzania, where the
Bank-supported privatisation of water services resulted in sharply
higher water prices, little improvement in supply and the eventual
termination of the contract with UK-based multinational Biwater in 2005
(see Update 55, 46). In August this year, the Bank's International
Center for the Settlement of Investment Disputes (ICSID) issued its
ruling in Biwater's lawsuit against Tanzania, and found that while
technical breaches of Biwater's investors' rights did occur, Biwater
was not entitled to compensation because the breaches were worth zero
in monetary value and the termination of the contract was inevitable.
"The Tanzanian water privatisation project was a scandal right from the
beginning," said Vicky Cann of the World Development Movement. "It is
absolutely right that this Court has found that Tanzania owes Biwater
nothing, but shocking that Biwater saw fit to drag the government of
such a poor country through the courts in the first place."
Even though the ICSID has refused Biwater's claim to compensation,
the Tanzanian people will have to carry the financial burden of
$140 million loan without benefiting from improvement in their water
sector. The lawyer who defended the Tanzanian government suggested
that the World Bank should pay reparations to Tanzania as "the whole
affair was the prescription of the World Bank. It will be fair that
they should pay the government".
At the very least, as Mussa Billengeya from the Tanzanian Association
of NGOs said, "The failure of this policy should be a lesson to the
World Bank, aid donors, and governments that privatisation is not a
solution for problems in developing countries. In fact, this failure
has added a burden to a country that is already struggling to reach
its international poverty target on access to water."
Armenia water corruption
In August US-based NGO Government Accountability Project (GAP) released
a new report investigating the corruption allegations facing the water
privatisation project in Armenia's capital Yerevan (see Update 57).
Armenia borrowed from the World Bank in 1998 to restore the Yerevan
water utility, with water-sector multinational ACEA eventually winning
the contract to take control of the facility. During the course of the
first two years, complaints about unreliable service and contaminated
water increased, and the exclusion of local vendors from ACEA tenders
led to allegations of corruption.
The GAP report validates the finding of an Armenian parliamentary
commission set up to investigate the project in 2004. The parliamentary
study revealed that the representative of the international operator
ACEA, in collaboration with corrupt state officials, had diverted
project materials and equipment to commercial enterprises for personal
gain. The study also showed that costly improvements to the systems
had been abandoned and replaced by improper for-profit schemes and that
the representative of the international operator had used his position
to establish a network for the purpose of embezzling public funds.
In 2007, the Commission sought advice from GAP after the Bank failed
to investigate the allegations. GAP has been equally unsuccessful
in getting the Bank's Department for Institutional Integrity to
investigate what seems to be a flagrant case of project-related
corruption. The Bank may be unwilling to take its share of
responsibility to redress the harm done or compensate citizens who
have lost millions in public funds.
Upfront investment needed
Privatisation and commercialisation of water in the developing
world has suffered - and still does - from several flaws. Companies
that took over contracts for water management soon realised the
lack of short-term profitability of a sector that required large
investment. Unable to fully offset their costs, the companies failed
to invest with negative effects on citizens who faced increases in
tariffs and declines in access. Often governments could not supervise
company performance or hold them accountable as proper regulatory
frameworks were not in place.
In a policy brief released by the UNDP-sponsored International Poverty
Centre in June, academics Hulya Dagdeviren and Degol Hailu conclude
that "So far, Zambia's liberalisation strategy has emphasised tariff
rationalisation. This has failed to ensure full cost recovery and
has further constrained affordability and accessibility. The correct
policy prescription is up-front public investment to renew and extend
infrastructure."
So why has the Bank not warmed to this policy prescription? A new
book analyzing the Bank's water privatisation agenda in India from
Indian NGO Manthan Adhyayan Kendra blames the Bank's structures for
producing knowledge (see Update 54, 53). Author Shripad Dharmadhikary
writes: "the Bank's process of generating knowledge is flawed and
exclusionary. It excludes common people, and their traditional
expertise and knowledge. The Bank's knowledge is frequently created
by highly paid, often international, consultants, who have little
knowledge of local conditions. The knowledge creation is mostly
directed towards arriving at a pre-determined set of policies -
privatisation and globalisation. This knowledge creation is often
selective, in that information, evidence or experiences that do not
support these pre-determined outcomes are ignored."
Based on case studies of the Indian water sector review in 1998, the
Bank-support Public-Private Infrastructure Advisory Facility (see
Update 56), water privatisation in Delhi, and a project for water
restructuring in the Indian state of Madhya Pradesh, Dharmadhikary
finds that "[the Bank's] policies have cut people's access to water,
led to environmental destruction, resulted in displacement and
destitution of people, stifled better options for water resource
management, have had huge opportunity costs, and privileged corporate
profits over social responsibility and equity."
Remunicipalisation wave
Though the World Bank seems to be unwilling to counsel countries
on how to reform public services, developing countries looking for
advice can now use a new web site on the de-privatisation of water
services. The so-called water remunicipalisation tracker provides
information on different cities globally that have successfully taken
back public control over water. It is a participatory initiative to
which global activists can contribute.
The site, promoted by European NGOs Corporate Europe Observatory
and Transnational Institute, says "It's apparent that a global
remunicipalisation wave is emerging." It indicates that "Approaches
differ depending on local circumstances but undoubtedly lessons
can be learned from the different but inspiring experiences of
remunicipalisation." That seems to be more than the Bank is willing
to offer.