Toronto faces a motion to reject the idea of privatizing its water and
sewage systems. Worldwide experience shows that could be a mistake

Toronto water fight

By ELIZABETH BRUBAKER

ext Tuesday, Toronto City Council will vote on a recommendation that it rule out the privatization of the city's water supply or sewage treatment. This ill-considered recommendation reflects union politics rather than a reasoned analysis of the merits of private-sector involvement. If councillors approve it, they will prevent the city from capturing tremendous economic and environmental benefits.

The recommendation to forgo privatization came out of the Feb. 10 meeting of the city's Works and Utilities Committee. Privatization was not on the committee's agenda that - or any other - day. What was on the agenda was a discussion of projected staffing levels in the city's water and waste water services division. The Toronto Civic Employees Union, local 416, presented concerns about the city's Works Best Practices Program to improve management and technology throughout the water and sewage system while saving $26-million annually.

Workers don't like the program. As Brian Cochrane, local 416 president, wrote to Mayor Mel Lastman, his members see in it "management's unrelenting assault on their future employment opportunities and by extension, their families' futures." The program projects cuts of 540 water and sewage staff members over seven years. Sewage treatment workers would be hardest hit, their numbers declining to5O7 from 907.

Such extensive staff cuts point to enormous waste in the city's operations. But the union doesn't want to bear the costs of reducing inefficiencies. In Mr. Cochrane's words, "To use our members as pawns and scapegoats to cover up for previous ineptness and waste is callous at best."

The union's sentiments must have touched the councillors on the Works and Utilities Committee. Or perhaps they were affected by the union's sheer numbers: More than 100 members - many quite vocal - attended the meeting. For whatever reason, councillors turned a discussion of staffing levels into a recommendation against privatization. The recommendation - spontaneous, reactive, and based on no research - had nothing to do with improving the efficiency or effectiveness of the city's water and sewage systems and everything to do with appeasing the union. Is this how we want to form city policy?

In the charged committee atmosphere, even councillors favouring greater private-sector involvement voted for the recommendation.Normally tough-talking Councillor Tom Jakobek, who advocates contracting out the plant's management functions, supported the recommendation, later saying it "wasn't about privatization at all." In any case, Mr. Jakobek didn't think City Council would adopt the recommendation.

Let's hope Mr. Jakobek's instincts are correct, and the council has the sense to consider privatization - an approach to water supply and sewage treatment that is becoming increasingly popular. Private companies have operated France's municipally owned water and sewage works for decades. In 1989, England and Wales went further, selling their water and sewage systems to 10 regional companies.

Water and sewage privatization is taking the world by storm for a simple reason: The private sector has the capital, the expertise, and the efficiency to operate systems more effectively than its public-sector counterparts.

Capital investment is probably the biggest force driving this worldwide trend. Private companies are prepared to invest enormous sums in repairing and building infrastructure. In England and Wales, the new private water companies have invested $7.5-billion a year in capital improvements, and will invest $100-billion before current programs have been completed.

Expertise counts, too. As Indianapolis Mayor Stephen Goldsmith noted, the firms his city hired to operate its sewage

PRIVATELY MANAGED WATER COMPANIES IN CALIFORNIA CUT COSTS BY 20% TO 50%. ATLANTA WILL SAVE $600-MILLION OVER A 20-YEAR CONTRACT

treatment plants "brought us some of the best technical experience in the world - the companies comprising the partnership employ more PhD civil engineers than the city of Indianapolis has employees. They literally wrote the book on water treatment."

Because private operators grapple with the threat of competition and the potential for profit, they have strong incentives to operate efficiently. These incentives let privately managed water companies in California cut costs by 20% to 50%, and enabled Atlanta to save $600-million over its 20-year water supply contract. Indianapolis cut operating costs at its sewage treatment plants by 44%, saving $97-million in five years, all of it subsequently invested in the reconstruction of its sewer system. Given the proper regulatory regime, the environment can also benefit tremendously. Last April, Georgia enacted a law that speaks volumes about the environmental effectiveness of privatization. It allows municipal and other large public owners of sewage treatment facilities eight minor violations or

The new water and sewage companies in England and Wales also demonstrate environmental accountability. They have upgraded their systems, increased their compliance with discharge permits, improved water quality, and cleaned up beaches.

Privatization cleans up the environment by cleansing regulators of a crippling conflict of interest. Whenever public bodies regulate utilities on one hand, and own, operate, or finance them on the other, the regulators are reluctant to press for tough standards or to prosecute violators because of solidarity between levels of government. More pragmatically, governments worry about footing the bill for improvements.

These issues were central to the U.K.'s water and sewage privatization. One regulator admitted the old system had been "designed with a view to avoiding an excessive number of prosecutions of public organizations." By separating the polluter from the regulator, privatization would free up the regulator to regulate. Sure enough, in the U.K., the regulator is now enforcing laws against pollution far more vigorously than before.

Toronto will ignore others' experiences at its peril. The city envisions investing hundreds of millions - some estimates exceed $1-billion - in its poorly performing water and sewage systems. Blindly ruling out private-sector involvement in these projects to placate union members would be unconscionable. The upcoming council vote points to a pressing need for a full study of - followed by an informed debate about - the promises of private-sector involvement.

The fracas at the recent Works and Utilities Committee meeting also points to the need to bring labour onside in an effort to improve the efficiency and effectiveness of our water and sewage systems. Privatization need not alienate workers. Indeed, experience in other countries indicates workers can throw themselves behind proposals that give them a stake in the success of newly privatized operations.

Elizabeth Brubaker is executive director of Environment Probe and author of Property Rights in the Defence of Nature.

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FINANCIAL POST

COMMENT

THURSDAY, FEBRUARY 25, 1999

L E T T E R S

As is only right, the users of the water, and sewage systems have borne the costs of these improvements. Consumers have protested that their water bills also cover high salaries and generous dividends. Largely unmetered, consumers have been powerless to keep their bills down by reducing their water use.

While England's experience illustrates the tremendous potential of water privatization, it also teaches us the importance of good regulation. As long as, companies have monopolies over water supply and sewage treatment, governments will need to vigorously regulate both the quality and the price of the services. As Mr. Rogaly explained, "when you turn to private monopolists to do a job, you regulate them with chains."

Finally, Mr. Cochrane criticized the Toronto government's failure to deliver the promised savings from its Works Best Practices Program, objecting that the program has yielded only $3-million in savings to date. Surely he knows that the program, still in its infancy, is being phased in. It isn't expected to save the city $36-million a year until the end of the year 2OO2.

Elizabeth Brubaker, Executive Director, Environment Probe, Toronto.

Fortunately for those concerned about clean, reliable water and sewage systems, Mr. Cochrane is confused. The Financial Times endorses water privatization, saying: "Regulation of privatized utilities is now delivering clear benefits to customers .. Companies are very much more efficient. Freedom from Treasury control has allowed them - notably the water industry - to invest more heavily."

Mr. Cochrane did not imagine his Financial Times quote; it came from columnist Joe Rogaly, who in the same column stressed that "This does not constitute an argument for renationalisation. State monopolies are thoroughly discredited. We know their faults."

More recently, Mr. Rogaly wrote, "the central point remains. A world in which government ran businesses has been transformed. Today private managements do the job better. Thus despite the flaws in its execution, denationalisation is a remarkable achievement."