Not long ago, water and sewerage services were considered to be the exclusive domain of governments, in both the developed and developing worlds. Nowadays, this is no longer the case, as private companies have made inroads into the sector in every region of the world. If current trends hold up, more and more utilities will be owned and operated by the private sector in the future.
This survey of private participation in water and wastewater utilities covers all countries in South America and selected countries in most regions of the world, excluding Canada and the United States. The degree of water privatization in these two countries is minimal. While more than half of the American water utilities are privately owned, and while cities such as Indianapolis and Atlanta are increasingly contracting out their water and sewage services, public utilities remain the norm in large cities; in 1992, they served 85 per cent of the nation's people.(1) In Canada, virtually all water and sewerage systems are publicly owned and operated. However, privatization is very slowly getting off the ground in Ontario, where private companies serve 500,000 people,(2) approximately 4.5 per cent of the provincial population. There is also some scattered private participation in Alberta and British Columbia, and privatization is being considered by two of the larger Maritime cities.
Since the privatization of large municipal water utilities in North
America is still incipient, it is valuable to study the experiences of
countries worldwide that have already privatized. If privatization is not
properly carried out, or if economic and environmental regulations are
not properly enforced, privatization can become politically unpopular or,
worse, can simply transfer authority from an inefficient public monopoly
to a price-gouging private monopoly. By studying the best and worst of
asset sales and construction and management contracts throughout the world,
North Americans can learn much about how - and how not - to privatize.
South America
Argentina
By South American standards, Argentina enjoys relative affluence. Yet, like the rest of the continent, it is still far from connecting all its residents to the various municipal networks of water pipes and sewers. Only 69 per cent of the urban population have connections for water at home, while only 17 per cent of the rural population have any form of sewerage. There are also regional disparities; the province of Cordova has 84 per cent coverage for water and 88 per cent for sewerage, while for Misiones the figures are 43 per cent and 50 per cent, respectively. Moreover, only 27 per cent of the sewage that enters the system receives primary treatment, and only 8 per cent secondary treatment. The water losses in the urban systems are over 50 per cent.(3)
In 1980, the government decentralized control of the water and sanitation systems delegating it to the provinces. At first this was of little help, as the provincial systems were always government monopolies, although some had a degree of operational autonomy. There are other arrangements, however; in the provinces of El Chaco, Chubut, La Pampa, and San Luis, the majority of the services are run by cooperatives, while a few smaller municipalities have always operated their own services. Currently, there are approximately 1,500 providers of water and sewage services in Argentina.(4)
Almost a decade later, in 1989, the government embarked on a major privatization program, and water and sewage were not excluded. The provinces of Corrientes, Formosa, Santa Fe, and Tucuman transferred their services to private concessions, while Cordova plans to follow suit. In Tucuman, the operator of the 30-year concession, Aguas del Aconquija, had promised to invest $312 million to achieve universal water coverage in six years and universal sewerage connections in eleven, up from 66 per cent and 76 per cent, respectively. (Unless otherwise specified, all figures throughout this paper are in U.S. dollars.) (5) Yet the best plans do not always end well: This contract has recently been terminated. Problems with quality and cost prompted the new government, which had been in opposition when the contract was negotiated, to take the action. The major partner in the consortium, Vivendi, is suing the region for compensation.(6)(7) In the absence of any other information, we cannot discern whether the government regulator or the company is primarily at fault. The reputations of both will likely suffer.
The largest and most ambitious concession was granted in the capital, Buenos Aires, with a population of nine million, in 1993. Buenos Aires once had an excellent sewerage system, installed by British engineers in 1912. Yet the new operator, Aguas Argentinas, inherited a system that connected only 70 per cent of the people to water and 58 per cent to sewers. The project marketing director, Carlos de Yeregui, explains that "the administration was not very businesslike. . . . The newest computer was 20 years old."(8) "The operation of the system . . . was characterized through the years by a series of problems," according to Emanual Idelovitch and Klas Ringskog of the World Bank. Water meters were installed at only 20 per cent of the connections, and few of these worked properly. Therefore, water users had no incentive to conserve; consumption was estimated at approximately 400-500 litres per person per day, twice as high as it would normally be in a well-metered system.(9) The pressure in 60 per cent of the system was less than half-strength, while the water losses were as high as 40 per cent. Only four of the 21 elevated tanks, which were supposed to store 278,000 cubic metres of water, were in use.(10) The company did not appear to be above politics, designating its famously overstaffed headquarters a national landmark and building monumental waterworks, while neither they nor existing ones were in use. There were between eight and nine employees per 1,000 house connections, more than twice the number needed to run a company effectively. This can be easily explained by the fact that when the government decentralized water and sewerage provision, it was so unwilling to cut jobs that it left the staff that was meant to serve the entire country in Buenos Aires alone.(11)
Aguas Argentinas got to work immediately. In 30 years, it wanted to increase water coverage to 100 per cent and sewerage coverage to 90 per cent, a goal to which it has already made some progress. It immediately installed 144 flow and 608 pressure meters to improve the distribution system.(12) Investments would be in the order of $130 million a year overall and $240 million for the first five years, more than the $200 million invested by the public utility in the past decade.(13) The company boasts that "it has increased the capacity of its treatment plants by 30 per cent";(14) analysts from the World Bank confirm that the capacity of the San Martin plant was increased by nearly 20 per cent in the first year alone, saving the city from a summer water shortage for the first time in years. The Southwest wastewater treatment plant, deemed inoperable by the public authority, was operated successfully after simple modifications. By means of a few thousand early retirement packages, the number of employees per 1,000 connections was reduced from between eight and nine to the more typical 3.5.(15) The company became profitable as early as 1995, only two years after the concession, when it made $52 million.(16)
Nevertheless, a new controversy regarding the company has recently arisen. Aguas Argentinas found, in 1997, that the stipulation requiring it to make new connections was ruining its profitability. The government, not wanting to forgo the promised new connections, decided to allow prices to increase. Naturally this did not go down well with consumers, who protested loudly. The high court listened to their pleas, and decreed that the higher prices violated the contract. The company had to consent, but with the condition that it would have to cut back investment in the water system. Rather than renege on the whole deal, the company persevered; one official described the agreement as "a living thing, with social relationships."(17)
An independent regulatory authority, crucial for the success of any
privatization, has been set up. Its funding comes from a fee levied on
the concessionaire, which is, in turn, passed on to the consumers, and
amounts to 2.67 per cent of their water bills. Many problems and potential
problems plague the agency, known by the acronym ETOSS. Its commission
must represent no less than three different levels of government: the national
government, which owns the assets, the province, and the municipal government
of Buenos Aires. Questions have also arisen about the autonomy of the agency
and its accountability to the public. Interest groups and the media view
the agency with suspicion and have placed it under strict and careful scrutiny.
ETOSS has responded by hiring international consultants. Despite these
difficulties, the general consensus seems to be that the agency is improving.(18)
Bolivia
The water and sewerage situation in Bolivia is marked by a huge disparity between urban and rural areas. In urban areas, 84 per cent of the residents are connected to water pipes, and 63 per cent to sanitation, as opposed to 24 per cent and 17 per cent, respectively, in rural areas. All provinces suffer from a deficit of coverage of at least 28 per cent in both areas.(19) Overall, only 58 per cent of the people are connected to water supply, and 43 per cent to sewers, some of the lowest levels in South America. The high infant mortality rate of 75 per 1,000 is largely attributable to bacteria in polluted water supplies.(20)
In 1991, Bolivia began a major restructuring of the sector, which involved the transfer of powers from the central level to the municipal level. As expected, this has led to much experimentation. For example, just recently, the Inter-American Development Bank approved a $70-million loan to reform regulatory systems so as to encourage private sector involvement.(21)
Thus far, private participation remains incipient, hindered by jurisdictional conflicts. These have often occurred because the central government has tried to dictate terms to the towns, some of whom have, naturally, not responded favourably to its demands. The municipality of Cochabamba took its grievance to the Supreme Court, on the grounds that the national government did not possess the requisite authority to grant the water concession for it. The court agreed, and on account of its injunction the bidding was postponed. Nevertheless La Paz, the capital, and El Alto turned their water and sewerage systems over to the French company Lyonnaise des Eaux in July 1997, despite large protests and agitations by the opposition, which periodically paralysed both municipalities. Interestingly, the coalition in favour of the agreement included not only the governments and the water companies but the labor unions as well, who helped ensure the completion of the process.(22) Lyonnaise des Eaux owns 34 per cent of the new company, while a combination of Bolivian and Argentine directors owns the rest.(23)
The rural areas of the Altiplano region have been the subject of a World Bank project called Yacupaj, meaning "for the water" in Quechua. First conceived in 1990, its supporters claim it represents a new type of development that listens more closely to the common people and therefore caters more to their desires and needs. The results of Yacupaj will pave the way for a much larger investment program, called PROSABAR, which is expected to benefit 800,000 people.(24)
Rather than build huge, expensive systems with state-of-the-art technology, Yacupaj, serving communities with 50 to 250 inhabitants, merely provided rudimentary hand pumps and latrines. The rationale was that since hand pumps are cheap, the communities themselves could afford to pay for 50 per cent of the cost of the project, giving them a stake in maintaining the facilities properly. Most of the workers on the project were locals, who were specially trained to do the work. According to the project's promoters, all the communities affected were carefully consulted in advance.(25)
After the project was completed, the results were analysed in order to discern the preferences of the villagers, which will form the basis of PROSABAR. The most popular hand pump was the Yaku, originally from Bangladesh but now manufactured in Bolivia and Guatemala as well. They also found that 93 per cent of the water systems and 91 per cent of the handpumps were still functioning, that 57 per cent of the latrines were in acceptable condition, and that the villages had repaired 91 per cent of the systems that had broken down. As many as 47% of the communities had expanded their facilities by 1995. However, certain problems also arose, one of them being the refusal of the villagers to use chlorine as a disinfectant, despite water quality data showing harmful bacteria, because they considered it unnecessary. In addition, 45 per cent of the containers used to transport and store water were still dirty, a continuation of the participants' previously unhygienic practices.(26)
The investment program inspired by Yacupaj, PROSABAR, is only in its
early stages. It is supposed to be using the same techniques, but on a
larger scale.(27) However, there is reason
to doubt that a project that worked for 30,000 people in one region will
necessarily work for 800,000 people in a vast and thinly populated country.
Brazil
In Brazil, 71 per cent of the population nationwide are served by the water supply system, but only 35 per cent are connected to public sewers,(28) with 49 per cent having only rudimentary cesspools or no means of disposal at all.(29) The problem is aggravated by extreme regional inequalities; while 63 per cent of Southeasterners are reached by sewers, a negligible 1 per cent of Northerners are. Eighty per cent of the sewage throughout the country does not receive any treatment.(30)
Brazil's infrastructure shortage is due to rapid urban growth coupled with slow expansion of urban amenities. From 1960 to 1991, Brazil's level of urbanization grew to 78 per cent from the Third World level of 47 per cent.(31) As recently as 1993, the government made 85 per cent of all environmental investments(32) and was unable to provide the necessary services, causing serious urban problems.
Recently, some of the municipal governments that own the water and sewage
systems have done the natural thing: sought private sector help. So far,
the largest concession has been granted to Aguas de Limeira, a joint venture
between the French conglomerate Lyonnaise des Eaux and Companhia Brasileira
de Projectos e Obras, a Brazilian civil construction firm, providing water
and sanitation to the 250,000 people of the Sao Paulo suburb of Limeira.(33)
It has promised an investment of $124 million over the whole 30-year term
and $71 million in the first five years (1996-2001). Brazil's second largest
city, Rio de Janeiro, is reportedly considering a concession as well.(34)
On September 17, 1998, Suez-Lyonnaise des Eaux let it be known that it
was vying for the concession, having joined up with Vivendi.(35)
A Lyonnaise subsidiary, Degremont, is building two water purification plants
in Sao Paulo: one for Sao Miguel (population 700,000) and one for Novo
Mondo (population 1,000,000).(36) Another
breakthrough for the private sector occurred in 1998, when Vivendi acquired
30 per cent of the shares in Sanepar, which serves seven million people
in the state of Parana.(37) Although private
participation is still limited, it is bound to increase. Several Southern
cities with populations ranging from 100,000 to 300,000 have asked local
U.S. governments with experience in the area for help in privatizing their
water and sewage systems.(38) Because of
its large size and inadequate infrastructure, Brazil should be fertile
ground for water companies seeking new contracts for years to come.
Chile
The water coverage in Chile is excellent by South American standards. In urban areas, where most of the people live, 99 per cent of the households are connected to drinking water, and 89 per cent to sewerage. In the more densely populated rural areas, 82 per cent have water supply, but in the more dispersed country settlements, only 14 per cent do. Water losses average 31 per cent, high by North American standards but much lower by the standards of Chile's neighbours. Right now, only 14 per cent of the sewage is treated, but the government plans to have universal treatment of all sewage that enters the system by 2005.(39)
The most interesting aspect of water policy in Chile is that it is the only country in the region to have created a market in water rights, due to a policy change made in 1981. In other countries, the government owns the water and may sell the rights to its use and distribution to a private party by contract. However, the terms of the contract are always such that the private company can either finish the contract, after which the resource returns to government ownership, or sell the unexploited rights directly back to the government before the contract expires. In Chile, water rights are owned by private citizens or businesses, who may lease or sell the rights to other private parties. In theory, this system is supposed to encourage efficient use and conservation by making water a valuable resource for the party that owns it. The government's role is limited to granting concessions, financing certain parts of the infrastructure, and enforcing property rights.(40)
The Chilean system is also unusual in that 50 to 65 per cent of the property rights are secured by traditional rights rather than the law. The government prefers legal rights to traditional ones and is therefore trying to make them universal, having spent $1 million toward this goal between 1991 and 1993.(41)
Since the owners of most of the land near water are farmers, they are almost always the sellers of water rights. In the Santiago area, most of the buyers are farmers as well. The Santiago Water Registry says that while 85 per cent of the 587 transactions that took place in 1992 involved farmers selling to the urban water companies, the average size of each sale was relatively small, so that they accounted for only 3 per cent of all trades by volume. Transactions between farmers, on the other hand, made up only 13 per cent of all trades by number but 94 per cent by volume. The total amount bought by the urban companies was only 22 litres per second of water, enough to serve only 10,000 new people in a city of 4.5 million, which routinely grows by 90,000 a year. This suggests that for now the Santiago companies can avoid buying new water as they have sufficient sources of supply.(42) This is not true, however, in the city of La Serena, near the Elqui water basin; there the water company bought rights from farmers so as to avoid building a new dam, a project which has been postponed indefinitely.(43), (44)
In Chile, leasing water is a much more common method of sharing than selling it. In the semi-arid Limar river basin, a three-month water lease costs only $90 to $120 per litre per second.(45) Leasing has helped the cities as well; in an even more arid region further north, the water company of the city of Arica, ESSAT, has been paying farmers $5,000 a month to have the option of using their wells if needed.(46)
Since 1989, Chile's municipal water companies have been run by concessions. There are 13 different regional companies, each granting four separate concessions for water supply and treatment, water distribution, operation of sewers, and sewage treatment. All operators are kept under close scrutiny by the Superintendencia de Servicios Sanitarios, an autonomous government agency.(47)
In December 1996, the government introduced a bill to fully privatize
state-run water works, the first such legislation in South America, but
it faced strong opposition even within the ruling coalition.(48)
After much political wrangling, the bill was finally passed, albeit with
some compromises, including a stipulation that the government must maintain
35 per cent equity, with some of the remainder being owned by the company
employees. In April 1997, the government announced its intention to privatize
wastewater treatment as well. The
privatization package was finally approved in January 1998, and 55 per
cent of the utilities involved were expected to be privatized by March
1999.(49), (50)
Colombia
The level of water supply in Colombia is quite high, at approximately 90 per cent for both urban and rural areas,(51) but a large portion of the water supplied is not potable. Only 62 per cent of the urban and 10 per cent of the rural population have "access to water that has been treated treated for human consumption."(52) While 70 per cent of the urban population have acceptable sanitation, only 27 per cent of the rural population do. The water systems suffer from excessively high water losses ranging from 30 per cent to 50 per cent. A negligible 2 per cent of the sewage receives treatment.(53)
In 1992, in keeping with a general privatization program, the government introduced law 142/94, intended to establish a proper regulatory framework for private participation. Private sector involvement, non-existent before this law, is small but is expected to expand. There are over 1,000 separate urban water and sanitation companies, all of which are being restructured to comply with law 142/94.(54)
The role of the private sector in water and sewage is already evident in large Colombian cities. The public utility in Barranquilla was such a financial basket case that it was declared bankrupt; now it has been replaced by a mixed corporation with a 13 per cent private stake, which even makes a profit.(55) There have been some disputes in other cities; in Cartagena, for example, the newly privatized company dismissed half the workforce, presumably because the utility was overstaffed. However, the unions complain that trade union activists were selectively placed among the dismissals; this, they say, is unfair.(56)
The World Bank, estimating that only half of all the systems nationwide
properly treat water for human consumption, and that even fewer do so consistently,
has encouraged private participation to remedy these problems. It
has offered the biggest loans to Bogota, the capital city, which accepted
two loans for $145 million each in November 1995 as part of a $717 million
project to convert the municipal monopoly, Bogota Water Supply and Sewerage,
into a profitable, commercially run utility, and to reduce the pollution
of the wetlands in the Bogota river basin, which has been the cause of
several wildlife extinctions. At
the time of the loan, the utility lost close to 40 per cent of its water;
the World Bank found that 64 per cent of these losses were due to the usual
culprits, including illegal connections, inaccurate consumer records, tampering
with computer equipment, and faulty meters. Besides the regulatory and
management reforms, there were also two construction projects, one to reduce
flooding and another to repair two of the city's three main water distribution
systems.(57)
As expected, the private sector soon got involved, with Union Fenosa
ACEX winning a contract two years later with the largest Bogota utility,
serving over a million people, in order to modernize the whole system of
management.(58)
Ecuador
In Ecuador's urban areas, 78 per cent of the population have water supply and 60 per cent have connections to sewers. In rural areas, however, the corresponding figures are 74 per cent and 8 per cent. The water systems are generally of very low quality; water losses are between 40 and 60 per cent while few deliver either a continuous or a high-quality supply.(59)
In cities and towns, the service is provided by the municipalities, who usually establish autonomous public companies; in rural areas, approximately 2,000 Juntas, committees of locals (rather than colonels), do the job. The Inter-American Development Bank (IDB) has intervened to encourage further private participation in the sector, giving a grant to the government in order to set up the necessary reforms of pricing and regulatory procedures.(60) The government intends to eventually privatize all water utilities, for the sake of financing further investment.(61)
Reforms in the country's two largest cities, Quito and Guayaquil, are already well underway. In Quito, the IDB financed $136 million of a $170 million project in September 1994 to repair and modernize the water and sewage system. The crux of the plan is an ambitious program of engineering works to fix up a system that has fallen into disrepair, which includes allowing the intake and conveyance of 1.5 cubic metres of water per second, an annual storage reservoir with a capacity of 23.3 million cubic metres, 48 kilometres of steel conveyance lines, two tunnels with a combined length of 3.3 kilometres, a small 7 megawatt hydroelectric plant, the first half of a 1.7 cubic metre per second purification plant, a 503-kilometre-long distribution system, replacement of 20,000 existing meters, 50 overflow control valves, and finally, some 300 kilometres of sewers encompassing 22 districts of the city. All of this construction is to be done through international bidding.(62) It is meant to prepare the system for the long-term concession that is about to be offered.(63)
While the loan to Quito is meant to prepare for privatization by improving
the physical workings of the system, in Guayaquil the emphasis is more
on improving the institutional situation. A smaller $40-million loan is
intended to help the Guayaquil Water and Sewerage Company award the contract
fairly and lessen the social costs of reducing a bloated workforce. Five
kilometres of water mains will be built, and 37 kilometres of sewers will
be repaired before the expected concession is awarded. The city certainly
needs some major improvements, as, aside from the decrepit condition of
the existing infrastructure, coverage for water and sewers respectively
is only 63 per cent and 52 per cent, low even for South American cities.(64)
Guyana
Despite being the poorest country in South America, Guyana has been endowed with the most water resources per capita, so a water shortages should never be a problem. Even so, the infrastructure is lacking; 80 per cent of the population are connected to a system that runs only intermittently and produces water of dubious quality. Only a quarter of the capital, Georgetown, is connected to sewers, although 85 per cent of the people have some safe method of disposal. The little sewage that does enter the systems in the towns is simply left untreated.(65)
There is only a little private participation in Guyana, and the inadequacy
of the current infrastructure suggests it could use much more. There is
a short-term contract for a company to run and maintain a water treatment
plant in the town of New Amsterdam; otherwise, the role of the private
sector is limited to minor repairs.(66)
Instead, Guyana has learned to rely on the IDB, which lent $13.5 million,
or 90 per cent of the total project cost, in September 1993 in order to
improve the physical, institutional, and legal structure of the Georgetown
water and sewerage systems.(67) The Caribbean
Development Bank made another loan of $8.8 million in March, 1995, only
this time for improving the infrastructure in rural areas.(68)
In neither of the project summaries was the word privatization mentioned
even once.
Paraguay
The Corporación de Obras Sanitarias (CORPOSANA), owned by the Paraguayan government, is the sole provider of piped water and sewerage services in all towns and cities with populations of 4,000 people or more, and it does so very poorly. Only 42 per cent of the population in these towns are connected to water, and 35 per cent to sewers. In Asuncion, the figures are much higher, at 86 per cent for water and 68 per cent for sewerage. Only 17 per cent of the rural population have drinking water supply, but 60 per cent have sanitation.(69)
Because of its embarrassingly bad record, CORPOSANA is forced to allow private water vendors to serve the large areas of the cities that it does not cover, just to make the situation bearable. These vendors make contracts with a specific group of consumers and even go so far as to install metered house connections. CORPOSANA seems to have concluded that the best way to expand coverage is to privatize many of its functions; the plan as of 1997 called for the national monopoly to be replaced by an autonomous regulatory agency whose role is merely to grant and oversee the company that was offered the national urban drinking water concession. This way it hopes to increase its woefully low level of service. Private companies can also build new sewers under the agency's permission and supervision.(70)
The government is also trying to improve the water supply in rural areas, with the help of a $40-million World Bank loan. Given the magnitude of the problems, the program seems relatively unambitious, promising to serve only 330 communities with 340,000 inhabitants, increasing the number of rural homes with connections from 20 per cent in 1997 to 30 per cent by 2003. Only about 140,000 residents are expected to benefit from better sanitation systems.(71)
The most noteworthy element of the Paraguayan rural sanitation project
is that nothing is given away free. The government is only willing to help
those villages that will pay 15 per cent of the capital cost of the sanitation
facilities at the time of implementation and contribute further cash, labour,
or materials over 10 years, together amounting to an additional 45 per
cent of the total capital costs. Moreover, the villages themselves are
expected to pay the entire operational cost.(72)
For the $55.7 million project, the World Bank is contributing $40 million,
the villagers $11.6 million, and the government a mere $4.1 million.(73)
Peru
The Peruvian water and sanitation situation is bleak. Just 71 per cent of the urban population and 31 per cent of the rural population have water supply, while the corresponding figures for sewer connections are 56 per cent and 23 per cent. Those without service often have to pay $7 to $8 a month for four cubic metres from water trucks.(74) The capital city of Lima dumps 17 to 18 cubic metres of untreated wastewater into the sea every second, wreaking havoc on the marine environment. The remainder is used for the irrigation of vegetable fields and parks, sparing the fish but not the farmers and recreationists.(75)
The quality of the systems is terrible. In the smaller urban centres, only 70 per cent of those served have 10 hours of daily supply, and just 20 per cent have more than 20 hours. The water pressure in 70 per cent of the districts does not meet minimum recommended standards. Overall, fewer than 60 per cent have safe water, and 45 per cent safe sanitation. The amount of bacteria in the water increased by 120 per cent between 1980 and 1985, contributing to the current cholera epidemic, which puts further strains on the system; all the water arriving at Lima's major treatment plant, or 75 per cent of the city's total supply, must be cleansed of the virus.(76) In some districts, groundwater is so depleted that it may become saline.(77)
Since 1990, the system has been decentralized and private participation encouraged as part of the government's large privatization plan. The Lima system, SEDAPAL, serving five million people in a metropolis of seven million, was supposed to be transferred to concession. A standard 30-year contract was expected, with investment demands being $600 million in the first five years and $1 billion in the first ten.(78) In preparation, 406,000 water meters were being installed.(79) Nevertheless the president of Peru suddenly cancelled the privatization plan, instead relying on a $400 million investment program partially financed by the World Bank.(80)
The World Bank has also been trying to protect the coastline, now polluted, supporting a $300-million project, which includes $230 million for environmental infrastructure, $50 million for improved coastal management, and $20 million for a revamped regulatory authority. The government of Peru is carrying a 33 per cent share of the cost, some of which would have been paid for by the winner of the concession, had it taken place.(81)
Outside of the capital, the private sector is also being encouraged
to step in. Several laws passed since 1990 have effectively ended the policy
of public service monopolies in water and sewerage provision. The individual
municipalities are now in a position to grant concessions to both domestic
and foreign firms, and many are expected to do so.(82)
Suriname
In Suriname, 95 per cent of the urban population have access to running water, with 90 per cent having connections in the home. In rural areas, 80 per cent of the population are connected to running water at home. While water coverage is very high, the size of the network of sewers is very low, with only 3 per cent of the population having connections, as other methods of sanitation are considered adequate.(83)
Unlike other South American countries, Suriname has released no plans
for private participation in the water supply sector, which remains the
complete responsibility of the Water Supply Division of the Ministry of
Natural Resources.(84)
Uruguay
Access to safe water in Uruguay is high by South American standards, at 88 per cent.(85) Although 92 per cent have sanitation, only 48 per cent are linked to the sewers,(86) and the on-site sanitation is normally considered inadequate. There are also inequalities in the quantity and quality of coverage, which is better in the capital, Montevideo, than in the provincial towns or rural areas. Many residents have to endure restrictions on supply during the summer months.(87)
Uruguay is taking loans from the World Bank to improve its urban systems(88)
but has not yet committed itself to granting concessions. It claims to
need more time to study the issue. Even now there are some small privately
run systems.(89)
Venezuela
In urban areas, where over 90 per cent of the Venezuelan population live, 68 per cent of the residents have safe drinking water, 51 per cent through connections at home, and 55 per cent have sanitation services, 33 per cent through the sewers. In rural areas, 67 per cent have water, and 59 per cent sanitation. The quality of most services is poor and the sewage does not receive proper treatment.(90)
The water situation in the capital, Caracas, is grim. The population of the city has rapidly increased to over five million without a corresponding increase in the sources of water supply. The supply deficit is currently 260,000 cubic metres a day, and a plan formulated in 1996 to draw water from 50 wells only promised to reduce this figure by 43 per cent. The problems are made worse by mismanagement; massive water losses from the distribution system have accumulated underground, raising the water table so much that the government is forced to pump groundwater just to keep the underground transportation system from flooding.(91)
It did not have to be like this. A fiasco occurred in 1992 when the government offered a 25-year concession, but not one bid was submitted by the five contenders before the deadline. The government was in such a hurry to offer the concession that it did so before a proper framework was in place. The international consortia who had originally evinced interest complained that the regulatory commission was made up of municipal representatives who disliked one another; that there was no reliable information on the real value and condition of the asset base; that the tariffs were too low to make a healthy profit; and that certain other terms of the contract were inadequate.(92) Such blunders were apparently typical of Venezuela's privatization program, which is why the progress has been so disappointing.
Outside of Caracas, efforts are being made to improve the water supply
and sanitation systems, which suffer from rationing, low pressure, poor
quality, absence of sewage treatment facilities, and financial mismanagement,
first by a national monopoly and then by the regional monopolies created
in 1990.(93) Private participation remains
very limited. In the state of Monagas, 70 per cent of the water was unaccounted
for in 1994, astronomical even by Latin American standards.(94)
The World Bank began in November 1995 a $70-million project in the state,
which is expected to rehabilitate the existing infrastructure, to improve
wastewater treatment, and to transform the local water and sewerage company,
HIDROCARIBE into a commercially run utility. This should benefit 550,000
inhabitants.(95)
Mexico and the Caribbean
Dominica
The urban population of Dominica enjoys universal access to piped water supplies; half have access from their homes. However, drinking water is readily available to only 78 per cent of the rural population, and only 18 per cent are connected to it at home. Sewers cover only a small area in Canefield and Roseau, the two largest towns, so most of the population use septic tanks and latrines instead. There is currently very little sewage treatment, but there are plans for a treatment plant in Roseau.
Dominica has the distinction of being the first country in the region
to privatize its water and sewerage services, but it did so more out of
abject necessity than any expectation of positive results. The semi-autonomous
Dominica Central Water Authority accumulated such an enormous financial
deficit in the 1980s that the government was forced to take it over. The
Canadian International Development Program assisted in the creation of
a new private company, the Dominican Water and Sewerage Company Limited
(DOWASCO), in 1989. In that same year, the water and sewerage act granted
DOWASCO an exclusive licence to operate water and sewerage services in
exchange for providing a safe, reliable supply and practising water conservation.(96)
Mexico
Mexico is by far the largest and most important country in the region, and it suffers from serious water problems. Overall, 84 per cent of the population receive piped water supply, and 67 per cent are connected to sewers. However, in rural areas, the corresponding figures are 53 per cent and 21 per cent. In addition, the regional inequalities are severe, with only 69 per cent being connected to water and 47 per cent to sewerage in the Southeast, as opposed to 97 per cent and 95 per cent, respectively, in the federal district.(97)
For decades, the official doctrine in Mexico was that water was a basic right that should be provided by the government cheaply, if not free of charge. As we shall see, this led to terrible exploitation and misuse. This policy was not abandoned until 1992, when a new law both encouraged private participation in municipal utilities and assigned water rights for urban water usage.(98) Nowadays some concessions are being offered as well, even in the hinterland; Azurix Corp., a division of Enron, recently acquired a stake in a long-term concession offered in Cancun.(99)
The rest of this section concerns water supply in Mexico City, the largest metropolis in the Western Hemisphere, with a population of approximately 20 million. As much as 45 per cent of Mexico's industry, and 38 per cent of its GDP, is produced there. The city's unusual location, however, makes cheap, efficient water provision difficult, and this, combined with massive human mismanagement, has pushed the situation to the brink of disaster.(100)
Before the Spanish came, in 1519, the Aztec city of Tenochtitlán enjoyed more water than it could possibly need, as it straddled two large lakes. The Spanish, however, found these lakes to be inconvenient and unnecessary, so, when they conquered the city, they promptly drained them, leaving the new city with springs as the only easy source of supply.(101) An elaborate system of aqueducts connecting those springs to the city, inherited from the Aztecs, and rebuilt by the Spanish, was in use until the 1850s. They were replaced by the use of potable groundwater, discovered in 1846, which was obtained from newly drilled wells.(102)
By the 1930s, certain wells had begun to dry up, a sign of unsustainable use. By that time, in fact, the city had been sinking for decades because of the falling water table, a fact first noted by engineer Roberto Gayol in 1925.(103) The ground level has dropped by an average of 30 feet over the last century or so, dwarfing that other famous sinking city, Venice, which has fallen by only nine inches. As one would expect, this had caused many serious problems. Sewers, subway tunnels, and water pipes have broken and had to be replaced. Old water pipes now more than 20 feet above ground are common. Sewage no longer moves by gravity into the grand drainage canal, requiring the city to spend millions on wastewater treatment plants.(104) The sewage that does enter the canal now requires 11 pumping stations, which operate round the clock in order to keep the liquid flowing.(105) The subway line 2, built horizontally in the 1960s, now goes up and down like a roller coaster. The lowering of the ground level has also done millions of dollars of harm to buildings, especially in the city centre. The national cathedral, the oldest in Latin America, requires scaffolding to support its ceiling and constant effort to shore up its foundation, while architects are struggling to keep the national palace from breaking in two. Hundreds of old colonial mansions and churches have collapsed due to the land subsidence.(106) While subterranean pipes and tunnels may be replaceable, albeit at a high cost, the city's colonial heritage is not.
After the colonial buildings collapsed, the government knew that action had to be taken. However, rather than try to control demand through conservation strategies, it merely used wells in the suburbs rather than in the city. While the central city now sinks on average by about one inch annually, some suburbs sink by as much as 24 inches.(107) Shifting the problem from one area to another that is deemed less valuable is hardly a long-term solution.
The water table has been falling by about one metre annually, and various estimates suggest this can continue for between 212 and 344 years. However, the continued sinking of the city that this will cause is costly. Furthermore, the number of residential and industrial users is bound to increase exponentially in the future.(108) Water consumption is projected to increase from 60,000 litres per second in the mid-1990s to 100,000 litres per second by 2000,(109) an increase the city clearly cannot afford. Moreover, as the level of groundwater declines, the risk of contamination increases. Since a recent study has revealed that 31 per cent of Mexico City's wells fail safety standards for minerals, and 21 per cent for bacteria, this is not a welcome prospect.(110)
The city has tried to find alternative sources of supply, but its unusual geographic location, on a plateau surrounded by tall mountains, has hindered it. The city still obtains 69 to70 per cent of its water from wells.(111), (112) The city authorities have begun to pump water from the Cutzamala river, a costly undertaking which involves a 180-kilometre pipeline over mountains hundreds of metres high.(113) Even so, imported water currently provides barely a quarter of the city's supply.(114)
For decades, Mexico City did nothing to encourage water conservation. In the mid-1990s, water leakage was between 30 and 40 per cent, typical of Third World cities but unacceptable in a city with such a severe water shortage. Although around half of the homes had water meters, many of them were dysfunctional or not read on a regular basis. Installing meters for the rest of the population would incur costs running into the hundreds of millions of dollars. A 1992 World Bank study found that providing water in Mexico City was very expensive, at $1.00 per cubic metre, but the government of the federal district of Mexico City collected only $.10 in bills, a tenth of the total cost. The amount collected in Mexico City is significantly less than the figures for many other Mexican cities, such as Monterrey, which collects $.37.(115)
Reforms are desperately needed, but political factors make them difficult. During the years of one-party rule, the government ran and subsidized all the utilities as monopolies and propagated the view that water was a right and people could use it as they pleased. Thus, much of the population have now been inculcated with both a belief in, and a habit of, uncontrolled water use. Now that the government has changed its mind, it is telling its citizens to conserve water, but such an about-face may confuse many people. Political opposition to the necessary changes is likely to be intense.(116)
From years of experience, there are two things that clearly have not worked. First, denying the problem exists, and taking no measures to correct it, as the government has done for a century, will only exacerbate the problem. Second, supplementing the sources of supply with water from distant rivers is prohibitively expensive, due to the ring of mountains surrounding the city.
By now, all water professionals agree that the only choice is to take measures to increase efficiency and reduce demand, a view set forth in the report entitled Mexico City's Water Supply.(117) Finally, it appears that the government is taking steps in that direction. In October 1992, in keeping with the new national law being introduced at that time, the federal district of the city asked for bids to run and maintain the city water supply. The city was divided into four zones, each with a different operator. This move was expected to enhance efficiency and conservation, as private companies lose money if bills go uncollected or pipes are allowed to leak, both perennial problems in the city.(118)
In the same year, the new federal water law, which was partly meant to alleviate the water crisis in Mexico City, was passed. Before then, anyone was permitted to drill a well in the basin and use the groundwater. However, the law stipulated that anyone wanting to drill a new well would have to buy the rights from an existing user.(119),(120) If properly enforced, and the costs of water rights properly calculated, this should restrict any new wells in heavily exploited areas. However, it will require accurate reading of the water meters of the previous owners and careful hydrological surveys to do this fairly.(121)
Although the privatization program took a long time to materialize,
by 1998 it was finally implemented. The French company Lyonnaise des Eaux
is now operating the water and sewerage treatment plants in Southeast Mexico
City in a joint venture with a local company, serving 2.5 million people,(122)
while the other major French firm Générale des Eaux supplies
water to 2.2 million in another part of the city under its Mexican subsidiary,
Sapsa.(123) One can only hope that these
companies fulfil the city's expectations by doing a much better job in
managing water resources in the future than the various levels of government
have done in the past.
Puerto Rico
Puerto Rico is the only place in all of Latin America to have universal water and sanitation coverage. In keeping with a general privatization program, responsibility for providing water and sewerage services was transferred to the private sector in 1995. The Puerto Rico Water and Sewerage Authority (PRASA), which once operated the nation's 220 water supply systems and 71 sewerage systems, now plays a much more limited role involving regulatory powers and capital financing. It is no longer taking care of the daily operation of the system and has reduced its workforce to about 600 employees.(124) The winner of the contract was the Professional Services Group, a North American subsidiary of Générale des Eaux of France, which took over from PRASA. It provides water to all of the 3.7 million Puerto Ricans and runs 197 water and wastewater treatment plants. The contract is short term; it began on September 31 1995 and will expire exactly five years later.(125)
In addition, the government is relying on foreign firms for some large
infrastructure projects. In 1996, Thames Water of the United Kingdom won
a $300-million contract to build an 80-kilometre pipeline from Lake Dos
Bocas to San Juan and several other northern municipalities. This is expected
to meet the water requirements of the area until 2050 and beyond.(126)
Trinidad and Tobago
Water coverage in Trinidad and Tobago is rather high, with 92 per cent having easy access to piped water at home, on their property, or at communal faucets. However, only 30 per cent are connected to sewers, and almost all of them are in urban areas. Much of the urban and almost the entire rural population rely on septic tanks or pit latrines.(127)
Trinidad receives about 200 centimetres of rain annually, which has allowed it to afford the dreadful inefficiency of its water supply system, which can account for only half of its water. The other half likely disappears due to leaky pipes, illegal connections, illegitimate use of hydrants, waste at communal faucets, and unregistered users.(128) In the early 1990s, only 80 per cent of the connected properties actually paid their bills. Only 26 per cent of the customers received water 24 hours a day, and only 62 per cent received water 12 hours a day.(129) The water supplied was not very clean, making water-related diseases a leading cause of death in the country.(130) The utility was not able to set its own, reasonable rates; the public utilities commission only granted it two price increases in 32 years. In the 1970s and early 1980s, during the oil boom, the government made up the shortfall through subsidies, but they rapidly declined as the economy contracted. Therefore the utility could only recover about 60 per cent of its costs, despite neglecting maintenance work. There were 12 staff per 1,000 connections, at least twice as many as the operation could possibly need. One fifth of the pipes were corroded or simply too small.(131)
Given the sorry state of its system, it was not surprising that the government chose to partially privatize the Water and Sewerage Authority (WASA) in 1995.(132) The winner of the short-term, three-year contract was Severn Trent Water International, a subsidiary of Severn Trent in the U.K., which owns the new Trinidad and Tobago Water Services along with WASA. It has only until 1998 to prove itself by meeting specific goals, such as achieving financial viability without reducing staff or raising prices.(133) The company could face severe financial penalties if its commitments are not met.(134)
The World Bank has been closely involved with the privatization process.
It has helped the government transform WASA into a commercially oriented
company and organize bids to repair the decrepit infrastructure. It is
also offering a $65-million loan for a $90-million project to detect leaks
and monitor pressure inside the system, install metering, and improve the
existing sewage treatment plants.(135)
Asia
India
India, despite its large population, has plenty of water, provided that it uses its resources efficiently. Thus far, misuse and wastage at the hands of the publicly operated utilities have been the norm; nowadays, some levels of government seem to realize that this has to change.
Urban growth patterns in India are similar to those in other developing countries. City dwellers will soon comprise one third of the population, as opposed to only 10 per cent at Independence. Officially, close to 85 per cent of urban Indians have water supplies; this does not mean that the water supplied is normally continuous or of acceptable quality. Of the 3,600 cities in the country, only 200 have any sewerage system at all. Almost one third of urban residents do not even have toilets or latrines.(136) The Ministry of Environment confesses that the sewers are connected to no more than 30 per cent of homes and that only 30 to 40 municipal wastewater treatment plants exist in the entire country.(137) It is estimated that $65 billion in investment in the sector will be required in the next ten years, ten times more than the government expects to spend.(138)
There are many reasons for the generally poor performance of the sector. The tariffs in no way reflect the cost of providing the services: In one case, a Maharashtra town was charging only 120 rupees for connections which cost 1,300 rupees. (US$1 is equivalent to approximately 42 rupees.) Maintenance and wage costs are excessive, and revenue projections are seldom met. Too much of the water is lost due to leakage and theft from the system. Finally, the perceived political and social necessity of providing water to slum dwellers at minimal cost exacerbates the already precarious financial situation.(139) None of these problems are different from those faced by many other developing countries.
Thus India has followed the familiar path toward disaster and, as a result, has increased private participation. Nevertheless, the earliest private projects in the sector did not turn out very well. The Krishna Water Supply Project for Hyderabad, the capital of the state of Andhra Pradesh, was, after much negotiation, rejected by all bidders as economically unfeasible. A 1997 magazine article claimed that none of the water and sewerage privatization projects in India up to that point had been brought to a successful conclusion.(140)
Despite early failures, the sector remains potentially attractive for investors. Experts estimate that returns on investment could be as high as 20 per cent a year for successful projects. The government also offers special incentives for such investments, such as exemption from customs and excise duties on imported machinery and exemption from all taxes for the first five years of water and sewerage projects. As of September 1998, in addition to the projects discussed in greater detail below, the following three projects were in progress: one to supply 178 million gallons of water daily for industry to the port of Vishkapatnam, Andhra Pradesh; another to bring 60 million litres daily to industry in Dewas, Madhya Pradesh; and a third to provide 165 million litres daily for general use to the city of Panjim in Goa.(141)
Government-controlled financial institutions have acted to encourage privatization in the country. Late in 1998, they opted to tighten project financing norms for state governments, presumably because they realized that the inadequate cost recovery typical of government projects could no longer be sustained. They insisted that the state governments to whom they extend credit will have to agree to raise water tariffs every two years. Karnataka and Rajasthan were the only two states that complied immediately, but more are sure to follow. Most observers welcomed the new policy as a means of compelling the states to end politicized pricing and recover their costs.(142)
The most extensive series of water privatization projects announced in India thus far are expected to encompass the whole state of Karnataka. An agreement was signed in August 1998 between the Karnataka Urban Water Supply and Drainage Board and Anglian Water International (AWI) of Great Britain, the purpose of which, according to B.N. Bache Gowda, the urban development minister, is to "provide improved water and wastewater services to the urban population and develop these services on a self-sustainable basis in the medium to long term, thus reducing the financial burden on both the municipalities and the state." He also assured skeptics that "a robust independent regulatory structure" would be put in place.(143) The Karnataka chief minister, J. H. Patel, warned that water would no longer be given out free to anyone.(144) The government, however, never immune to political considerations, promised a dual pricing system, with a reduced rate for slum dwellers. The project involving AWI will initially include the cities of Belgaum, Hubli-Dharwad, Mangalore, and Mysore. AWI was expected to conduct a survey of the water and sewerage situation, after which the details of the joint venture agreement would be worked out. (145)
A separate tender is being arranged for the capital city of Bangalore. The water and sewerage projects in the city, though implemented by private firms, are being funded mainly by the state government, financial institutions, and foreign aid. Combined, they are expected to bring an additional 770 million litres of water a day into the city (which has a population of over 6 million). The government is also seeking potential bidders for another project, costing approximately $180 million, which will improve the existing water and sewerage networks of the city, on a rehabilitate-operate-transfer basis.(146)
Another major water privatization is taking place in Pune, a city of 2.3 million in the state of Maharashtra. Household surveys taken in the city found that residents from all income groups were willing to pay the cost of their water, with the condition, thus far a rarity in India, that they receive a supply which, if not continuous, flows regularly at appointed times each day. The poorer citizens of Pune, who currently pay only 30 to 60 rupees annually for group connections, would be willing to pay at least 200 rupees, which would consume an acceptable one per cent of their incomes.(147)
The municipal government has opted for privatization of the entire system. It may not have had any choice in the matter; in December 1998 state level officials informed the Pune Municipal Corporation, which seemed to be dithering, that there were no alternatives. The tenders were expected to be ready by March 31, 1999. As usual, the winner would have to be a consortium with mixed Indian and foreign ownership. The plan will include privatization of leak detection and billing, in an effort to reduce losses through leakage and unpaid bills.(148)
The state of Tamil Nadu has also begun to encourage private participation. In the capital, Chennai, the Metropolitan Water Supply and Sanitation Board (MWSSB) now contracts out some of its work. Contracting out 22 out of 103 sewage pumping plants for three years, beginning in 1994, yielded cost savings of 40 per cent, despite the contractor making a 20 per cent profit. The overwhelming success of this project persuaded the MWSSB to privatize the operation and management of all its treatment facilities. The MWSSB had also discovered that the repair of its vehicles was consuming three per cent of its operation and management costs; now it contracts out even that component of its services. It has disposed of its 59 vehicles and replaced them with hired vehicles, including water trucks, from trucking firms and taxi companies.(149)
In Tirapur, the water supply system is also undergoing privatization. More precisely, the private sector is being asked to build a water supply network where previously none had existed. Earlier in this decade, the town of 250,000 received water only once a week. A water supply scheme orchestrated by the government recently ameliorated the situation, if only a little; the town began to receive water once every two days. These permanent water shortages adversely affected both local residents and industries; the latter, which required a steady supply, depended solely on water tankers for its needs.(150)
As of December 1998, despite earlier reports of financial difficulties,(151) the privatization project was to be brought to completion by 2002. It will provide 200 million litres of water daily, and will cost approximately $200 million. The water supplied will be cleaner, with the salt content reduced to meet government standards. As far as pricing goes, however, the rates have been determined by political considerations. Industry will pay at a rate of 45 rupees/1,000 litres, while residential consumers will pay only a fraction of that amount, perhaps as little as 8 rupees/1,000 litres. The cost imposed upon industry is in fact 50 per cent higher than it is currently paying for the water from trucks. Industry has of course been critical of this blatant cross-subsidization, asking that the price be reduced to 25 rupees/1,000 litres. On the other hand, industry feels that the increased quality and regularity of supply will make up for the higher prices in the long run.(152)
No doubt progress toward privatization of the sector in India will be slow, due to the inconsistencies within the bureaucracy, the powerful political pressures, and the sheer size of the country. Nevertheless privatization tends to be contagious; now that it has made inroads in a few areas, it will likely diffuse, eventually, throughout the entire country.
Indonesia
Indonesia is no different from other developing countries in that it has severe water troubles. Known for its rainforest, it receives plenty of rainfall, but lacks the infrastructure to convey it safely to consumers.
The 1990 census reported that the annual urban growth rate in the country stood at 5.4 per cent, in itself enough to put serious strain on all urban services. The urban population is expected to increase from 55 million in 1990 to a total of 93 million in 2000. Only 50 per cent of urban residents have a safe source of water, and only 20 per cent have it piped to their homes. Of the remaining city dwellers, 44 per cent draw their water straight from unprotected wells while 10 per cent resort to water vendors.(153) Water losses, primarily due to leaky pipes, are as high as 40 per cent nationwide. The sewage system is even worse, reaching only 5 per cent of urban residents.(154) No more than 40 per cent have any sort of on-site sanitation facility, such as a drainage pit or a septic tank. The rest discharge their raw wastes directly into surface drainage systems. In the past, 85 per cent of all infrastructure investments (across all sectors) have been made by the government. However, since investments in the range of $25 billion are called for in the water and sewerage sector alone over a ten-year period, this scenario will have to change.(155)
Private companies have already made significant inroads throughout the country. In 1995, a joint-venture agreement involving the water authority and provincial government, as well as both local and foreign investors, began developing a bulk water supply project in the city of Medan. This involved a 25-year build-operate-transfer (BOT) agreement.(156) A BOT project for a treatment plant has also been announced in Semarang. Competitive tenders for concessions have also been announced in Pontianak, Manado, and Malang. Private participation received a boost from the central government in 1998, when a presidential decree attempted to formalize procedures for joint private-public infrastructure contracts.(157)
The most important privatization drama is occurring in Jakarta, due to both the size of the city and the severity of its problems. The water and sanitation system in the capital and largest city is inadequate. Only 20 per cent of the residents have water piped to their homes; the remainder have to use standpipes, which often require walks of considerable distances,(158) or private wells, owned by 54 per cent of the population,(159) which are considered unsafe. As much as 57 per cent of the water is lost, due to leaks, illegal connections, and errors in measurement.(160) Worst of all, overuse of the aquifer has caused the ground to subside and the salinity of the aquifer to increase, just as in Mexico City.(161)
In 1990, the government undertook two reforms. Firstly, it contracted out to Belmanda Lestari the reading of meters for 378,000 consumers.(162) Secondly, it allowed those who were connected to the system to "resell" water to those who remained unconnected. This was meant to save the city the cost of building more standpipes, to provide a safe and reliable source of water for more residents, and, by means of increased competition, to reduce prices. It failed in the last two respects. Surveys found that only 10 per cent of households purchased water from the "resellers." In 1991, the price for water from the municipal system was, per cubic metre, only $0.18, as opposed to $1.08 from the resellers, $1.26 from the standpipes, and $2.62 from the private vendors. Neither of the last two prices had shown an appreciable change over the course of the year. Sheer physical distance may have partly dissuaded residents from taking advantage of the reform; only 1.4 per cent of households who lived further than 100 metres from the nearest connected home used it, as opposed to 19 per cent of those who lived within 50 metres. Other possible reasons include inadequate publicity and information, as well as increased block tariffs, which discouraged connected households from selling water.(163) Even if the participation level were high, allowing the relatively well-off connected households to sell water at large profits to the less prosperous unconnected households can hardly represent an equitable, long-term solution.
In 1997, before President Suharto had been overthrown, the government chose to privatize the Jakarta water company, PAM Jaya. It divided the city into two zones. However, Suharto's method of governance dictated that shares in the companies awarded contracts be held not only by Thames Water and Lyonnaise des Eaux but also by Sigit Suharto and Anthony Salim, the president's son and close associate respectively, who presumably could provide little expert input into the operation of an efficient water and sewerage system. With the change in government, a decision was made to renegotiate the contracts and sell off the locally owned shares to the foreign companies. The new round of negotiations began in March 1999.(164) By June 1999, Lyonnaise des Eaux reported that normal provision of services had resumed "within the framework stated in June 1997."(165) Thames Water intends to increase the number of connections in its zone by 50 per cent.(166)
Malaysia
Malaysia has recently been embroiled in two controversies, one related to water and the other to sewerage. One involved a serious drought, blamed on El Niño but aggravated by government mismanagement; the other involves an ongoing and highly controversial sewerage privatization scheme. Both have served to highlight the serious problems, both economic and political, that the sector faces.
Malaysia, famous for its rainforest, is one of the last countries one would expect to suffer a water shortage. But in the spring of 1998, due to El Niño, the country received rainfall that was well below average. Everyone in the capital, Kuala Lumpur, was affected: middle-class suburbanites, who had to wash their clothes in a small stream;(167) owners of laundromats, who feared bankruptcy;(168) and factories, who had to spend money digging wells and buying costly water supplies from trucks.(169) Violent incidents between citizens waiting in line for their water were reported. Residents received water for only twelve hours on alternate days. The amount of water in reservoirs fell to critical levels, increasing the possibility of contamination.(170)
Despite the low rainfall, the authorities clearly should have been better
prepared for the situation. On June 26, 1997, almost a year before the
drought struck, Rozali Ismail, executive chairman of Puncak Niaga Holdings,
which treats and supplies water for Kuala Lumpur, had this to say:
I would like to say here that based on our assessment the water shortage
problem will be critical next year. . . . The growth in the water demand,
which has exceeded the state's projection, coupled with the problem of
low pressure and pipe leakages, will give rise to a situation in 1998 where
there will not be enough water to be supplied to consumers in the state.(171)
Even so, neither his company nor the government took any effective measures to avert the coming crisis. The method of providing water in Kuala Lumpur, and in Malaysia in general, allows private monopolies to extract the water while public monopolies, owned by the state governments, distribute it. In this arrangement, the private companies make large profits while the government loses money. As a result, many of the water pipes date from colonial times, making them worn out and dilapidated. Water losses are 40 per cent, 25 per cent from leaky pipes and 15 per cent from theft, primarily in shantytowns.(172)
Some policy moves intended to mitigate future crises are being taken. Squatters will be supplied with water, which they will have to pay for. Plans to upgrade the 50-year-old network of pipes are being considered. Malaysia may also follow Singapore's example and use self-closing taps, low capacity toilets, and other water-conserving devices. Most important, the government may finally privatize the distribution system. The national works minister, S. Samy Velu, in proposing a "complete restructuring" of the industry, spoke for his boss: "The Prime Minister [Mahathir Mohamad] has said repeatedly that you can't privatize components, but you have to privatize water as a whole - building, production, and distribution."(173)
The privatization of sewerage in Malaysia has also generated much controversy, less on account of the policy than the process with which it was carried out. In December 1993, Malaysia granted a franchise to the Indah Water Konsortium (IWK) to privatize the national sewerage system. In most countries, this would have involved an open, public tender; in Malaysia, the $2.5-billion contract, despite being the largest privatization in the nation's history, was announced as a done deal to the public without prior notice. This naturally led to a public perception of backroom deals and cronyism, so the government was forced to renegotiate the price list for the facilities. "It's been a learning experience," said one government official.(174)
Since it won the franchise amid such circumstances, the IWK has been viewed with suspicion by many Malaysians. When it announced its new rates in 1997, they naturally represented a price increase, in order to pay for the huge capital investments mandated by the government. However, many residents were up in arms; on the island of Penang, for example, the residents set up the IWK service charges issues ad hoc committee, which insisted that charges should be based on the number of residents in a given building rather than on the annual assessment value.(175)
All this controversy is a pity, as the policy of privatization was clearly necessary. Malaysia's public sewer system was unable to keep up with the country's rapid growth, reaching only 25 per cent of inhabitants by 1992.(176) Of the 1.2 million septic tanks in the country, only 12,000 had their sludge removed.(177) Of the sewage that entered the system, 65 per cent was dumped untreated into rivers and oceans, so that 65 per cent of the rivers in the country were deemed polluted, and 7 per cent extremely so. The culprits were identified as faecal bacteria, domestic wastewater, industrial wastes, suspended solids, and floating debris.(178) The first two suggest an inadequate sewerage system, while the third reflects lax regulation of industry, which is expected to treat its wastes on-site. According to the IWK, 60 per cent of the sewage treatment plants were operating below capacity or not at all.(179)
The IWK has committed itself to dealing with the sewerage problems and promises to spend $2.4 billion on capital works(180) and 4.1 billion on daily operation of the system over its 28-year concession.(181) By the end of this period, 85 per cent of the households in major local authority areas will be connected to sewers, and 30 per cent in smaller local authority areas will be. All those who lack sewerage will have septic tanks, from which the sludge will be removed and treated.(182) The number of septic tanks in the country has already increased to four million. The number of sewerage pipes will be tripled to over 22,000 kilometres.(183) The whole sewage system will be carefully monitored to ensure that it meets the Department of Sewerage Service's standards.(184)
If the IWK is properly regulated, sewerage privatization could work
out well for Malaysians and their environment. The public system certainly
did not inspire much confidence. However, given the manner in which the
franchise was granted, it is fully understandable that many Malaysians
do not view the matter with equanimity. It may take years of effective
regulation for their suspicions to go away. If a government wants to privatize,
it should do so in as open, fair, and politically acceptable a fashion
as possible.
The Philippines
The Philippines receives plenty of rainfall, approximately 240 centimetres annually, so its water resource problems, as is the case with so many developing countries, are a reflection of human mismanagement, especially of the distribution systems. The horribly decrepit system in Manila is a case in point. In 1994, the government organized a water summit to address the country's chronic water problems. In 1995, President Fidel Ramos took the unusual step of declaring a "water crisis" under the water crisis act, giving himself emergency powers for a whole year. It was during this time that he organized the bidding to grant two concessions, totalling $7.5 billion, to operate the Manila water supply, serving 11 million people.(185) Its supporters claimed it was the largest water privatization in the world.(186)
Manila has one of the oldest water systems in Asia, dating from 1878, when the city had only 300,000 people and required 16 million litres of water daily. The population has increased by a factor of almost 40 since then, and the publicly owned and operated Metropolitan Waterworks and Sewerage System (MWSS), at the time of privatization providing 2700 million litres of water daily, had not been able to keep up.(187) At the time of privatization, it provided water to only 65 per cent of the city's residents. The 35 per cent who remained unconnected to the system often had to pay 10 times as much for water. Old, contaminated pipes were blamed for periodic cholera epidemics, the most recent of which led to five deaths. While 976 million cubic metres of tap water were delivered in 1995, only 426 million were actually paid for, meaning that unaccounted for water stood at 56 per cent. The rest was lost due to leaks, open hydrants, and illegal connections, which were prevalent throughout the city.(188) The utility tried to make up for this waste by charging extremely high prices, supplying water only 16 hours a day, and spending little on the infrastructure.(189) The MWSS record on sewerage was, if anything, worse; the utility provided sewer connections to a pitiful 7 per cent of the population before privatization.(190) The vast majority of wastewater that was not collected went into septic tanks and was eventually discharged into the municipal waterways and drainage systems, which lead to the ocean. Of the sewage collected, 99 per cent was promptly dumped, without treatment, into Manila Bay. Pollution due to biochemical oxygen demand was estimated at 980 tons a day.(191)
This was the backdrop for the privatization. It was carried out using a process similar to that employed in Buenos Aires (see Argentina), where, just as in Manila, a deteriorating system dating from the turn of the century had to be turned around. The goals of the winners of the 25-year contracts are to make water coverage universal by 2006 and increase sewerage coverage to 83 per cent by 2021.(192) Unaccounted for water will be reduced to less than 35 per cent over the same period.(193) Water availability will reach 24 hours a day by 2001, and pressure will be adequate for a three-storey building.(194) In addition, new sewage treatment plants are expected to be built, and the sludge removed from 300,000 septic tanks, with some help from the government and the World Bank.(195) Overall, $7 billion will be needed to improve the quality of the system.(196)
The government expects to earn $4 billion from water privatization over the 25-year period, $3 billion from taxes and the remainder mainly from concession fees. The government's earnings will cover the debt service requirements of the MWSS, which has been reduced to a regulatory agency.(197) The companies do not expect to make a profit for the first 12 to 15 years of their contracts, largely because they will be required to make large capital investments and, for the first 10 years, will be prohibited from raising prices relative to inflation.(198) Overall, however, they are guaranteed dividends of at least 12 per cent.(199)
The bidding process itself was considered transparent and fair, and the concessionaires began operating in 1997. However, there were a few major concerns. The Manila privatization was unusual in that the city was divided into two zones, East and West, and, to prevent any one company from having a city-wide monopoly, there had to be a different operator in each zone. As it turned out, one bidder, Manila Water Co., led by Ayala Corp., underbid all competitors in both zones by an astounding 50 per cent or more. The government refused to give it both zones, granting the concession in the West to Benpres Lyonnaise Waterworks, Inc., even though its price of P4.97 per cubic metre was twice as high as the Ayala price of P2.51. Ayala got only the East zone at a price of P2.32. As it has turned out, the price in the East of the city is only 47 per cent of the price in the West. This has caused two serious concerns, one over economics and another over social justice. Firstly, since Benpres could save costs by buying its water from Ayala, it would simply do that and neglect the infrastructure in its own zone, and, secondly, since the East contains the Manila business districts and other affluent zones, it is unfair that it should pay so much less than the poorer neighbourhoods of the West. Some cynics expect Ayala to make up for its extremely low charge by raising it exorbitantly after the initial 10-year price freeze, although both the company and the government strongly deny this. Many believe the whole idea of zones should have been discarded in order to avoid this dilemma in the first place.(200) However, residents of the West can satisfy themselves that both prices are bargains compared with the previous price of P8.78.(201)
The government also stipulated that 60 per cent of the winning company had to be Filipino owned. As could be expected, the main beneficiaries of this policy were huge conglomerates, Benpres and Ayala, owned by two of the richest families in the country with extensive interests in telecommunications, broadcasting, mass transport, real estate, banking, and power distribution.(202) In 1995, Ayala earned P5.48 billion and Benpres P1.62 billion.(203) Some feel that ensuring such large companies a majority stake in the lucrative Manila contract is a gift to a powerful lobby that will increase the already high concentration of economic power in the country.(204)
There also may be difficulties involving the transfer of employees. The overstaffed government utility had 8,000 employees(205) for only 779,380 connections,(206) a ratio of over 10 per 1,000. Reduced to a regulatory authority, the MWSS retained 100 to 200 employees(207) and offered the rest a voluntary early retirement incentive package.(208) The employees who chose not to retire were hired on a six-month contract basis, during which time their performance was reviewed; the private utilities were able to lay off those whose work was deemed unsatisfactory.(209) The concessionaires had to agree to recognize the current labour union and offer generous severance packages to those who were laid off or who did not want to work for them anymore. Those accepting a regular job with the concessionaires were allowed to own a combined total of 6 per cent of the companies' stock.(210) However, many employees were worried about being hired only on a contractual basis, although the companies considered such a restructuring necessary to charge low prices and operate efficiently.(211)
Finally, some have questioned the method of the privatization. The president called a state of emergency, as mentioned above, with the intention of making very rapid changes. Therefore some have said the decision was made with minimal public discussion to keep the situation from becoming too politicized.(212) However, the implementation was subjected to a court challenge, and the court ruled in the president's favour.
Despite these potential problems, it seems that the privatization of
the Manila system was necessary. Even people who bring up the above concerns
agree that privatization will generally improve the infrastructure and
level of service in the Manila metropolitan area. The government system
certainly did not inspire confidence. It supplied water in low quantities
and of poor quality for a very high price. The poorer people who are currently
unconnected to the system should benefit greatly over the next 10 years
if the companies fulfil their promises, and even those who are connected
will pay a much lower price, at least for the next 10 years.
South Africa
South Africa suffers from the unfortunate combination of low levels of rainfall and a large population. For every South African, there are only 1,200 cubic metres of renewable water resources. Since the population continues to grow at close to 2 per cent annually, this figure will likely fall to under 1,000, considered the boundary between water-stressed and water-poor countries, within the next decade. Therefore the government considers water conservation policies to be urgent and wants people to pay the full cost of managing water catchment areas.(213)
The water services bill, passed in 1997, highlights the extremely complicated and multi-tiered nature of water management and supply in South Africa. There are essentially three levels in the system: the local authorities, the regional water boards, and the national department of water affairs and forestry (DWAF). The local authorities are responsible for the actual provision of water services to the inhabitants, including the distribution systems. Although they must own the infrastructure, they can contract out the operation of their services if they so desire. The water boards are bulk suppliers, who extract the water from catchment areas and sell it to the local authorities.(214) There are only 15 for the entire country, approximately one for every three million people. The most important water boards are Umgeni Water and Rand Water, serving the industrialized areas around Durban and Johannesburg, respectively.(215) The minister at the DWAF closely monitors both the local authorities and water boards. He is also given the power to dismiss old water boards and create new ones and to designate special water services committees to temporarily replace any given local authority if he considers it incapable of providing acceptable service to its customers. The responsibility for the service is expected to revert to the local authority when it has convinced the minister that it has reformed itself and should be allowed to operate again. The minister is given much discretion; he may exercise the above options when the water boards and local authorities are running a service that is not "reasonable," "equitable," or "effective."(216) These are words that a politician with an agenda could make out to mean almost anything.
One thing the DWAF is powerless to prevent under the new law is privatization, which is solely the choice of the local authorities.(217) Many see private involvement as a way to connect the 17.6 million people, or 40 per cent of the population, who lack access to piped water, and the 16 million people who lack access to sanitation.(218) An estimated R50 billion to R80 billion is needed over 10 years to eliminate the serious deficiencies in the urban systems. In rural areas, around half the population have inadequate access to water, defined as 25 litres per capita per day within 200 metres of the home.(219)
In 1997, the city of Nelspruit became the first major municipality to decide to privatize its water and sewerage services. The rationale of the policy seemed reasonable enough; according to the town clerk, "the council could not afford the R300 million necessary to provide acceptable water and waste services to its 250,000 residents."(220) The authorities are also trying to educate the residents, who are not used to paying market rates for their water; Roelf Kotze, chief executive officer of the winning consortium, warns that "if you don't pay, your supply will be cut off, and you will have to rely on standpipes [community faucets]." The new operators will be bound by the contract to provide water to all areas of the city 24 hours a day before the end of the first year of the 30-year concession and to provide standpipes within 250 metres of every home before the end of the fifth year. In the KaNyamazane and Matsulu neighbourhoods, meters will be installed or repaired within six months.(221)
The privatization in Nelspruit has met with virulent political opposition,
so much so that, even though the consortium of South African Metsi A Sechaba
and British Biwater has been announced the winner, the plans are currently
on hold. Both supporters and opponents of privatization believe that if
privatization goes through in Nelspruit, bigger cities such as Johannesburg,
Cape Town, and Durban will soon follow suit.(222)
Therefore the South African Municipal Workers Union (SAMWU) has
led a vigorous opposition, including mass protests and strikes, to the
plan. Perhaps because it considers foreign companies easy targets, it has
launched an especially harsh attack on Biwater, which includes not only
relevant complaints such as high leakage in Biwater-owned Bournemouth Water
in the U.K., but also diverse topics ranging from the company's connections
to the Thatcher government,15 years ago, to the wealth and religious fundamentalism
of its chief executive, most of
which do not seem to relate to the operation of an efficient water and
sewerage system. Biwater has not taken this perceived abuse lightly; its
lawyers have ordered SAMWU to close down its Internet sites pertaining
to the topic, accusing them of libel.(223),
(224) The union, supported by labour worldwide,
has responded by singling out Biwater as a threat to freedom of expression,
"which has taken action to force the withdrawal of contributions to this
debate"(225) and is "seeking to chill
speech and undermine opposition by virtue of its economic might."(226)
Oceania
Australia
Australian water and sewerage utilities have all been government-owned and-operated until very recently, and most still are. Even so, there is a general consensus that even government-run utilities should be operated in accordance with commercial goals and make a profit, without requiring subsidies. Therefore privatization, once remote, is now a credible option for the newly corporatized, but still publicly run, water and sewerage systems. If privatization occurs, multinational water companies can look to do quite well; it is estimated that there are $70 billion worth of assets that the government could potentially sell. (The figures throughout this section are in Australian dollars.) (227)
Although Australia is a prosperous country, it has not been blessed with abundant water, and droughts are a perennial problem. The country's largest river system, the Murray-Darling, which supplies Australia with 75 per cent of its water, was being drained of about 75 per cent of its natural flow, causing unnatural drought conditions and even salinity in parts of the river. Water use for irrigation was frozen in 1995. The situation has gotten so serious that there is a proposal to cap urban water use in 2000, affecting the cities of Adelaide and Canberra, but not Sydney, Melbourne, and Brisbane, which are outside the river's catchment area. The Murray-Darling Basin Commission argues that farmers and water utilities should be permitted to buy and sell water licences on the market by the year 2000, giving the cities a new source of supply should they wish to exceed the cap.(228) Some have suggested that a good solution would be to recycle more of the sewage; the Irrigation Association of Australia suggests that more than the current 10 per cent of the 300,000 litres of treated sewage produced by Queensland should be reused, for irrigation or even for drinking water, as is done in the United Kingdom.(229)
As one would expect for such a large country, there are many regional water systems rather than one national system. The remainder of this section will focus on explaining the different arrangements for the water and sewerage utilities throughout the country.
In Western Australia, the government-owned Water Corporation, with an $8-billion asset base, provides all the service. The 1995 Water Corporation Act established that the utility had to fulfil commercial objectives, despite its public ownership and monopoly position. The Office of Water Regulation has granted it a five-year operating licence, assuming it will meet strict regulations and standards. At least in theory, ownership and regulation of the utility are separate. The board of the public corporation is composed of prominent businessmen rather than bureaucrats, or, as often occurs in New Zealand, local politicians, giving the operation a clear commercial orientation.(230) Indeed, it generated an after-tax profit of $250 million last year. The intention is clearly to increase competition; the chairman, Peter Jones, says that there are "several teams working on competitive bids to provide services for major Western Australian developments and senior managers have assessed venture possibilities overseas." This would suggest that private involvement is imminent.(231)
The largest utility in the country is the Sydney Water Board, with assets of over $13 billion, and it has also corporatized its operations.(232) Although its only shareholder is the New South Wales government, it too is trying to function like a private water company, and even, as discussed below, to contract out its most important operations. It recently did a study intended to find the best practices in different areas of water utilities throughout the world in order to then apply them; it expects to save as much as 30 per cent in priority areas, while providing better service.(233) Like the Western Australian Water Corporation, it is now profitable, making almost $152 million in the fiscal year 1996-97.(234) Between 1996 and 2000, price increases are supposed to be less than the rate of inflation. Sydney has also installed universal metering, which the city claims has reduced consumption by 21 per cent since 1980-81, even though usage charges were only 10 per cent of the total in 1992-93 and just over 30 per cent today. By increasing the importance of usage charges, a further reduction in usage of 25 per cent is expected to be achieved.(235)
The reforms undertaken by the Sydney utility are in large part a response to serious water supply problems which plagued the city at the beginning of this decade. A series of heavy storms increased the turbidity of the water supply, which had already been degraded by urban growth, to such a degree as to render it unsatisfactory in the eyes of the public. New treatment plants became an urgent necessity, but the Sydney Water Board realized that it lacked both the funds and the technical expertise for the task. Therefore it went to the private sector for help, and prepared to take bids for four new facilities. They were to be built on the basis of build-own-operate-transfer agreements (BOOTs), in which private firms are responsible for the construction of the plants, as well as their ownership and operation for a fixed time period (in this case 25 years), before they revert to the government, which can then, if it so desires, contract out the operation for another term. In order to ensure competition, the government divided the contract into three segments, two of which included one plant and the third two plants, and made sure each was built and run by a different company. This was intended to ensure that any failure on the part of one company would not spoil the whole of the city's water supply.(236) One expert refers to the project as "an excellent example of the use of BOT/BOOT contracts in a monopoly public service-water supply."(237)
Nevertheless, the city's water supply ran into difficulties in 1998, becoming contaminated with the bacteria Cryptosporidium and Giardia to such a degree that the New South Wales Health Department had to order a million households to boil their water. The newly built Prospect treatment plant was identified as the likely source of the bacteria.(238) As many as 9,000 businesses, mainly in the hotel and restaurant businesses, responded by launching a class-action suit worth several million dollars against Sydney Water.(239) Meanwhile, Australian Water Services, builder and operator of the Prospect Plant, denied all responsibility for the fiasco on the grounds that its contract did not require it to test for either Cryptosporidium or Giardia.(240) Regardless of who is ultimately held responsible, the episode is likely to make other municipalities in Australia think twice about privatizing their water supply.(241)
The Sydney Water Board's record on sewage treatment is terrible. Until around 1900, all sewage was just dumped into the harbour, to the chagrin of residents and shippers, who eventually tired of the filth. Therefore at the turn of the century, the government finally installed sewage outfalls, intended to allow the current to transport the wastes far out to sea. Yet residents soon began to notice waste piling up on the shore; the city insisted much of this was from the beachgoers themselves, or else passing ships, but still promised to finally build sewage treatment facilities in 1936. The promise was fulfilled, belatedly, in 1984, and furthermore this involved only primary treatment, a process so basic that only 15 per cent of solid matter was removed. Rather than admit that anything was wrong, Sydney Water described, in a 1987 advertisement in the Sydney Morning Herald, the ocean as the "world's most efficient water purification plant." At the same time, tests revealed that the almost raw sewage, still unceremoniously dumped in the ocean, was causing levels of organochlorines such as benzene hexachloride in fish to be up to over 100 times the safe limit.(242)
The Sydney Water Board claims it changed in the 1990s. It boasts that 90 per cent of all biosolids are now recycled at its plants as part of the Organic Waste Recycling Program.(243) But if an article in the February 15, 1997, Sydney Morning Herald is any indication, residents are yet to be satisfied. The ocean around Sydney is described as "a stinking cocktail of waste" and a potential embarrassment for the 2000 Summer Olympics. Red tide algae have flourished in the Parramatta river due in part to untreated sewage flowing into the harbour and posing a danger for both people and fish. Critics blame the government's monopoly, which presides over assets larger than most Australian corporations yet seems incapable of managing the system. Ultimately, the solution may prove to be Australian Water Services (AWS), a joint venture between the Australian Lend Lease Corporation and the multinational Lyonnaise des Eaux, which will treat all sewage and recycle it back into the water supply for just over $1 billion. AWS has bypassed the Sydney Water Board and gone straight to the state government with its plan, a telling indictment of the board's lack of interest in solving its sewage problems.(244)
Brisbane, the capital of Queensland, has its water and sewerage services supplied by Brisbane Water, a Brisbane City Council Business Unit.(245) As the title implies, the objectives of the utility are mainly commercial. Before July 1, 1997, most of the city's residents payed rates based on the value of their land, but on that day, metered billing was introduced to conserve water. In the brief period since then, water consumption has fallen by 26 per cent. Sprinkler use is restricted by various laws, the simplest of which is that no resident may use the device for more than three days a week.(246) The utility is also involved with Zeolite Australia Ltd., which is helping to improve its sewage treatment plants.(247)
The Melbourne utility may have undergone the most radical restructuring of any publicly owned utility in the country. The reforms of 1994 essentially split it into four parts. Melbourne Water extracts the water from the environment, treats it for consumption, and then takes 94 per cent of it back as sewage for treatment and disposal.(248) Three other public companies, Southeast Water,(249) City West Water,(250) and Yarra Valley Water,(251) buy the water from Melbourne Water and then distribute it, each in its own part of the city, and treat 6 per cent of the sewage. They also collect the sewage, which they return to Melbourne Water for treatment and disposal. The three distribution companies are compared with one another to encourage higher standards, even though they each have a monopoly in their respective areas. All four companies insist that they operate "commercially." City West Water, for example, made $53 million in 1996-97, an increase of 33 per cent over 1995-96. Three projects worth $80 million were expected to be tendered some time in 1998.(252), (253), (254), (255)
Melbourne Water brags that it reuses 1,400 megalitres of effluent yearly to irrigate the Mornington peninsula. While by itself this seems impressive, in fact it accounts for less than one half of 1 per cent of the approximately 330,000 megalitres produced annually. Its Western Treatment Plant is run by methane gas, which it claims saves costs and reduces greenhouse gases. It also has a policy of giving all its sewage at least secondary treatment.(256)
Although all of the water utilities discussed above have been reorganized in a manner intended to increase their commercial viability, only in South Australia has the full operation of the utility actually been turned over to the private sector. The winning bid was submitted by United Water in 1995, and the expectations were that the company would save 20 per cent over 15 years.(257) Some have complained that the company has cut jobs and decreased the workers' salaries; defenders of the company counter that this means that it is operating more efficiently.(258) The state government also plans to allow trading of water allocations and to decentralize water management from the state to the community level.(259)
Fiji
The Fijian government has decided to privatize its water and sewerage
services with the help of both the Asian Development Bank and the Tasman
Institute, an Australian research organization that has assisted in and
encouraged water privatization throughout Asia.(260)
The program has met much local opposition, with the Coalition Against Water
Privatization declaring water to be an essential service unfit for commercial
ownership. This coalition, made up of many non-government organizations,
circulated a petition in July 1997, hoping to collect 100,000 signatures
and give it to the prime minister, Aisake Kasimira, in September.(261)
New Zealand
In recent years, New Zealand has been well known as a country that carried out market-oriented economic reforms once the failure of the old economic policies had become evident. Electricity, transport, and roads have been at least partially transferred to the private sector. The water and wastewater industry is the exception to this rule, as much of it remains under government control.
Government ownership of water utilities in New Zealand is different from government ownership in most other countries, as it refers to control by local district councils rather than by central, state, or municipal governments. The result is a large number of different suppliers serving small areas; 56 councils serve fewer than 50,000 customers while 26 serve fewer than 20,000. Many suspect this leads to unnecessary duplication of tasks; a World Bank study claims that a customer base of at least 500,000 people is needed for a water company to attain optimal efficiency, and all New Zealand companies outside the very largest cities fail to meet this requirement. Regarding the ideal number of water companies in New Zealand, Roger Kerr of the New Zealand Business Roundtable (NZBR) says most industry insiders "suggest the number would be in single figures."(262) A possible critique of this argument would be that smaller units both permit greater competition and more direct contact with the communities, making them more likely to cater to specific local concerns.
The most popular current arrangement in the New Zealand water industry is corporatization, by which the utilities remain in local government hands but are given autonomy and encouraged to function commercially. In 1977, 77 per cent of the utilities were departments of the various local governments; by 1994 only 16 per cent were, with most of the rest supposedly freed from political control and made into "business units."(263) The Christchurch authority describes its data as "corporate information," despite the fact that the actual operator is not a multinational but a district council.(264)
Corporatization is often an uneasy compromise that does not satisfy anyone. Those who believe that water utilities should be run by the government and set rates on principles of social justice object to any attempt to treat them as a business with conventional economic goals. Some of the more opportunistic politicians may resent that they are at least supposed to no longer intervene in water and wastewater utilities to serve their special-interest constituencies. Finally, the supporters of privatization are not convinced that the business units are really subject to market disciplines. The NZBR suggests that market forces are absent in four crucial respects: firstly, that, for political reasons, councillors with weak business qualifications are promoted to the boards; secondly, that there are no threats of takeovers and therefore no capital market constraints; thirdly, that there are no shareholders to keep the financial situation of the company well monitored and to encourage it to share financial information; and finally, that, while in theory the utilities are operated commercially, there is always the risk of political intervention, and indeed the companies are often given non-commercial as well as commercial goals, a contradiction that can potentially cause great confusion.(265) In South America, corporatization is usually done as a stopgap measure to prepare for granting a concession. (See South America.)
The data suggests that the efficiency and effectiveness of the council business units is questionable. A 1995 NZBR report is revealing. Even though New Zealand is a prosperous country, and one with a small population and abundant water resources, the inhabitants of Auckland,(266) along with 87 per cent of New Zealand residents, have recently endured some restrictions on their supply.(267) As many as 23 per cent of New Zealanders receive water of questionable safety.(268) The sewage system also needs work; 195 communities need improved sewage treatment facilities, 108 to the point where they face potentially serious health problems. It was estimated in 1995 that $5 billion is needed over 20 years just to make all inland and coastal water safe for recreational swimming and fishing. (The figures throughout this section are in New Zealand dollars.) Water losses in Wellington are 26 per cent, which compares well with the 30 to 60 per cent common in Third World countries but not with the 12 per cent in the United States. The same study suggests that the Auckland system requires at least $2.6 billion in new investment over the next 20 years, and many doubt that the government has the resources to provide that. Recently, meters have been installed in many places, which has led to greater efficiency, reducing consumption by 26 per cent in Auckland and water losses in the region of Hunter from 28 per cent to 18 per cent.(269)
Privatization is now a major political issue. The NZBR has begun to
lobby aggressively in its favour, producing a series of speeches and reports.
In one, Roger Kerr explains the theoretical reasons for privatization;(270)
in another, he laments the slow progress of reform and gives many international
examples;(271) and in a third, he illustrates
the political problems of government control.(272)
According to the NZBR, the council of Papakura has granted a 30-year concession
for its services, one of the first in the country. Overall rates in Papakura
have gone down by 10 per cent, as opposed to a real price increase of over
14 per cent for the country as a whole.(273)
On the other side of the coin, many local political parties oppose
privatization, including the New Zealand Alliance Party and the Greens.
Wellington politician Jeannette Fitzsimmons, upon learning that the city
was moving toward a private concession for its water supply in November
1997, responded with both critical rhetoric and some figures from the British
privatization experience:
Water is too precious for profit. The value of water should be measured
in terms of its value to the health of people and the health of environmental
systems.... On average across all U.K. water companies over six years,
prices have increased 159%, profits have tripled, executive pay has increased
339%, pollution incidents have gone up 53%, yet investments in water supply
fell by 20% in the last year of the period, and the companies have paid
virtually no tax.(274)
These figures are, of course, based on certain assumptions; they do
not sway the NZBR, which, using its own set of data, claims that prices
in the U.K. in 1994 "were 13% lower than they would have been under government
ownership" and "real improvements in drinking and bathing water quality
have been achieved."(275) There will clearly
be a long political battle ahead.
Western Europe
France
In normally centralized France, there are some 36,000 communes, the large majority having less than 2,000 people, each of which is responsible for its own water supply. Some of these units have joined together, either because they were too small to operate efficiently, common in rural villages, or because they were so large that their systems tended to overlap anyway, common in urban areas. Even so, there are 15,200 separate water and 11,200 separate sewerage systems in all of France. In a country of 58 million, this means that each system serves on average approximately 3,900 customers.
Although they are required to maintain ownership of the infrastructure, the municipalities can choose whether and how to delegate control of their services to private companies. At present, 58 per cent of all water supply systems, serving 75 per cent of the population, have contracted out their services in one way or another.(276) In Paris, for example, this means creating a corporation with minority private ownership;(277) in most cases, however, the government gets out of operating the system entirely. It is also possible to contract out certain parts of the system, such as distribution and billing, while continuing to operate other parts, such as withdrawal and treatment. The municipal governments almost always set performance standards to be met over the terms of the contracts, but there are considerable variations on the amount of regulation done by the government and the amount expected to be done by the companies themselves, who, given the sheer number of bids they can potentially win, want to enhance their reputation with both governments and the public.
In theory, the French system, with its large number of competitive bids, should be highly competitive and efficient, but in practice, the government has tended to intervene in economically dubious ways, often for political reasons. First of all, the communes' water systems are subsidized in a bewildering variety of different ways through different levels of government. Water companies, and therefore the consumers, pay fees for the withdrawal and pollution of their water to the nation's six water agencies, corresponding to the nation's six major river basins.(278) The water agencies proceed to use this money for all different types of capital projects in their respective river basins, such as dams, reservoirs, sewer systems, sewage treatment plants, and conservation programs, as well as for the operation of industrial and domestic sewage treatment.(279) The communes themselves contribute a minimum of 20 per cent of all construction costs,(280) while the regions occasionally assist in funding some of the bigger projects.(281) Departments offer over FF1 billion nationwide for various water and sewerage projects.(282) Even the national government is unable to resist the temptation, providing more than FF935 million to departments through the ministry of agriculture via the National Fund for the Development of Water Supply Systems, money collected by means of the national tote betting system and of a surtax on water bills.(283) Overall, private companies fund only a third of the capital expenditures on water and sewerage.(284) One of the benefits of privatization is generally thought to be the lowering if not removal of subsidies; this has not been the case in France. While the companies do indeed generally pay the cost of operating the services they run, they do not pay for the financing of much of the costly infrastructure in a highly capital intensive industry. As far as subsidies go, every level of government seems to do its part.
Subsidies are not the only means employed by French governments to reduce market incentives. Article L-122.12 mandates that the winner of a contract must not reduce the number of employees of the utility or their wages before it takes over. If the company wishes to fire them it must first rehire them and then go through the notoriously costly French severance procedures.(285) The French have not allowed foreign companies to enter the water and sewerage sector, so 96 per cent of the market is dominated by three large domestic companies: Lyonnaise des Eaux, serving 18.8 per cent of the communes, Générale des Eaux, serving 36.7 per cent, and SAUR, serving 40 per cent.(286) However, European Community laws are hostile to such protectionism, so it is expected that restrictions on foreign participation in the sector will soon be removed, breaking the three-way oligopoly. Some companies develop such a relationship with the communes that the competitive bids become decidedly uncompetitive negotiations; in the Île-de-France, one company has managed the service for 47 years w