Environmental Services Environmental Services Liberalization and Liberalization and Sustainable Sustainable DevelopmentDevelopment

Luis Abugattas MajlufLuis Abugattas MajlufUNCTAD-DITCUNCTAD-DITCWTO Symposium on Trade and Sustainable WTO Symposium on Trade and Sustainable Development within the framework of Development within the framework of Paragraph 51 Paragraph 51 of the Doha Ministerial Declaration of the Doha Ministerial Declaration Geneva, 10‑11 October 2005Geneva, 10‑11 October 2005

The international community has set The international community has set clear goals when addressing the issue clear goals when addressing the issue of environment and development: of environment and development: Millennium Declaration 2000, UN 2005 Millennium Declaration 2000, UN 2005 SummitSummit

MDG 7: Ensure environmental sustainabilityMDG 7: Ensure environmental sustainability Target 9Target 9 Integrate the principles of sustainable Integrate the principles of sustainable

development into country policies and programmes and development into country policies and programmes and reverse the losses of environmental resources. reverse the losses of environmental resources.

Target 10Target 10 Halve by 2015 the proportion of people without sustainable Halve by 2015 the proportion of people without sustainable access to safe drinking water and basic sanitation. access to safe drinking water and basic sanitation.

Target 11Target 11 Have achieved by 2020 a significant improvement in the Have achieved by 2020 a significant improvement in the lives of at least 100 million slum dwellers. lives of at least 100 million slum dwellers.

Goal closely linked to the attainment of other MDG: 4 child Goal closely linked to the attainment of other MDG: 4 child mortality, 5 maternal health, 6 combat diseases, and to a mortality, 5 maternal health, 6 combat diseases, and to a large extent dependent on MDG 1 eradication of extreme large extent dependent on MDG 1 eradication of extreme poverty. poverty.

Challenges are enormousChallenges are enormous Increasing environmental degradation [climate Increasing environmental degradation [climate

change, deforestation, soil, water and air change, deforestation, soil, water and air pollution, depletion of biodiversity]pollution, depletion of biodiversity]

1.1 billion people without access to safe water.1.1 billion people without access to safe water. 2.4 billion people lack access to improved 2.4 billion people lack access to improved

sanitation.sanitation. 32 per cent of worldwide urban population live 32 per cent of worldwide urban population live

in slums. 43% in developing countries, 870 in slums. 43% in developing countries, 870 million people without access to housing million people without access to housing related infrastructure and services.related infrastructure and services.

Significant investment required [180 billion Significant investment required [180 billion USD yearly]USD yearly]

A further challengeA further challenge: How to provide services : How to provide services and develop required infrastructure avoiding and develop required infrastructure avoiding an increase in environmental degradation ?an increase in environmental degradation ?

In order to achieve MDG 7 it In order to achieve MDG 7 it is necessary to enhance is necessary to enhance domestic capacities to:domestic capacities to:

Provide essential services to the population Provide essential services to the population [[water and sanitationwater and sanitation]]

Address environmental protection and Address environmental protection and management in order to conserve critical management in order to conserve critical ecosystems [ecosystems [capacity to prevent and capacity to prevent and remedy environmental damageremedy environmental damage]]

Basic questionsBasic questions: Which are the best : Which are the best policies to achieve the main objectives? policies to achieve the main objectives? And, how international trade and, being the And, how international trade and, being the case, binding commitments can contribute case, binding commitments can contribute to this end? to this end?

In order to assess policy options for In order to assess policy options for developing countries is necessary to analyse developing countries is necessary to analyse the nature of different services linked to the nature of different services linked to environment and development goalsenvironment and development goals

Core Core EnvironmentEnvironment

alal

ServicesServices

Related Related servicesservices

““environmental environmental end-use”end-use”

Infrastructure-type Infrastructure-type servicesservices

““quasi-public quasi-public goods”, “merit goods”, “merit

goods”goods”

[Water and waste [Water and waste water water

management, management, refuse disposal, refuse disposal,

sanitation]sanitation]

Other Other environmentenvironmental servicesal services

[All other [All other services in services in Division 94 Division 94

CPC] CPC]

Infrastructure-type Infrastructure-type services Iservices I Traditionally public services [In 90% of Traditionally public services [In 90% of

developing countries provided by the public developing countries provided by the public sector. Only 5% of water distributed by private sector. Only 5% of water distributed by private companies worldwide] Increasing private companies worldwide] Increasing private involvement.involvement.

Demand function of population growth and Demand function of population growth and urbanization. Issue: conversion of need into urbanization. Issue: conversion of need into effective market demand.effective market demand.

Quasi-public goods; or “merit goods”. Perceived Quasi-public goods; or “merit goods”. Perceived as a “right” by consumers and even legally as a “right” by consumers and even legally (South Africa).(South Africa).

Characteristics of network services, capital Characteristics of network services, capital intensive activities, large sunken costs. intensive activities, large sunken costs. Technology available through the market. Main Technology available through the market. Main constraint is finance.constraint is finance.

Tendency towards natural monopoly [sewage, Tendency towards natural monopoly [sewage, water treatment and distribution, refuse disposal water treatment and distribution, refuse disposal infrastructure] infrastructure]

Infrastructure-type Infrastructure-type services IIservices II Differentiation between the service itself and the Differentiation between the service itself and the

associated necessary infrastructure [solid waste associated necessary infrastructure [solid waste recollection and incinerator or sanitary deposit, recollection and incinerator or sanitary deposit, water distribution and water pipelines] water distribution and water pipelines]

Sensitive to “collective action problem”: action Sensitive to “collective action problem”: action of a member affect all others. [sanitation]of a member affect all others. [sanitation]

Full-cost recovery from users is the ideal long-Full-cost recovery from users is the ideal long-term goal. Need of subsidisation of low income term goal. Need of subsidisation of low income population.population.

Regulatory objectives: rates, universal access, Regulatory objectives: rates, universal access, standards and quality of the service, standards and quality of the service, competition, and addressing negative competition, and addressing negative externalities. Issue: regulatory and enforcement externalities. Issue: regulatory and enforcement capabilities.capabilities.

In most cases liberalization entails privatization.In most cases liberalization entails privatization.

Other non-infrastructure Other non-infrastructure environmental servicesenvironmental services Regulation-induced demand [public opinion, Regulation-induced demand [public opinion,

profitable environmental protection]. Corporate profitable environmental protection]. Corporate and State clients mitigating market failure risks.and State clients mitigating market failure risks.

Knowledge and technology intensive services.Knowledge and technology intensive services. Provided through the market by private sector Provided through the market by private sector

in competition. Few trade restrictions in competition. Few trade restrictions [government procurement, natural persons [government procurement, natural persons mobility, and recognition and accreditation mobility, and recognition and accreditation issues]issues]

Regulatory objectives: quality of the service. Regulatory objectives: quality of the service. [assure that the supplier is adequately qualified [assure that the supplier is adequately qualified to provide the service].to provide the service].

These services are crucial to prevent and These services are crucial to prevent and remedy environmental damage.remedy environmental damage.

Size of domestic market, needed specialization Size of domestic market, needed specialization and technological requirements may limit and technological requirements may limit development of a domestic supply of these development of a domestic supply of these services in many developing countries.services in many developing countries.

Policy options for Policy options for developing countries Ideveloping countries I

Infrastructure-type environmental Infrastructure-type environmental servicesservices

Public provisionPrivatization and

full market reliance

Private Public Partnerships (PPP)

Community-based approaches

PPP: services contract, management contract, private lease, BOT, concession, and joint-venture. [domestic or foreign companies]

There is a very rich There is a very rich experience with the experience with the application of different application of different policies aimed at policies aimed at improving the provision improving the provision of essential services. of essential services.

Assessment of policy Assessment of policy outcomes Ioutcomes I Private participation has been actively promoted Private participation has been actively promoted

worldwide to address lack of public resources, low quality worldwide to address lack of public resources, low quality service and also as result of pressures to privatize*. What service and also as result of pressures to privatize*. What can be learnt?can be learnt?

Liberalization offers potential benefits: capital, improved Liberalization offers potential benefits: capital, improved operating efficiency, technical and managerial expertise. operating efficiency, technical and managerial expertise. (OECD). Investment flows can not be guaranteed [flows (OECD). Investment flows can not be guaranteed [flows levelling off, desinvestures] The State might still have to levelling off, desinvestures] The State might still have to play an important role. Potential conflicts, i.e Aguas play an important role. Potential conflicts, i.e Aguas ArgentinasArgentinas

Positive results can be obtain trough different alternatives. Positive results can be obtain trough different alternatives. There are numerous examples of success and also of There are numerous examples of success and also of failure under the different policy options.failure under the different policy options.

Some studies demonstrate that there might not be Some studies demonstrate that there might not be significant difference in the performance of the public significant difference in the performance of the public sector and private companies in providing some essential sector and private companies in providing some essential services**services**

For example, In 30% of loans agreed by the IMF in 2000 water privatization was a condition.For example, In 30% of loans agreed by the IMF in 2000 water privatization was a condition.

* ** * Estache A and Rossi M (2002). How different is the efficiency of public and private water compan*ies in Asia? World Bank Economic Review Vol 16, Estache A and Rossi M (2002). How different is the efficiency of public and private water compan*ies in Asia? World Bank Economic Review Vol 16, No 1. Oxford University Press, Oxford June 2002. Clarke, G, Kosec K, and Wallsten, S (2004). Has private participation in water and sewerage No 1. Oxford University Press, Oxford June 2002. Clarke, G, Kosec K, and Wallsten, S (2004). Has private participation in water and sewerage improved coverage? Empirical evidence from Latin America. World Bank Policy Research working paper, No 3445]improved coverage? Empirical evidence from Latin America. World Bank Policy Research working paper, No 3445]

Assessment of policy Assessment of policy outcomes IIoutcomes II The regulatory environment is central in The regulatory environment is central in

determining the outcome of increased determining the outcome of increased private sector participation. Therefore the private sector participation. Therefore the sequence between liberalization and sequence between liberalization and regulatory upgrading and institution building regulatory upgrading and institution building is crucial for obtaining positive results. is crucial for obtaining positive results.

There are no basis for a “one size fits all There are no basis for a “one size fits all approach” The best policy is service and approach” The best policy is service and country specific. Assessment of domestic country specific. Assessment of domestic market realities, of the institutional market realities, of the institutional capabilities and regulatory framework, and capabilities and regulatory framework, and evaluation of policy alternatives is required.evaluation of policy alternatives is required.

Non-infrastructure servicesNon-infrastructure services In order to address environmental concerns In order to address environmental concerns

most developing countries need to develop most developing countries need to develop markets for environmental services, and markets for environmental services, and strengthen the domestic supply of these strengthen the domestic supply of these services. [initial development in environmental services. [initial development in environmental consultancy services and other related consultancy services and other related professional service]professional service]

Measures fostering the demand for these Measures fostering the demand for these services and also supporting the emergence of services and also supporting the emergence of supply are needed.supply are needed.

Trade can play an important role in assuring Trade can play an important role in assuring the availability of specialized cost-effective the availability of specialized cost-effective environmental services and contribute to the environmental services and contribute to the development of a domestic supply of some of development of a domestic supply of some of these services through association of domestic these services through association of domestic with foreign firms, improved access to with foreign firms, improved access to technology, and dynamic efficiency gains technology, and dynamic efficiency gains brought by increased competition.brought by increased competition.