Privatization of Water Privatization of Water SystemsSystems

CE 397 Transboundary Water CE 397 Transboundary Water ResourcesResources

Kathryn BensonKathryn Benson

What is the concept of privatization?What is the concept of privatization?• Privatization in Privatization in

the water sector the water sector means means transferring transferring some or all of some or all of the assets or the assets or operations of operations of public water public water systems into systems into private handsprivate hands

Water System Functions That Can be Water System Functions That Can be PrivatizedPrivatized• Capital improvement planning and budgeting (including Capital improvement planning and budgeting (including

water conservation and wastewater reclamation issues)water conservation and wastewater reclamation issues)• Finance of capital improvementsFinance of capital improvements• Design of capital improvementsDesign of capital improvements• Construction of capital improvementsConstruction of capital improvements• Operation of facilitiesOperation of facilities• Pricing decisionsPricing decisions• Management of billing and revenue collectionManagement of billing and revenue collection• Management of payments to employees or contractorsManagement of payments to employees or contractors• Financial and risk managementFinancial and risk management• Establishment, monitoring, and enforcement of water quality Establishment, monitoring, and enforcement of water quality

and other service standardsand other service standards

Risks of PrivatizationRisks of Privatization• Water provision is a basic responsibility of governments Water provision is a basic responsibility of governments • Privatization may bypass under-represented and under-served Privatization may bypass under-represented and under-served

communities communities • Privatization can worsen economic inequities and the Privatization can worsen economic inequities and the

affordability of water affordability of water • Privatization agreements may fail to protect public ownership Privatization agreements may fail to protect public ownership

of water and water rights of water and water rights • Privatization agreements often fail to include public Privatization agreements often fail to include public

participation and contract monitoring participation and contract monitoring • Inappropriate privatization efforts ignore impacts on Inappropriate privatization efforts ignore impacts on

ecosystems and downstream water users ecosystems and downstream water users • Privatization efforts may neglect the potential for water-use Privatization efforts may neglect the potential for water-use

efficiency and conservation improvements efficiency and conservation improvements • Privatization agreements may lessen protection of water quality Privatization agreements may lessen protection of water quality • Privatization agreements often lack dispute-resolution Privatization agreements often lack dispute-resolution

procedures procedures • Privatization of water systems may be irreversible Privatization of water systems may be irreversible

Implications of PrivatizationImplications of PrivatizationTECHNICAL•Infrastructure•System efficiency•System optimization

SOCIAL•Basic human need for water•Population displacements•Water stamps (Chile)•Ecosystem •Downstream water users

ECONOMIC•Global versus local•Foreign control over a natural resource•Affordability, how do you set water rates?•Subsidiaries•UsesCULTURAL•Reduction in government•Historical rights•Unmonitored groundwater pumping•Power of corporate players•Religious uses

Drivers of PrivatizationDrivers of Privatization• Societal (the belief that privatization can help satisfy unmet Societal (the belief that privatization can help satisfy unmet

basic water needs) basic water needs) • Commercial (the belief that more business is better) Commercial (the belief that more business is better) • Financial (the belief that the private sector can mobilize Financial (the belief that the private sector can mobilize

capital faster and cheaper than the public sector) capital faster and cheaper than the public sector) • Ideological (the belief that smaller government is better) Ideological (the belief that smaller government is better) • Pragmatic ( the belief that competent, efficient water-Pragmatic ( the belief that competent, efficient water-

system operations require private participation)system operations require private participation)

World Bank and other international aid agencies and some organizations like the World Water Council are increasingly pushing privatization efforts

Local community groups, unions, human rights organization and public water providers are opposed to privatization

Principles and standards for Principles and standards for PrivatizationPrivatizationContinue to manage water as a social goodContinue to manage water as a social good

– Meet basic human needs for water. All residents in a Meet basic human needs for water. All residents in a service area should be guaranteed a basic water quantity.service area should be guaranteed a basic water quantity.

– Meet basic ecosystem needs for water. Natural Meet basic ecosystem needs for water. Natural ecosystemsecosystems

– The basic water requirement should be provided at The basic water requirement should be provided at subsidized rates when necessary for reasons of povertysubsidized rates when necessary for reasons of poverty

Use Sound economics in Water ManagementUse Sound economics in Water Management– Water and water services should be provided at fair and Water and water services should be provided at fair and

reasonable ratesreasonable rates– Whenever possible, link proposed rate increases with Whenever possible, link proposed rate increases with

agreed-upon improvements in serviceagreed-upon improvements in service– Subsidies, if necessary, should be economically and Subsidies, if necessary, should be economically and

socially soundsocially sound– Private companies should be required to demonstrate that Private companies should be required to demonstrate that

new water-supply projects are less expensive than new water-supply projects are less expensive than projects to improve water conservation and water-use projects to improve water conservation and water-use efficiency before they are permitted to invest and raise efficiency before they are permitted to invest and raise water rates to repay the investmentswater rates to repay the investments

Principles and standards for Principles and standards for PrivatizationPrivatizationMaintain Strong Government Regulation and OversightMaintain Strong Government Regulation and Oversight

– Governments should retain or establish public ownership or Governments should retain or establish public ownership or control of water sourcescontrol of water sources

– Public agencies and water-service providers should monitor Public agencies and water-service providers should monitor water quality. Governments should define and enforce water quality. Governments should define and enforce quality lawsquality laws

– Contracts that lay out the responsibility of each partner are a Contracts that lay out the responsibility of each partner are a prerequisite for the success of any privatizationprerequisite for the success of any privatization

– Clear dispute-resolution procedures should be developed Clear dispute-resolution procedures should be developed prior to privatizationprior to privatization

– Independent technical assistance and contract review should Independent technical assistance and contract review should be standardbe standard

– Negotiations over privatization contracts should be open, Negotiations over privatization contracts should be open, transparent, and include all affected stakeholderstransparent, and include all affected stakeholders

FundingFunding• Water users Water users • Informal suppliers Informal suppliers • Public water and utilities Public water and utilities • Private companies Private companies • Non-governmental organizations Non-governmental organizations

and local communities and local communities • Local banks and other financial Local banks and other financial

institutions institutions • International banks and export International banks and export

credit agencies credit agencies • International aid from International aid from

multilateral and bilateral multilateral and bilateral sources sources

• Multilateral financial institutions Multilateral financial institutions • Environment and water funds Environment and water funds • National central and local National central and local

governments governments