Docstoc

Problems with Privatization of Water Supply and Sanitation

Document Sample
Problems with Privatization of Water Supply and Sanitation Powered By Docstoc
					                   World Water Forum                     The Hague 17-22 March 2000
                   PSI Briefing on: The way forward – public sector water


          Problems with Privatization of Water Supply and Sanitation

     Financing water – distortions and prejudiceTopic 10: Multilateral
                Agencies and Restricted Access to Finance

     SummaryA. ................................................................. Multilateral finance and conditionality
              1
     B.       Loans for the private sector only ...............................................................................................21
     C.       Supporting profits, not performance ..........................................................................................32
     D.       Distortions of public finance .....................................................................................................42




                                                                                                                                                      Formatted: Bullets and Numbering
1.




International financial institutions like the World Bank are promoting private sector participation in water
supply and sanitation as the way forward. The approach of these multilateral agencies is:

Acritical, as the distortions caused by the privatization of water supply and sanitation are not taken into                                          Formatted: Bullets and Numbering
    sufficient consideration;
Limited, as it does not consider other viable solutions to the challenges of managing urban water systems
    in transition and developing countries.

Multilateral agencies themselves seriously affect the achievement of development objectivesdistort the
choices available by their policies in providing financial support to water and wastewater projects.
Distortions due to multilateral agencies’ involvement in water include:

    Imposing water privatization as a conditionality of loanson cash-starveding governments;
    Selective Ffinancing e to multinationals, even when this means penalizingin preference to efficient
     public enterprises;
     Securing multinationals’ profits rather than operating performance or public accountability;                                                     Formatted: Bullets and Numbering
    Failure to protect the interests of consumers.

Multilateral Finance
A. Multilateral finance and conditionality                                                                                                            Formatted: Bullets and Numbering

and Restricted Sovereignty

Multilateral agencies financing water operations restrict the sovereignty of governments in transition and
developing countries by means of conditionality. Conditionality in the provision of loans, or the granting of



          Public Services International                                                                     www.world-psi.org
                        Research by PSIRU, University of Greenwich, London SE10 9LS, UK www.psiru.org
                 World Water Forum                     The Hague 17-22 March 2000
                 PSI Briefing on: The way forward – public sector water


debt relief, can results in the effective imposition of water privatization to cash-starveding governments.
Multilateral agencies have exerted similar pressures in extremely controversial circumstances

        Mozambique was forced to privatize its water services in 1999 as .one of the conditions imposed         Formatted: Bullets and Numbering
         by donors and funding agencies for the provision of $117 million to improve the services. This
         privatization was also one of the reasons for extending Mozambique’s debt relief . 1 The agencies
         include the World Bank, the African Development Bank, the Dutch government and the European
         Union. Urban water and sanitation services for 2.5 million were privatized to a consortium led by
         SAUR, a subsidiary of Bouygues, which expects revenue of about $9m per year from these
         concessions. 2

        Privatization seems to have become a more important objective than eleiminating corruption. In          Formatted: Bullets and Numbering
         Kenya, for example, the IMF and World Bank have been bitterly criticized for resuming aid after
         the privatization of Nnairobi’s water, despite the fact that the government had made no progress in
                                                                                      3
         eleiminating corruption, which was also supposed to be a condition of aid.
    


B. Loans for the private sector only                                                                             Formatted: Bullets and Numbering

The multilateral agencies often provide finance only through private companies now, however efficient the
public sector alternative might be.

        The World Bank has insisted that the Bolivian government look to the private sector for                 Formatted: Bullets and Numbering
         investment in water supply and sewerage. As a consequence, in December 1997 the government
         refused to guarantee a $25m World Bank loan to finance the investment programme of the co-
         operative SAGUAPAC despite its “excellent track record in the use and repayment of past loans”.
         Now the World Bank is to provide technical assistance to privatize Bolivian water co-operatives
         including SAGUAPAC 4.

        The EIB (European Investment Bank) is one of the largest providers of finance for water projects,       Formatted: Bullets and Numbering
         in all continents 5. However, it can only support investments outside Europe when the project
         involves European multinationals – and so requires privatisation.

        The EBRD’s first ever loan for water and sanitation in eastern Europe was granted not to a              Formatted: Bullets and Numbering
         government but to a multinational: “a $90m equity and loan facility with Lyonnaise des Eaux to
         support the French utilities and communications group's planned $300m investment programme
         in the region.” 6. (Just one month earlier, Thierry Baudon had left his post as deputy vice president
         of the EBRD and joined Lyonnaise des Eaux as managing director, international project finance.)7
Among multilateral agencies,
   tin Asia and Latin Americais of “mutual interests”, which means that governments needing                      Formatted: Bullets and Numbering
  financial support are forced to privatize water to(***Check the source for “mutual
  interest”***)

The World Bank has been bitterly criticized in Kenya for demanding that water privatization                     Formatted: Bullets and Numbering
  should proceed while corruption was still prevalent (Hall & Bayliss).

    B.Restricted Access to Finance in Bolivia                                                                    Formatted: Bullets and Numbering


 The World Bank has insisted that the Bolivian government look to the private sector for
investment in water supply and sewerage. As a consequence, in December 1997 the government
refused to guarantee a $25m World Bank loan to finance the investment programme of the co-
operative SAGUAPAC despite its “excellent track record in the use and repayment of past


        Public Services International                                                   www.world-psi.org
                    Research by PSIRU, University of Greenwich, London SE10 9LS, UK www.psiru.org
                World Water Forum                     The Hague 17-22 March 2000
                PSI Briefing on: The way forward – public sector water


loans”. Now the World Bank is to provide technical assistance to privatize Bolivian water co-
operatives including SAGUAPAC (Nickson, 1998: 10)8.

***Also treat EBRD multi-project facilities???***

A.C. C. Secured Multinationals’ Profits and Unsecured PerformanceSupporting                                    Formatted: Bullets and Numbering

  profits, not performance

Multilateral agencies take part in water projects considered of strategic political importance. Political
motivation for privatization can leadM multilateral agencies to directly support multinationals’ investments
use their funding to encourage financial and political support for privatisation and the results of
multinationals, rather than their irrespective of their operational performance. .

 The key financing for the ‘flagship’ water privatization in Buenos Aires was supposed to have come           Formatted: Bullets and Numbering
  form the multinationals, who promised $1 billion investment in the first year. But Suez-Lyonnaise only
  invested $30m of that money – the rest came from the IFC, a world bank agency (raised $115m. to
  $250m. dollars in loans, and put up $300m. itself), the IDB ($100m), and local Argentine banks.              Formatted



   The EBRD has given a will ECU 22.7m loan to re-finance the 25% equity stake acquired by a
    Vivendi-led /Berliner Wasserbetriebe consortium in the privatization ofed Budapest Municipal
    Sewerage Company (FCSM). The ECU 22.7m loan This is appears designed to reduce the investment
    costs of the two multinationals and, so to enhance the financial profits performance of the special-
    purpose coconsortiummpany rather than the operational performance of FCSM 9. Another Another
    stated objective of the project loan is to “ease political resistance to private sector involvement”
    (EBRD, 1999: 26)10. Yet the concession contract lacks basic requirements of transparency: documents
    relating to the privatisation of FCMS are in fact kept secret, even from council officials, and Budapest
    City Council debates related issues only in closed sessions 11.




        Public Services International                                                  www.world-psi.org
                   Research by PSIRU, University of Greenwich, London SE10 9LS, UK www.psiru.org
                 World Water Forum                     The Hague 17-22 March 2000
                 PSI Briefing on: The way forward – public sector water


B. ***Also treat World Bank’s involvement in Aguas Argentinas???***                                          Formatted: Bullets and Numbering

C.
D. D. Multilateral Agencies and Neglected Consumers’ Interests
E.
F. The EBRD also provides a clear example of a multilateral agency involved in a
  water project protecting the interest of multinationals at the expenses of
  consumers.
G.
H. Despite the EBRD’s commitment to ensure that consumers’ interests are “fairly
  balanced” with those of the municipality authorities and private sector parties12
  (EBRD, 1999: 26), the concession contract seems to lack basic requirements of
  transparency. Documents relating to the privatisation of FCMS are in fact kept
  secret, even from council officials, and Budapest City Council debates related
  issues only in closed sessions13.
I.
J. E. Further Reading/References
K. European Bank for Reconstruction and Development (1999) Municipal and
  Environmental Infrastructure – EBRD involvement to date in the MEI sector.
  London: published for the European Bank for Reconstruction and Development.
L. Hall, D. & Bayliss, K. (2000) Privatisation of water and energy in Africa, 1999,
  PSIRU report for PSI, February 2000.
M. Lobina, E. & Hall, D. (2000) “Public Sector Alternatives to Water Supply and
  Sewerage Privatization: Case Studies”, International Journal of Water Resources,
  16(1), pp. 37-57.
N. Nickson, A. (1998) Organisational structure and performance in urban water
  supply: the case of the SAGUAPAC co-operative in Santa Cruz, Bolivia. Paper
  presented at 3rd CLAD Inter-American Conference, Madrid, 14-17 October 1998.
O. Wells, L. (1999) ‘Private Foreign Investment in Infrastructure: managing Non-
  Commercial Risk’ (Preliminary Draft). Paper for Private Infrastructure for
  Development: Confronting Political and Regulatory Risks – Conference, 8-10
  September Rome, Italy                                                                                      Formatted

      What about the SABESPA issue during the financial crisis? Beyond JWG’s                                 Formatted

     criticism about not including unions/workers in the planning, what about the
     Bank’s role to support the municipalities that must deal with the MNCs that are
     foisted on them? Why so many references to EBRD, and not IFC and the slice it
     takes in consultancy fees (see Bobet’s MWSS paper on women) ?
D. NotesDistortions of public finance
The preference for privatisation is also heavily affected by the fact that a public authority’s own budget
may be considerably improved by the sale of a water company – regardless of the benefit or cost to the
water and sanitation service.

        Public Services International                                                   www.world-psi.org
                    Research by PSIRU, University of Greenwich, London SE10 9LS, UK www.psiru.org
                   World Water Forum                     The Hague 17-22 March 2000
                   PSI Briefing on: The way forward – public sector water


          The sale in 1999 of half of Berlin Wasserbetriebe, a municipal company which was both efficient                Formatted: Bullets and Numbering
           and profitable – but Berlin city council needed the proceeds of the sale to reduce its debts.
          The same was true of the Chilean water and sanitation privatisations – EMOS in Santiago was
           described even by the world bank as a highly efficient utility – yet was partly privatised last year
           for political and fiscal reasons.                                                                              Formatted
          In 1997 the bid by Lyonnaise des Eaux and RWE for Budapest Water Works was successful, even
           though the prices it proposed were higher than rival bids – because Lyonnaise offered to pay an
           extra Forint 3 billion to the city council.

                                                                                                                          Formatted: Bullets and Numbering
Conclusions

The lending policies of the multilateral agencies force privatization to be adopted as an option, without any
critical evaluation of alternatives. The multinationals depend on this international public sector funding for
a high proportion of their activities.
1
    Africa Financing Review 1 July 1999
2
    Mozambique news Agency 1/10/99; Africa Financing Review 1 July 1999
3
    Jan 6 Interpress Service 6 Jan 2000
4
  Nickson, A. (1998) Organisational structure and performance in urban water supply: the case of the SAGUAPAC co-
operative in Santa Cruz, Bolivia. Paper presented at 3rd CLAD Inter-American Conference, Madrid, 14-17 October
1998. See also saguapac “Saguapac next up in waterworks privatizationprivatisation” – bolivia, World Reporter,
07/01/00; source: PSIRU database..
5
  The EIB revealed that the amount lent for projects "of mutual interest" in Asia and Latin America from 1997 to 1999
could reach ECU 900m. Source: PSIRU database; EIB loan for water in Manila – Philippines, Press Release, 27/01/99:
www.eib.org.
6
  FT 31.7.95
7
  FT 27.6.95
8
  Nickson, A. (1998) Organisational structure and performance in urban water supply: the case of the SAGUAPAC co-
operative in Santa Cruz, Bolivia. Paper presented at 3rd CLAD Inter-American Conference, Madrid, 14-17 October
1998. See also saguapac “Saguapac next up in waterworks privatizationprivatisation” – bolivia, World Reporter,
07/01/00; source: PSIRU database..
9
  Source: PSIRU database; “EBRD Board backs Budapest scheme”, Global Water Report, FT Bus Rep: Energy: 4 Dec
1998. More precisely, the stake acquired by Vivendi/Berliner Wasser Betriebe is to be sold to a special-purpose
company, with the EBRD as a shareholder. The EBRD will hold 30% of the special-purpose company (ECU 22.7 m),
while Vivendi and Berliner Wasser Betriebe together will hold 70%. Part of the EBRD’s 30% equity stake in the
special-purpose company will be sold to the sponsors at a pre-agreed price (covered by commercial confidentiality) at
an agreed moment (also covered by commercial confidentiality). This is likely to allow the two companies to re-finance
their equity participation in FCSM at more favourable conditions than those offered by the private banking sector.
10
   Source: PSIRU database; “EBRD Board backs Budapest scheme”, Global Water Report, FT Bus Rep: Energy: 4 Dec
1998. The EBRD’s interest in the special-purpose company is in fact associated with a political and regulatory risk
“carve-out”. In other words, in case of political and regulatory risks the EBRD will not exercise its right to sell the
equity to the private sponsors until the cessation of those risks.
11
   Source: PSIRU database; “Data of public interest and secret contracts”, NEPSZABADSAG: 7 Dec 1998. The same
applies to the documents relating to the privatisation of Budapest Water Works Rt, which is responsible for supplying
water to the city. The company was privatised in April 1997, when a 25-year concession was granted to a consortium of
Lyonnaise des Eaux and the German RWE Aqua.
12
   European Bank for Reconstruction and Development (1999a) Municipal and Environmental Infrastructure – EBRD
involvement to date in the MEI sector. London: European Bank for Reconstruction and Development.
13
  Source: PSIRU database; “Data of public interest and secret contracts”, NEPSZABADSAG: 7 Dec 1998. The same
applies to the documents relating to the privatisation of Budapest Water Works Rt, which is responsible for supplying
water to the city. The company was privatised in April 1997, when a 25-year concession was granted to a consortium of
Lyonnaise des Eaux and the German RWE Aqua.




           Public Services International                                                  www.world-psi.org
                      Research by PSIRU, University of Greenwich, London SE10 9LS, UK www.psiru.org

				
DOCUMENT INFO
Categories:
Tags:
Stats:
views:4
posted:6/20/2012
language:
pages:5