Public Water Utilities and Privatisation in Sweden by dfhrf555fcg

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Public Water Utilities and Privatisation in Sweden

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									                                                                            Working Paper
                                                            EPSU Public Service Conference
                                                                Brussels 12 December 2001




                  Public Water Utilities and Privatisation in Sweden

                                   Jan-Erik Gustafsson
                   Department of Land and Water Resources Engineering
                                          KTH
                             SE-100 44 Stockholm, Sweden

Introduction

Public water and sanitation utilities (the VA service) have by tradition been managed by the
municipality sector in Sweden. When urban water supply works began to be constructed at the
end of the 19th century, it was considered as a municipal undertaking. Even small
communities in rural areas have their own public water supply works. It is only big industrial
companies that have been given permission to withdraw surface or groundwater for their own
private water works.

Sewage treatment plant began to be built out in the 1950s. In the short period from 1965 to
1975 most of the 285 municipalities in Sweden were provided with treatment plants up to the
highest international standard. The constructions were supported by generous government
subsidies up to 50 per cent of the investment costs, which were unanimously welcomed by
local politicians. For them quick constructions responded to growing public concerns for
polluted rivers and lakes. Compared to competence conflicts in other countries like England
and Wales, it was considered as natural to place water supply and sewerage functions under
the same unit, the municipal water supply and sewerage works (MWSW).

Firstly this paper introduces the very successful Swedish VA model, and secondly describes
the commercialisation and privatisation threats it has undergone from the beginning of the
1990s.

The Swedish VA model

Some basic fact

There are some more than 2 000 municipal water supply works and 67 000 km of municipal
water pipes. These provide 7.7 million consumers or 90 percent of the population with high
quality water. The water consumption was at its highest level at the end of 1960, when 800
million cubic meters were used annually. The leakage in the pipe system is estimated to
increase this figure by 20 percent. Today the consumption is some 730 million cubic meters,
which at household level expresses at 200 litre per person and day.

There are also some more than 2 000 wastewater plants and 92 000 km of sewers of which 32
000 km are drainage pipes. The plants treat 1 500 million cubic meters of sewage water,


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drainage water and in-leaking water annually. All 7.7 million people living in urban areas are
connected to a wastewater plant. Today 58 percent of the population is connected to
biological-chemical (phosphorous) treatment. Since the beginning of the 1990s plants have
been complemented with nitrogen treatment, which means that 36 percent of the population is
served by biological-chemical (phosphorous)-nitrogen treatment.

All together some 6 000 staff are employed in the VA service. Among these 2 000 are
operational staff at the plants, 2 000 are occupied with maintenance etc. of the networks and 2
000 in-door staff. Due to automatisation and economic efficiency claims the total number of
staff has been reduced by some 4 000 during the 1990s.

The Water Supply and Sewerage Law is the foundation

The Swedish Water Supply and Sewerage Law from 1970 is very clear of the responsibilities.
The MWSW:s are separate accounting administrations, which are not allowed according to
the law to be operated by a profit margin, only to be funded by connection fees and operation
charges (the VA charge). Under § 2 it is stated that a MWSW is a societal concern. The
municipality has the responsibility for health protection (prevention and control), and
therefore also should provide for the MWSW. The responsibility includes that the
municipality decides the geographical perimeter of the individual MWSW.

If a MWSW is operated by somebody else than the municipality the new operator has first to
be declared as public by the county administration. With the eventual purchase of the whole
MWSW asset the health protection function is separated from the municipality responsibility,
meaning that private water supply and sewage works (PWSW) have to be declared public, if
the law should be abided by.

Thus the intentions behind the law express public health aspects and the security of the VA
supply systems are prioritised. Early experiences with multiple market failures associated
with water and sanitation at the continent in the 19 th century and the strong belief in the
welfare state has made private VA service not a considered a viable option until 1990s. Water
supply and sanitation has basically been developed as a service to all citizens at a non-profit
basis.

Provision of service at low cost

The Swedish consumers pay a connection fee and an operation charge. The connection fee is
an initial outlay at the time of the investment in new residential, commercial and industrial
areas. The fee might be calculated per connection point to the network, per plot area or per
apartment area. It varies due to geographical and market factors (climate, geology, location,
regional economy etc.) among the municipalities. In 1999 the average connection fee wa s 71
000 SEK1 with a variation between 10 000 - 126 000 SEK. The fee has provided stability as it
is the basic funding in implementing VA investments. In addition to the connection fee the
Water Supply and Sewerage Law allows for using the total VA charge to cover costs for
investments. Investments in production plants and the network are usually depreciated over a
period of 30 to 50 years. Each year 2,5 - 3 billion SEK is invested in the water sector.




1
    1 Euro equals approximately 9.50 SEK


                                               2
The total operation charge (or the VA charge) consists of fixed annual component and a
charge per cubic meter of consumption. The average charge per cubic meter was 14.10 SEK
1999 (including 25 percent VAT). If the VA charge is calculated on the basis of a family that
consumes 200 cubic meters per year will come up to 23.60 SEK per cubic meter (including 25
percent VAT). The variation is substantial among the municipalities. The highest total VA
charge is almost three times the lowest one.

During the period 1983 - 1999 the VA-charge for a household has been more or less stable
around 3 000 SEK/200m3 in real terms (excluding VAT). Thus the rather costly investments
in nitrogen treatment equipment have not increased the price for the consumer due to
improved efficiency. The Swedish municipal VA service seems quite competitive.

The competitiveness is also confirmed by international comparison. According to statistics
from IWSA (International Service Water Association) the average price or 200 cubic meter
drinking water was less than half the price most other European cities, table 1.

Table 1.     Average price for 200 m3 drinking water in some EU cities.

              City                                 Euro
              Amsterdam                                153
              Brussels                                 306
              Geneva                                   322
              Hague                                    241
              Helsinki                                 174
              Liege                                    229
              London                                   140
              Lyon                                     268
              Marseille                                256
              Newcastle                                275
              Odense                                   143
              Paris banlieu                            265
              Turku                                    254
              Gothenburg                                80
              Swedish average                          105


The low Swedish VA charge is remarkable considering that drinking water is an important
foodstuff with very high requirement to its preparation and quality. Sweden has also no scale
advantages as the population is small in number and huge part of the country is sparsely
populated.

Another international comparison in favour of the Swedish model is the investigation the
consultancy firm ITT made in 1995. The investigation surveyed economic performance
indicators in three public water supply works in Sweden and six private water supply works in
England and Wales, table 2. All indicators show more favourable conditions for the Swedish
cities.

In addition to economic efficiency there is a coherent linkage between the VA service and the
concern for the environment. The basis for the public VA service is to supply good quality
water and to protect the environment.


                                              3
Tabell. 2     Comparison of economic performance indicators of public and private water
              supply works/companies in some Swedish and English cities 1995. Cost per
              cubic meter water delivered in USD.



City                    Cost to        Cost of        Capital        Return on
                       customer       operation     maintenance       capital
Stockholm                0,28           0,17           0,03            0,09
Manchester               0,91           0,40           0,20            0,31
Bristol                  0,83           0,48           0,19            0,15

Gothenburg                0,38           0,11            0.05           0,21
Kirklees                  0,99           0,52            0,31           0,15
Hartlepool                0,73           0,35            0,08           0,29

Helsingborg               0,42           0,42            0,05           -0,05
Waverly                   0,82           0,48            0,22            0,12
Wrexham                   1,25           0.57            0,35            0,32

Average -Sweden           0,36           0,23            0,04           0,08
Average- UK               0,93           0,48            0,20           0,23


The Swedish water and sanitation utilities should also contribute not only to a healthful
environment but also a good environment. The new Environmental Code from 1999 demands
extensive environmental impact assessments reports as well as introduces environmental
sanction fees. Thus in most Swedish cities nowadays the MWSW have a comprehensive
responsibility for the complete water cycle from raw water to recipient water. Many MWSW
have increased their process and energy efficiency. For instance some 150 000 households in
Stockholm have their heating provided through heat-recovery from treated wastewater.
Biogas production covers 40 to 45 percent of the sewage treatment plant internal electricity
need and all the heating requirements of the Stockholm Water Company.

Swedish Water Development AB

Faced with globalisation and increased international trade in the water industry the Swedish
Water Development company (SWD) was founded in 1996. SWD is jointly owned by the
Swedish Water and Wastewater Association (VAV), the Stockholm Water Company and the
Water and Sewage Works in Gothenburg and Malmö.

The company is based on the Swedish model of publish ownership and control. SWD's board,
composed of municipal politicians and civil servants, has given SWD the mandate to co-
operate with countries expressing the wish to develop their water and wastewater sectors. The
business concept is to assist municipal and state-owned organisations outside Sweden by
communicating Swedish knowledge and experience from ownership, operation and
management of water and wastewater utilities. SWD projects are financed through funds and
grants from the Swedish government and or the participating municipalities. According to the



                                                4
Water Supply and Sewerage Law raising the SWD are not allowed to raise funds from the
tariff system .

The business concept includes protection of water resources and recipients. SWD is relying
on a high number of qualified professionals with long practical experience of water
management. By communicating their individual experience in close project relation between
the Swedish water company to the receiving water company SWD aims at fulfilling the goals
of the partner.

Up till now SWD has been involved in institutional development programs along the Baltic
e.g. in Kaunas, Klapeida, Riga, Liepaja, St Petersburg and technical support projects in
several Polish cities, Kaliningrad and St Petersburg.


The public water and wasterwater utilities challenged by commercialisation and
privatisation

Commercialisation of MWSW

Since the 1970s a limited number of Swedish MWSW have been corporatised like the
Stockholm Water Company AB, Roslagsvatten AB, i.e. transferred into a full (100 per cent)
municipal water and sewerage company (MWSC) under public ownership. In a situation of
weakened municipal economy this restructuring has been considered as an advantage for
borrowing to cover funds for additional investments needs not covered by the VA charge. The
Stockholm Water Company has practised a depreciation time of 30 to 50 years for loans to
investment in assets. This commercialisation will also give the MWSC the right to buy
companies and run business outside of the municipal border.

To further commercialisation the Swedish Municipal Law was reedited in 1991 in neo-liberal
direction, giving the municipalities greater freedom to organise infrastructure services.
Customer orientation, decentralisation and competition became buzz words. Public utilities
like MWSW or MWSC were supposed to imitate private company behaviour, and then learn
from each other.

Sweden has long and noted tradition of citizen's right to access to public sector documents. It
also empowers a public servant to report to the press anonymously or openly about
improprieties and misbehaviours in the public sector. This public right of transparency is lost
with corporatisation. Also the political accountability is transferred from elected members in
the municipal council to a restricted number of assigned politicians in the public company
board. In addition to the good will of the MWSC, what will be left for the general public as
the only source of information is the annual report to check the MWSC performance. Thus the
influence of promoting competition and commercialisation gradually leads the municipal
sector away from its original role of a transparent water supply and sanitation provider and
facilitator.

High level privatisation

The next step in chain of achieving a higher degree of privatisation is to put MWSW or
MWSC functions like operation and maintenance or even investments to bid or tender on the
private market. This is a direction of restructuring the public sector in general, which is


                                              5
strongly promoted for example by the European Union (EU), the World Trade Organisation
(WTO), the World Bank and the International Monetary Fund. At the moment the WTO are
negotiating the General Agreement on Trade and Service (GATS), which, if accepted by
national politicians, will open up the entire public sector for global private competition.
GATS means to harmonise national legislation by deregulation or minimum legislation in
order to promote the free procurement, investment and trade of public sector activities,
including the water supply and sanitation sector.

The ultimate privatisation is the sell out part of the public shares in the MWSC or the entire
public assets (water supply work, treatment plants and network system). The most well-
known example of the latter situation was when the Thatcherist government 1989 floated the
water and sewerage functions of the river valley authorities into ten private water and
sewerage companies (PWSC).


Commercialisation without corporatisation

It was first with the Thatcherist government privatisation policies that a debate was initiated
to privatise infrastructure services in Sweden. One of the first cases occurred in Vaxholm
municipality north-east of Stockholm. This town, run by a local conservative government, put
its technical infrastructure services for tender in 1987. However, when the project was
evaluated five years later it was surprisingly acknowledged that most municipal
works/companies produced cheaper services than the private ones. As a consequence, the
Vaxholm water and sewage service was transferred to Roslagsvatten AB, which is a MWSC
operated jointly by several municipalities.

The first major attack for a broader privatisation took place in Malmö municipality before the
local election in 1994. Sweden was at the time governed by the Carl Bildt conservative
government at the national level and by a conservative local government in Malmö. This local
government worked very actively in the beginning of the 1990s to privatise services. For
instance the municipal waste service and local traffic were sold to private companies. Its
MWSW was subjected to the largest operation and maintenance tender ever in Sweden. The
case was considered as a test for the future development in other municipalities. It was in July
1993 that the Municipal Board commissioned the Road and Traffic Board to investigate the
possibilities of an impartial tender competition by private companies to operate and maintain
the Malmö MWSW. As many as 19 private companies participated in the bidding process,
among them the big French PWSCs and some ten English PWSCs. Also the existing staff at
the Malmö MWSC through a new "executive unit" were exhorted to present a bid. The
president of the Road and Traffic Board, Eva Ollén, expressed her enthusiasm in the coming
efficiency gains she anticipated by contracting the operation and maintenance to a big private
company. After examining the proposals the Board tender group recommended the English
transnational Anglian Waters through its subsidiary Nordvatten AB for the contract.

Anglian Waters, one of the new Thatcherist PWSCs, promised in the bid to reduce the
running costs with 30 percent, claiming that this measure would reduce the VA charge nine
percent or with 300 SEK per year for a normal Swedish family living in a villa. The company
also applied the OFWAT price cap model, stating that the cost after the initial reduction
would be increased by maximum the retail price index minus one percent per year over ten
year contract period. The company also promised complete staff transfer, and work for
initiating great research efforts at Nordvatten AB Head Office, which was to be placed in


                                               6
Malmö. It is apparent from these favourable terms that Anglian Waters wished to get a break
through to the Swedish market.

The privatisation of Malmö MWSW became an important topic in the local election
campaign. The conservative majority lost the election. The Malmö consumers were not
seduced by the promised lowering of the VA charge. The new majority of social democrats
had opposed any kind of privatisation, and argued that a regionalisation in the form of a
collaboration of several municipalities might be a better alternative to develop the MWSWs.
Thus the question of privatisation fell after the election. However, the resigning political
councillor Joakim Ollén meant the cancellation of the tender process was a devastating act
for the credibility of future contract-by-tender-agreements.

It is obvious that the whole tender process was ideologically motivated, and inspired by the
Thatcherist policies, even if the Malmö case did not involve the sell out of the assets. If the
election results had been in favour of the conservatives one could have expected large scale
consequences involving a big number of transnationals asking for commercialised contracts in
Swedish municipalities.

Instead, during the rest of 1990s saw some Swedish companies involved in the
commercialisation process of MWSW in a few Swedish municipalities. For instance PEAB
contracted the operation of the Danderyd municipality MWSW including it pumping stations
in 1995. Härnösand, a municipality in the middle of Sweden, contracted the operation of its
MWSC and its roads to SKANSKA-Norrland for the period 1994-1998. In the new tender
after 1998 MWSW was separated from the road service, and this time NCC won the MWSW
contract. After the local election in 1998 the municipality initiated negotiations with NCC
aiming at an eventual co-ordination with the electricity company HEMAB. For both these
cases the commercialisation have been ideologically motivated, stating political goals like
more freedom of choice, more competition, more businesslike performance, as well as
increased efficiency, productivity and creativity. All these buzz words are cornerstones in the
neo-liberal vocabulary.

The first public-private joint venture

In 1995 Karlskoga, a municipality in the western part of Sweden, corporatised its technical
service into a municipality-owned company. Later in 1998 Karlskoga sold out 49 percent of
its shares to the Finnish Fortum/IVO Group, and set up Karlskoga Energy & Environment
AB, which is a so called multi-utility company. The Finnish state controls Fortum by owning
70 percent of the shares. Karlskoga Energy & Environment AB is under the concern company
divided in three subsidiaries owned to 100 percent by the concern company; the Electricity
Network, Central Heating and Environmental companies. The Environmental company is in
its turn divided according to functions in the water supply and sewerage unit and the waste
handling unit.

The shareholding contract says that consensus in decision-making is needed in the Board. The
municipality has four seats and Fortum two seats. The president of the Board is also the
chairman of the local social democrat party. The CEO of Karlskoga Energy & Environment
AB has declared that the company was established as a result of the general economic cut
downs in the public services. He argues that the new company has benefited from big-scale
advantages, positive market response to the multi-utility concept and reduced cost by sharing
the staff between the subsidiaries. Also Fortum, the CEO says, shows serious commitment,


                                               7
which has resulted in distinct goals and company plans. The Board has become more
professional and market-orientated, which is claimed to have given new incentives to the
activities. Thus, the activities it is said is distinguished by market proliferation and a customer
perspective, and the VA charge has not been increased in three years.

However, the market orientation has implied a severe prioritisation of the investment needs in
the municipality. The investment need has been reduced from 60 million SEK to 50 million
SEK with reference to that loans and pay back otherwise would be to expensive. The
investment need in water and sewerage is estimated at 8 - 10 million SEK. In addition, the
company has substantially reduced the staff, especially in the water and sewerage unit. The
prediction for the result in 1999 was over 30 million SEK of which 8 millions SEK were
planned as dividends to the owners. Thus, the harsh economic conditions in the municipality
allow a profit margin of 27 percent, which is at the same level as the English PWSC.

The first Thatcherist sell out of a MWSW/MWSC

In 1997 the Norrköping MWSW was corporatised and merged with the energy utiliy in
Norrköping Environment & Energy Company (NME AB). In the general election campaign
1998 the local social democrats promised not to sell any shares in the NME. But later in June
1999 the energy company Sydkraft bought 49 percent of the shares. Sydkraft is together with
Vattenfall and Birka Energy the three biggest energy companies in Sweden.

A political majority in Norrköping consisting of social democrats, conservatives, christian
democrats and liberals were not satisfied with this public-private model of ownership, leading
to an intense local debate. The chief local social democrate Gunnel Gennebäck declared that
she saw no intrinsic value in the municipality ownership of the NME. Also she claimed that
Norrköping was in need of money to pay for its hospital care, elderly care and school
services. But in reality the municipality deficit of 70 million SEK was a minor problem
compared to a turn over of 3 800 million SEK. Neither it did not matter that 7 300 inhabitants
in Norrköping signed a petition for a local referendum. According to the Swedish
Municipality Law local people can demand a referendum, and the Municipal Board must
consider a request if more than five percent of the voters demand it. The municipality director
of Norrköping Björn Johansson commented the voters request. "A referendum concerning the
sell out of the rest of the municipality shares in the NME may be an expression of opinion.
But a referendum is not estimated to bring up any unnoticed objective motives before a
decision on the sell out will be taken".

The referendum was rejected by the Municipality Board in November 2000 by the votes 65 -
15. Only the Green and Left parties voted against it. Thus the first Thatcherist sell out of a
complete MWSC became a fact, when Sydkraft acquired all shares in the NME. For the full
acquisition Sydkraft paid 2 755 million SEK, and in addition it will invest 20 million SEK in
a research fund in collaboration with the local University.

In its turn Sydkraft is controlled to 67 per cent by the global player and the second largest
energy company in Europe (after the RWE group) the German-based Eon. This company was
formed as recently as in early 2000 by the merger of the German energy companies Viag and
Veba. With the acquisition of the multi-utility NME company the water and sewerage service
included the ownership of assets is controlled and owned by the German international giant.
Some people claim the Eon interest was to get a strategic hold of the well-operated energy
part of the NME, situated in Sweden's eight biggest municipality by number of population.


                                                 8
But still Eon has not indicated any wish to sell out the water and sewerage functions on the
international market circus.

Vivendi gets a Swedish water contract

In 1990s the world leading water company Compagnie des Eaux was reconstructed. It
transformed itself into a multi-utility company dealing with media, entertainment, IT,
transports, real estates etc. In 2000 this huge multi-utility group was renamed Vivendi
Universal. It owns subsidiares like the Hollywood companies Universal Studios and Universal
Music, Seagram, Canal, Cegetel, Onyx, Compagnie des Transport, Vivendi Environment. In
Stockholm Vivendi is involved in operating the major part of the local transport by the
companies Connex and Linjebuss. It also manages the real estates of the County of Stockholm
by its company Dalkia.

The core business has always been water supply and sanitation, supported by the many French
consumers paying their VA-charge in many of the French municipalities. Now this basic
service, Vivendi Water, representing a turnover of some 100 billion SEK in 1997,
is a sub-activity of Vivendi Environment. In its turn Vivendi Environment with 215 000
employed all over the world had a turnover of 195 billion SEK in 1999. This is an income,
which is more than 50 percent of the Vivendi Universal total figure.

No wonder that Vivendi Environment sooner or later would enter the Swedish water and
sanitation market. In February 1999 Norrtälje Municipality Board, located to the north of
Stockholm, announced that it would leave out its MWSW for market testing and tender. The
bid included the operation and maintenance of 13 water works, 3 water towers, 6 water supply
pumping stations, 19 sewage treatment works, 73 sewerage pumping stations, 310 km water
supply network, 230 km sewers and 150 km surface drainage network. Also some investment
and the customer service might be included in the offer. The total contract value was
estimated to 300 million SEK for a period of ten years.

In summer 2001 the conservative-dominated Muncipality Board chose Vivendi as the
contractor from January 2002. Vivendi promised to run the service for 23 million SEK per
year for a ten years period with an option for a two years prolongation. A trade unionist from
the Swedish Municipal Trade Union expressed his relief. He and his colleagues had got tired
on the municipality as the employer, and now he looked forward for higher pay. Vivendi, by a
representative of its Dalkia company, conveyed "the ambition not to impair the existing
collective bargain contract".

A notable affair in the tender process occurred when the Swedish Water and Wastewater
Association (VAV) became involved in the bidding process as co-owner of the Swedish
Water Development AB (SWD). SWD was a partner in a consortium also consisting of the
Swedish companies NCC, Kemira and Sweco. This consortium was pre-qualified for
preparing a bid. Thus the association of the Swedish MWSW:s and MWSC:s was involved in
a tender of one of its own members!

When it was revealed that the SWD was a part of consortium acting for a bid at the
commercial market in Sweden it came as a complete surprise for the representatives at the
VAV annual meeting in May 2001, and it aroused much criticism. The CEO of VAV, Roger
Bergström, has defended the involvement in the consortium by saying that Sweden can not
silently watch how foreign companies take over the municipal VA service in the country. It is


                                               9
a positive component in this argument to protect from foreign take-over, but the counter
measure by the SWD to try to compete with the foreign companies on commercial terms seem
rather pathetic. As said before the SWD was set up in 1996 with the objective of structuring,
optimizing and developing the portfolio of international projects of the Swedish water utility
model in the Baltic and developing countries. It is questionable, if the SWD:s involvement in
the bid follows the company charter. It states that SWD shall "support municipal and state-
owned organisations, especially in the Baltic States but also in countries receiving Swedish
development assistance, in VA service and water management with the aim of transfer
knowledge, so that the receiving organisation as soon as possible can act independently".

Limited public debate and transparency

Up to now there has been no public debate of the experiences of the commercialisation and
corporatisation of the Swedish public water utilities. At a seminar arranged by VAV in
December 1999 staff involved in market testing from the municipalities of Danderyd and
Härnösand claimed that eventual efficiency gains expressed as lower costs for operation and
maintenance were counteracted by increasing procurement and transactions costs. Applying
market testing municipalities must set up new procurement, accounting and documentation
administrations. Both municipalities had also experienced increasing difficulties in keeping or
finding competent staff. Many professionals in the sector admit that the long-term provision
of competent staff is a major problem, which will be aggravated by foreign company take
over.

At this seminar it was also questioned if there exists a market of competent
company/contractors, which have the ability to understand the municipal utility sector with its
many anonymous customers. It could be challenged if such an ability can combine with the
contractors profit interest. It is also a complication that the contractor should represent the
municipality in front of the customer. Both municipalities had experienced deteriorating
customer service, creating confusion when the customer wished to make complaints.

The principal Thatcherist take over of the Norrköping energy and VA utilities was never
debated in the parliament or the national media. It simply seems to have been considered as a
local issue. It was first after the take over that five prominent local politicians from the social
democrat party in a debate article in Dagens Nyheter 16 February 2001 warned against private
purchase of VA service by energy companies. The article was never responded to.

A plausible explanation to the lack of debate and transparency is that the social democrat
party since the end of the 1980s step by step has promoted private alternatives. This process
started in the 1980s with a discussion inside the minister of interior of how to make the public
sector more consumer-friendly and democratic. But at the end of the decade, when Bengt K
Johansson became the new minister of the interior, a paradigm shift occurred according to a
researcher from the Stockholm School of Economics. From now on efficiency and market
testing became more important than democracy and user involvement. Market testing of
municipal waste collection and park maintenance was considered as a way of getting more out
the municipal money purse. It became more controversial to initiate commercialisation of the
elderly and hospital care. At the end of 1988 leading social democrats intensively debated the
public sector. Lars Engqvist, who is the minister of social affairs in the present government,
wrote in the periodical Liberal Debatt 1988: "One should go the whole length and release the
production of services from the political decision-making bodies". In 1991 the minister of
finance Kjell-Olof Feldt and his close collaborator Klas Eklund in a report from 1991 wrote


                                                10
that all but the core activities of the public sector could be market tested and contracted out.
Thus, the social democrats paved away for intensified privatisation attacks by the
conservative government during the 1991-1994 reign period.

The social democrat governments and the locally controlled governments at the counties and
municipal levels did not challenge the privatisations policies for the rest of the 1990s. On the
contrary, after Sweden becoming a member of the European Union in 1994, the social
democrats like the Blair labour government in power after the conservative defeat in 1997,
have amplified the privatisation policies. The social democrats have not opposed the
Maastricht Treaty enforcing budget ceilings on municipal and state budgets, leading many
local politicians see market testing and privatisation as the only way out of reducing budget
deficits. In addition with the monetary union the stability pact prevents governments from
using national budgets to stimulate their economies, which enforces the policies of
deregulation and privatisation even more. The increased pace of merging of private multi-
utility companies and contacting out or buying public utility services is an expression
implementing the monetary union.

Thus the heads of the EU governments in the so-called Lisbon process expressed during the
European Council meeting in 2000 that EU should develop into the worlds most "competitive
and dynamic knowledge-based economy". The deregulation should be achieved by the mean
that the heads of governments make the highest priority of developing effective functioning
markets for services. The Public-Private-Partnership model (PPP) was declared a tool for
promoting increased commercialisation and privatisation. The PPP implies that companies,
authorities, professional organisations (like trade unions) and civil society (like the Salvation
Army, Sport clubs) at the expense of political elected bodies should take a joint responsibility
in corporate structures to develop and fund e.g. health care, education and infrastructure
services. And during the Swedish chairmanship 2001 the Lisbon process was further
confirmed and emphasised with the Prime minister of Sweden Göran Persson playing a
pusher role. For instance in the guidelines from the chairmanship, Sweden committed itself to
"increase market testing of public services" and "deepening competition on all local levels".

Growing awareness in favour of the public sector

It waited until the autumn 2000, when genuine social democrats formed the network Social
democrats in favour of the public sector (SOS). Today this network consists of some 300
party members of some 30 parliamentarians and many with connection in the trade unions and
social democrat youth organisation. At the social democrat congress in November 2001
deregulation and privatisation became a hot issue. In an open letter to the congress SOS
challenged the party leadership demolition of the welfare state and its uncritical adoption of
EU:s deregulation and privatisation policies. The open letter says: "Before the eyes of us
living and working in this country the public sector is crushed into pieces and given to profit-
claiming private companies - in spite of the fact that the services are funded by taxes. These
profits are created by reduced salary increases, no compelling claims on collective bargain
contracts, worse conditions of working hours, lost freedom of contacting media and
deteriorating job security".

At last after the Norrkoping and Norrtalje utility cases were concluded some media coverage
has appeared in the national and trade union press from this summer and onwards. LO-
tidningen, which is the weekly periodical of the Swedish Trade Union Confederation (LO),
wrote 7 September about growing corporate interest to run the Swedish VA service. Next day


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the daily Aftonbladet reported that some 12 -15 municipalities had plans to change its VA
service organisation within three year. In the same article the minister of municipalities Lars-
Erik Lovden expressed that he was very critical to run the VA service under private
management adding “The development in England and Wales has not been good. Water is a
basic right, which is not for sell”.

Conclusion

The Swedish VA model based on public ownership and control of water and wastewater
utilities has been proved to be both economically and ecologically efficient. It is founded on
long traditions and a firm legislation, the latter considering the water and wastewater delivery
as a service to all citizens at a non-profit basis. The model relies on high quality plants,
networks, equipment and professional staff. By international comparison the water price is
low.

From the beginning of the 1990s the VA service like many other services has come under
influence of neo-liberal international organisations and the EU claiming increased
competition and market testing in the public sector. Gradually the public VA sector has been
put under external stress, resulting in the first Thatcherist sell out of Norrköping water and
waterwater utility to Eon/Sydkraft in 2000 and the first long-term concession of the operation
and maintenance of Norrtälje water and wastewater utility to Vivendi in 2001.

There are no economic arguments within the VA sector to find that support these deviations
from the public VA model. On the contrary the Swedish public VA model is well functioning
and Sweden has the competence to independently take care of its VA service. The Swedish
VA service is a general interest for water supply and wastewater treatment, public health,
environmental protection and social cohesion. It shall not be privatised. It is encouraging that
in the recent year the awareness of keeping the VA service and other public services under
public regime has grown among an every day increasing number of parliamentarians and
trade unionists, the youth and people in general.




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