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									FORUM BRIEFER O1-24
Pakistan's Karachi Water and Sewerage Board –
World Bank's Guinea Pig on Water Privatization in South Asia
CREED, Pakistan
Sustainable reforms in the provision of water                              privatization for all consumers, rich or poor,
services should be defined by three themes --                              domestic       or     commercial.    Irrelevant
   Public interest requires universal access to                           comparisons are made to tariffs in richer
    minimum levels of services                                             Southeast Asian cities; ignored are
   The     crisis   of    provision      demands                          substantially lower public tariffs in Bombay
    simultaneous institutional and organizational                          and almost equal private tariffs in Manila.
    restructuring                                                          Consumers will also face additional burdens
   Acknowledge      that   markets       will   not                       as taxpayers as the existing debt of $280
    satisfactorily   mediate     critical      social                      million will be serviced by government.
    relationships of rights and obligations in                             Given the highly inequitable tax system, the
    essential services.                                                    poor will end up paying a great deal more
                                                                           than tariff increases.
In other words, reforms should not diminish the
social responsibility toward citizen rights in                            Illusory private efficiency    Water utility
exchange for efficiently responding to consumer                            staff will be reduced by 1,500 before
privileges. If the World Bank would have its way,                          privatization, and another 4,000 after. It is
however, reforms in our major cities would                                 not obvious how cost-effective retrenchment
transform public water agencies into private                               will be after expatriates take over senior
monopolies.                                                                management,          and    downsizing     is
                                                                           accomplished through golden handshakes.
The official privatization strategy of the Karachi                         Bill collection ratios are expected to more
Water and Sewerage Board (KWSB) was                                        than double for connected customers, and
formulated through a million-dollar consultancy                            four-fold for unconnected customers. The
from the Paribas-Halcrow consortium. All system                            problem of theft by industrial, commercial
assets will be handed over free-of-charge as a                             and domestic customers is not seriously
"concession" for 20 or more years. Other than a                            taken up, nor how to tackle the formidable
provincial regulatory authority, there will be no                          'tanker Mafia'. Despite substantial public
separate oversight body except the Sindh                                   investment, better private management will
legislature by default. Other major issues that                            reduce physical water losses from 40% to
need to be scrutinized in the privatization strategy                       30% in five years of privatization; it is
include --                                                                 puzzling why the much-vaunted private
                                                                           efficiency will do no better than public
    Damning the poor       Improvements        in                         systems in Bombay (24% in 1993) and Delhi
     water delivery are given no specific targets;                         (30%).
     during the entire concession period, poor
     and lower income households will continue                            Guaranteed profiteering        Despite    its
     to be accorded low priority.      Sewerage                            monopoly, private equity finance will bring
     collection will never be provided to more                             less than 10% of funds needed for
     than half the population.                                             rehabilitation and expansion. The bulk of
                                                                           investments will in fact be financed by
    Skyrocketing private tariffs    As prelude to                         additional international agency loans and
     privatization, tariffs have jumped 30%, and                           rapidly increased revenues through a 3000%
     are planned to increase annually by 20% in                            real increase in tariffs and doubling of
     real terms. This will yield a cumulative                              collections. Virtually no private risks are
     increase of 300% by the fifth year of                                 present because of minor equity finance; the

  EXCERPTS from: Citizens Alliance in Reforms for Efficient and Equitable Development (CREED), August 1998. EXCERPTS
prepared by the NGO FORUM ON ADB (FORUM), a network of diverse non-governmental organizations (NGOs), peoples'
organizations (POs), community-based organizations and other public interest groups with advocacy and campaigns relating to the
Asian Development Bank (ADB). The Manila-based Secretariat can be reached at: Room 402, 107-A Kalayaan Avenue, Diliman,
1101 Quezon City, Philippines; Telefax: +632 9297987; E-mail: Visit our homepage:
                                                       World Bank's Guinea Pig on Water Privatization

    WB advises that the private concession                      In any case, there should be an explicit
    should     assume       no     financial   risks            element of cross-subsidies from affluent to
    whatsoever. Recovery of equity with a 15%                   poor consumers.         Taken together with
    real rate of return is guaranteed through a                 subsidy block grants from the city, cross-
    revenue reserve facility which could cost                   subsidies in tariffs must ensure universal
    taxpayers %50 million just over five years.                 access to the final service and effectively
    Presumable in deference to international                    protect the environment.           For public
    reputations of the water cartel, no penalties               financing of activities, some thought should
    are proposed for bad performance. No limits                 be given to raising funds through tax-exempt
    are placed on exploitation of transfer pricing              municipal bonds. Preferential outsourcing of
    and expatriate compensation. Taxpayers                      activities to retrenched employees could be
    should continue to service all existing debt;               tied to conversion of golden handshakes into
    servicing of all future debt is also required to            shares in restructured public entities.
    be guaranteed by government.
                                                               Securing public interest
   Unaccountable privatization       Not content                    Citizens fear regulatory capture by
    with coddling the private system through the                service providers; introducing competition
    absence of specific minimum and verifiable                  through structural unbundling could get a
    targets for service improvements, the                       long way in protecting consumer interests.
    privatization strategy further recommends                   Time-bound contracts of short duration must
    that any commitments be open to re-                         become the rule for both public and private
    negotiation after five years. No penalties are              providers. Whether it is a management
    proposed for failure to meet targets, and                   contract or franchise, efficiency and service
    measures of service levels are to be based                  incentives would be strongest when
    on self-assessment by the operator,                         providers face a credible threat of being
    ensuring the death-knell of regulation. Tariff              ousted for bad performance. Contracts must
    regulation, however, is to be guaranteed by                 specify target outcomes in service and
    government,      i.e.,    through   enforcing               environmental standards, and these must be
    disconnection.                                              the benchmark for tariff adjustments. Stiff
                                                                penalties for deterioration in services must
   Alternative restructuring      The required                 be prescribed beforehand, and paid to
    focus in all restructuring is a rapid and                   consumers directly as rebates. An oversight
    sustained expansion of services to the                      body is extremely important; a Public Utilities
    unserved and underserved in water and                       Commission is recommended with federal,
    sewerage. Yet another priority must be                      provincial and city representation to
    large-scale conservation through reduction                  adjudicate between stakeholders.        There
    of enormous system leakage and consumer                     should also be a transparent system for
    waste. Karachi should get no additional                     public dissemination of all information
    water until it ensures collection and safe                  available to regulatory and oversight bodies.
    disposal of present supplies.
                                                            Water is essential for maintaining bodily and
   Unbundling monopoly             Efficiency              social life. Yet the political ecology of urban
    and consumer welfare require substantial                water provision excludes large parts of the
    break-up or unbundling of KWSB operations,              population from nature's water. Therefore the
    both vertically by functions and horizontally           issue of sustainable urban development must
    by locations. Introducing competition and               raise the questions, Whose water? Whose city?
    contestability for the market, unbundling will
    considerably reduce the subsequent burden               As of May 2000, urban water privatization has not
    of regulation and oversight of conduct. If              taken place. Both the WB and ADB continue to
    some functions are to be privatized,                    demand privatization in return for further loans.
    unbundling will encourage direct local                  The military regime is more amenable to renewed
    participation through private enterprise and            proposals for privatization to halt the continuing
    community control.                                      deterioration of services.

   Equitable financing     When focused on                 For   more      information,    please      contact
    equitable services, there is likely to be a   
    sharp drop in the level of investments
    required in the immediate future, hence
    reducing the unfair pressure to privatize.
    Unbundling and limited-duration franchises
    can permit substantially smaller tariff
    increases for the poor as well as on average.


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