Privatization of Water Systems CE 397 Transboundary Water Resources Kathryn Benson

What is the concept of privatization? Privatization in the water sector means transferring some or all of the assets or operations of public water systems into private hands Privatization in the water sector means transferring some or all of the assets or operations of public water systems into private hands

Water System Functions That Can be Privatized Capital improvement planning and budgeting (including water conservation and wastewater reclamation issues) Capital improvement planning and budgeting (including water conservation and wastewater reclamation issues) Finance of capital improvements Finance of capital improvements Design of capital improvements Design of capital improvements Construction of capital improvements Construction of capital improvements Operation of facilities Operation of facilities Pricing decisions Pricing decisions Management of billing and revenue collection Management of billing and revenue collection Management of payments to employees or contractors Management of payments to employees or contractors Financial and risk management Financial and risk management Establishment, monitoring, and enforcement of water quality and other service standards Establishment, monitoring, and enforcement of water quality and other service standards

Risks 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 communities Privatization may bypass under-represented and under-served communities Privatization can worsen economic inequities and the affordability of water Privatization can worsen economic inequities and the affordability of water Privatization agreements may fail to protect public ownership of water and water rights Privatization agreements may fail to protect public ownership of water and water rights Privatization agreements often fail to include public participation and contract monitoring Privatization agreements often fail to include public participation and contract monitoring Inappropriate privatization efforts ignore impacts on ecosystems and downstream water users Inappropriate privatization efforts ignore impacts on ecosystems and downstream water users Privatization efforts may neglect the potential for water-use efficiency and conservation improvements Privatization efforts may neglect the potential for water-use 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 procedures Privatization agreements often lack dispute-resolution procedures Privatization of water systems may be irreversible Privatization of water systems may be irreversible

Implications of Privatization TECHNICAL 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 Uses CULTURAL Reduction in government Historical rights Unmonitored groundwater pumping Power of corporate players Religious uses

Drivers of Privatization Societal (the belief that privatization can help satisfy unmet basic water needs) Societal (the belief that privatization can help satisfy unmet 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 capital faster and cheaper than the public sector) Financial (the belief that the private sector can mobilize 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-system operations require private participation) Pragmatic ( the belief that competent, efficient water-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 Privatization Continue to manage water as a social good –Meet basic human needs for water. All residents in a service area should be guaranteed a basic water quantity. –Meet basic ecosystem needs for water. Natural ecosystems –The basic water requirement should be provided at subsidized rates when necessary for reasons of poverty Use Sound economics in Water Management –Water and water services should be provided at fair and reasonable rates –Whenever possible, link proposed rate increases with agreed- upon improvements in service –Subsidies, if necessary, should be economically and socially sound –Private companies should be required to demonstrate that new water-supply projects are less expensive than projects to improve water conservation and water-use efficiency before they are permitted to invest and raise water rates to repay the investments

Principles and standards for Privatization Maintain Strong Government Regulation and Oversight –Governments should retain or establish public ownership or control of water sources –Public agencies and water-service providers should monitor water quality. Governments should define and enforce quality laws –Contracts that lay out the responsibility of each partner are a prerequisite for the success of any privatization –Clear dispute-resolution procedures should be developed prior to privatization –Independent technical assistance and contract review should be standard –Negotiations over privatization contracts should be open, transparent, and include all affected stakeholders

Funding Water users Water users Informal suppliers Informal suppliers Public water and utilities Public water and utilities Private companies Private companies Non-governmental organizations and local communities Non-governmental organizations and local communities Local banks and other financial institutions Local banks and other financial institutions International banks and export credit agencies International banks and export credit agencies International aid from multilateral and bilateral sources International aid from multilateral and bilateral sources Multilateral financial institutions Multilateral financial institutions Environment and water funds Environment and water funds National central and local governments National central and local governments