The Hindu : Privatisation not the answer

Online edition of India's National Newspaper
Tuesday, Jan 28, 2003

Opinion

Opinion - News Analysis

Privatisation not the answer

By Shripad Dharmadhikary

It is ironic that Alfredo Pascual of the Asian Development Bank (ADB) is advocating participation of the private sector in urban water supply as an "innovative solution" just a few months after the collapse of a project in Metro Manila, till recently being projected by the ADB as a shining example of the success of Private Sector Participation (PSP).

Indeed, evidence from all over the world is accumulating that the private sector has failed miserably in urban water supply. Yet, the ADB, the World Bank and the WTO/GATS continue to push this policy, exhibiting an ostrich-like attitude to the realities. Mr. Pascual has presented three arguments in support of the private sector — that it will provide "much-needed expertise, technology and financing for the delivery of efficient water services". There is little doubt that all three are urgently required. Public systems have grossly failed in providing efficient water services, especially to the poorer sections of society. They are seen as inefficient, corrupt and ineffective, lacking management skills, prone to political interference and apathetic to the needs of the people. All this criticism is valid.

However, it does not follow that the private sector will be much different. A study of the privatisation of water supply in 10 Asian countries carried out for the ADB and published in 2000, concluded that "the jury is still out on the success of privatisation".

Let us examine each of the benefits of the private sector as articulated by Mr. Pascual. It is said that the private sector will bring in new financing. It should be recognised that the private sector is in the business for profit — that is its primary, and often sole motive. Thus, if it brings in some money, it is certain to take back that much and more. All this means that the cost of supply will go up tremendously.

In Cochabamba, in Bolivia, charges shot up after privatisation to such an extent that the average worker had to shell out 25 per cent of his/her monthly income for water for domestic use. In Metro Manila, the ADB and promoters of privatisation were blowing their trumpets when Maynilad (the company that secured one of the two Metro Manila circles in 1997) announced a water rate of 4.96 pesos per cubic metre, at a time when the public sector company was charging 8.78 pesos. Once the concession was secured, however, the rates rapidly climbed to 15.46 pesos, and the company was asking for 30.

When rate increase was granted only to the extent of 26-27 pesos, the company pulled out of the contract in late 2002. In five years, the model project was in shambles. The asking rates of the company would have surely led to water riots, as happened in Cochabamba. Rubbing salt on the wound, Maynilad has slapped a Rs. 1,500 crore damages suit in international arbitration proceedings. On the other hand, private companies have shown exemplary efficiency in ruthlessly disconnecting supply for failure of payment of such high tariffs. In Guinea, 10,000 connections were cut off because the people could not pay the bills. Given the highly iniquitous distribution of income and resources in our country, it is impossible for most people to pay the high charges that inevitably accompany privatisation. Note that Mr. Pascual does not talk about low cost supply to the poor but only "urban poor paying less for safe, piped water than what they do through illegal and informal vendors". In reality, most of the poor will end up paying much higher than what they are paying now. It should also be noted that the ADB and World Bank strongly push for withdrawal of both cross and direct subsidies in the water supply sector — the only mechanisms that can ensure low cost supply to the poor. What is more important is that in spite of the high tariffs, it is highly unlikely that private companies will bring in more finance. Experience all over the world shows that private companies are reluctant to bring in their own finance, and instead, demand concessional loans, grants, escrow accounts and guarantees. For example, Maynilad demanded a huge loan of $350 m from the ADB, which was to be guaranteed by the Government. In India, where a section of the Sheonath river in Chhattisgarh has been privatised for industrial supply, the Chhattisgarh State Industrial Development Corporation (CSIDC) advanced the money to the company to carry out the project. Ironically, the justification for privatisation is that the CSIDC has no money. This is the case in most private projects, where ultimately, most of the finance is advanced by or guaranteed through public funds. The public sector has grave shortcomings. This has created widespread support for privatisation in virtually every sector, making people blind to the serious problems involved.

The only way to address the demand for an efficient, equitable and cost-effective water supply system is to make the public sector work more efficiently, in a transparent and accountable manner.

The earlier the public sector itself realises this the better since the first improvements have to come from within.

The issue at stake is no less than that of the survival of the sector itself. At the same time, there are numerous examples of well-run public utilities in many countries, ranging from Singapore to Botswana to Zimbabwe, Ecuador, Brazil and so on.

In India, the Sangli-Miraj public utility has fought against privatisation and is working to create an efficient and equitable utility with the involvement of the unions and corporators. Others are exploring community-based schemes for water supply to rural and semi-urban areas.

These solutions are really innovative and creative, rather than the privatisation efforts which are nothing but one more avenue whereby the resources of the country are being handed over to corporations and multi-nationals.

(The author, an engineer by training, was an activist with the Narmada Bachao Andolan for 13 years before setting up the Manthan Adhyayan Kendra in 2001.)

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Privatisation not the answer