Third World water privatisation is dying

Third World water privatisation is dying 
 
Left high and dry by the water companies
Nick Mathiason

Sunday March 16, 2003

The Observer

It was hailed as the only success at the Johannesburg Earth Summit last
September. World leaders agreed to halve the number of people without
basic sanitation - at present 2.4 billion - by 2015.

If implemented, the com mitment could do much to reduce the two million
people - mainly children - who die each year from drinking contaminated
water.

But just six months on the Johannesburg agreement appears to be
unravelling. As delegates gather today for the start of the key World
Water Forum in Kyoto, Japan, there are admissions that aid targeted for
water and sanitation has gone to low and middle-income countries, with the
poor in Africa and South Asia receiving just 1.7 per cent of the total.
And many of the biggest private sector water companies are turning their
back on previous commitments to work in developing countries.

Levering in private sector finance was supposed to be the battering ram
through which poverty stricken countries would get access to clean water.
Serving 300 million people - 5 per cent of the world - the private sector
was expected to expand its customer base significantly in a bid to connect
1.2bn people who currently have no access to water. That figure could fall
way short if projections by Thames Water pan out. The company serves 70m
people in poor countries but, by 2007, will expand that figure to just
100m.

A retrenchment by the private sector comes as the demand for clean water
increases. In the last century the world's population tripled. Water use
increased six-fold at a devastating environmental cost.

But projected world population growth paints a nightmare scenario. The
World Bank predicts that by 2025, four billion people - half the world's
population - will live under conditions of severe water stress. In a
report published last month, the World Bank concluded: 'Tensions over
water rights are increasing at the level of the village, city and basin.
Some of these disputes are spilling over to international river basins.'

There is £19bn currently spent on water services in developing countries.
This needs to double. International agreements to increase overseas aid to
0.39 per cent of GDP are still insufficient. Research by David Hall,
director of the Public Services Research Unit at Greenwich University and
an adviser to War on Want, has revealed that there is a shocking
contraction of private companies' commitment to working in poor nations.
Suez, the biggest water company in the world, is reducing its exposure in
developing countries by a third. It already had plans to reduce costs by
£340m this year and further £68m next year and now intends to cut deeper.

Not surprisingly in a harsh macro-economic climate, the company now
favours 'currency risk-exempt financing', having had its fingers burnt in
Argentina and the Philippines. Suez's strategy is to pursue 'the quickest
free cashflow generating projects', particularly in Europe and North
America, which all but rules out long-term water contracts in developing
countries.

Last December Suez subsidiary Maynilad Water announced it was abandoning
its concession in the western half of Manila after seven years - the first
time Suez has walked away from a contract.

Likewise, Saur - the third biggest water firm - has in the last two years
withdrawn from a contract in Mozambique while Vivendi, the second biggest
player in the world, has expressed concern about the financial viability
of servicing the poor in developing countries, preferring locations where
customers or governments can guarantee payment.

'The most basic lesson for governments, development banks, donors and
community organisations concerned with water is to recognise these facts,'
said Hall. 'The water multinationals are now clearly prepared to abandon
concession contracts which do not meet the new demand for security for
their investments.'

Jeremy Pelczer, Thames Water's chief international operating officer,
said: 'Our view is that the World Bank should encourage the best and most
imaginative strategies. They should not impose the private sector on
communities and countries. 'Countries and people resent that... There's a
danger saying we've got to go with the private sector. The answer is to
look at different models. We're looking at different approaches.'
Leading the World Bank delegation at Kyoto is Ian Johnson. He said: 'The
global economy is not as strong as it was. There is a level of
disengagement [among private firms] that is worrisome. One of the
questions of this summit will be how to address this.'

Johnson says that 16 per cent of the World Bank loan book goes to water
projects but this will increase. He conceded that aid for water supply and
sanitation has so far favoured low to middle-income countries. 'One of the
challenges is how to get investment to the very poor countries,' he says.
Johnson wants to see more efficient use of water in agriculture, which
currently uses 70 per cent of all supply, and wholesale rehabilitation of
irrigation systems to improve efficiency. WaterAid wants to see poor
countries devote more of their budgets to the provision of water. At
present it accounts for just 0.4 per cent of average GDP.

The vacuum created by the inability of the private sector to provide water
services in poor countries means that 'locally-made solutions are
possible', argues WaterAid. Each country needs its own fast-track,
capacity-building operation, says the charity, to monitor, benchmark,
control the quality and supervise new infrastructure.

The aim of the Kyoto Forum will be to develop a practical framework for
action now targets have been agreed. This will be rubber-stamped and
developed at June's G8 Summit, to be held appropriately at Evian in
France.

The summit's host, President Jacques Chirac, says the World Bank has 'put
water high up the agenda'. Given the gathering world crises, for the
billions living without clean water, the hope is that it remains there.
A world divided by the price of water -

· Australia and Ethiopia have similar degrees of climatic variability. But
  Australia has 5,000 cubic meters of water storage capacity per person
  whereas Ethiopia has just 45 cubic meters.
· 90 per cent of the rise in food production in the next 25 years has to
  come from existing agricultural land so its productivity must double.
· Hydropower provides 19 per cent of world's electricity supply but there
  is the potential to double that - mostly in developing countries.
· Developing countries spend about £44bn annually on water-related
  investments, 90 per cent of which comes from domestic sources.
· The World Bank invests about £1.9bn each year in water-related sectors.

Source: World Bank

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