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Water Politics: Access to Water and the Role of IFI’s, TNC’s, and States

Water Politics: Access to Water and the Role of IFI’s, TNC’s, and States

Jan 14, 2012

Water Politics: Access to water and the role of IFIs,TNCs, and States

By Mary Ann Manahan

Water has become one of the hottest and most contested resources in the world today. Access to water, governance and management of water supply and delivery systems are replete with economic and political struggles and conflicts. Control over water resources and services has even provoked the “wars of the next century”.[2] Water has also become a ground for the implementation of global and national neo-liberal economic policies, which basically promotes the privatization, deregulation and liberalization of this sector.

Over the last 300 years, most water utilities have been publicly run and managed. In most cases, this is so because the private sector and investors were not interested in managing these utilities. However, many countries, particularly in the South or the developing world, have had a very bad experience with their state-run water utilities. As more and more governments over the last three decades, have increasingly become indebted and cash-strapped, brought about by periodic crises, internal and external shocks, they obviously do not have the financial resources to continue servicing water to their constituencies. Thus, most countries have only recently begun to consider privatizing their water utilities. What likewise changed the trend was the growing freshwater scarcity in the world, aggravated by pollution, deforestation and environmental degradation. In fact, according to UNEP, less than 1 percent or less than 200,000 cubic kilometers of all freshwater resources which includes lakes, groundwater and glaciers and permanent snow covers, are usable for humans and the ecosystem.

In the current debate on how to equitably manage the decreasing freshwater resources, major corporations and international financial institutions (IFIs) such as the Bretton Woods Institutions (World Bank and International Monetary Fund) and regional development banks (e.g. Asian Development Bank) have recognized that water is the oil of the 21st century. That there is tremendous profit that could be made in controlling the world’s freshwater resources. This realization opened the floodgates for a round of privatization experiments all over the world. In all parts of the developing world from Africa to Asia, states experienced the aggressive push by IFIs for private sector take over. But what has been the result of this series of privatization to the developing world and their citizens? What of access to water and people’s rights to safe and clean water and improved sanitation?

This paper argues that in the current global water politics, the active players in the water markets today are the IFIs and transnational corporations (TNCs), in particular French water giants such as Ondeo and Vivendi Water or Veolia, and the dominant model of water management is privatization— the panacea to development. Furthermore, the experiences from countries that have embraced this model showed it has limited or impeded the access to water of marginalized sectors of society, especially the poor. Various problems have started to emerge – growth in the contingent (and actual) liability of national governments upon assuming the responsibility for guarantees and counter-guarantees of privatized utilities, price increases, disrupted services, and messy litigation brought upon governments by private investors.[3] Moreover, IFIs tend to undermine the flexibility and ability of national governments to draft the policies most appropriate for them. Communities, consumers and the general public have been left in the dark, without access to information and are not consulted in how their water resources will be managed. Finally, with such a resource as basic and vital as water, fiascos brought about by the process of privatizing public water utilities will not go uncontested. People, local and national movements will resist this and fight for alternative models of water management.

The Omnipresence of IFIs and TNCs

Access to water has become unequal over the last decade. According to the World Health Organization, 2.4 billion people live without access to sanitation services and 1.5 billion people live without access to safe drinking water while over 5 million people , mostly children, die everyday from water-borne diseases such as diarrhea, dysentery, and cholera.. Prior to privatization, the problem really was water service provision as governments from the the developing world lacked the resources to continue water service to its constituencies and invest in building or expanding infrastructure projects such as water pipe systems.

Basically, the IFIs saw this as an opening to push its privatization agenda. According to these institutions, there was “global consensus” in favor of private sector participation in the water sector. Similarly, there was the view that the private sector is more efficient, de-politicized and less corrupt, and therefore able to deliver better services, at cheaper prices with more connections, less wastage and spillage. Privatization advocates claim that private providers are bound to deliver or else they would lose their business, their reputation and their profits. So over the past twelve years, the WB has provided $19.3 billion in loans for water supply and sanitation projects in most of the South. Volume of lending has also gone up.

This policy of privatization was pushed in the form of structural adjustment loans (SAL). A closer look at World Bank loan portfolio would show that the Bank has not provided loans nor technical assistance to governments to reorganize, rehabilitate and expand public water services. The Bank however, has encouraged and promoted the participation of the private sector. This big push for privatization by the WB is reflected and written in all its strategy and policy papers, foremost of which is the Water Resources Management Sector policy paper in 1993 and later in its Water Supply and Sanitation briefs. The Water Resources Management Sector policy spells out the principle of separating the role of the providers (i.e. increasingly private) and regulation; policy formulation and assessment (public sector) and of competition among providers (essentially based on market-oriented policies and mechanisms).

It also prescribes a step-by-step approach to privatization including: decentralization; unbundling or segregating of the water and sewerage systems into profit-making (urban water) and less profit-making portions (rural water, semi and peri-urban or non-viable areas) to increase the appeal of public water utilities to investors; the passage of water-related laws that would enable an environment for the private sector and permit foreign ownership of water rights and utilities; introduction of a water concessionaire agreement between the state and private companies, easing the public and consumers out of the picture; promulgation of new regulatory body which in most cases are a creation of the concessionaire agreements; and the introduction of full cost pricing including recovery foreign exchange loses and adjustments.

Full cost recovery–the collection of fees from the consumers to cover the cost of operations and maintenance of the water utility service– is a salient feature of all privatization projects,. In 2001, for instance, the WB Water and Sanitation loans with increased cost recovery mechanisms comprise more than 80 percent of the approved loans. This mechanism has led to soaring water prices, heightening the imbalance between the haves and have nots.The rich can use as wastefully as they can because they can pay while the poor continue to suffer with lack of access to clean and safe water.

Furthermore, full cost recovery has high social costs. When water becomes more expensive and therefore less accessible, it will often drive people to resort to other water sources most likely from polluted streams and rivers, particularly in the urban areas. In developing countries, many people do not have access to piped water systems and they resort to buying buckets and bags of water from peddlers and water vendors at exorbitant fees. In Ghana, for instance, after the IMF and WB policies required a 95 percent raise in water fees in May 2001, three buckets of water cost a family almost 20 percent of the minimum wage. In India, some poor households pay as much as 25 percent of their income on water. Imposing full cost recovery and raising the prices of water in the developing world, where majority of the population live below the poverty line or live on less than $1 a day, would definitely place the burden on the poor.

Even the World Bank in a recent report admitted that “(p)rivatization has been over used as a solution to all problems faced by developing countries” and that these countries “have been exposed to its risks without the presence of strong institutions to facilitate the transition.”[4] There is also the criticism of IFIs tendency to subsidize privatization projects through the provision of guarantees. Private lenders and investors of course will seek to protect themselves from risks by obtaining commercial or political (obtaining government commitments not to expropriate private holding, protect, investment from consequences of war and unrest, maintain foreign exchange convertibility, maintain a favorable macroeconomic environment, and fulfill contractual obligations, among others) guarantees from IFIs and even governments. Such guarantees shift private sector risks onto taxpayers and consumers. Critics point out that such guarantees distort calculations and impose unsustainable price, demand, and currency risks upon the government.

The roles of IFIs and TNCs are not mutually exclusive. The relationship between them has been often described as cozy. The former’s bias for privatization inevitably encourages TNCs to invest in the water sectors of the South. Moreover, the water market is highly limited in the sense that only a handful of companies control it. And to no surprise, it is the French water giants (also called water mandarins and water barons) that dominate and control majority of the water market.

On top of the list is Vivendi Water, which earned over $13 billion from water sales last year.[5] It has furthermore set aggressive targets in privatizing water. It plans to control 20 percent of the Asian water market, by 2010.

Ondeo or Suez, on the other hand earned a little over $ 10 billion dollars from its water sales in 2003. Vivendi and Ondoeo/Suez combined supply water to 220 million people, capturing 40 percent of the existing water shares in about 150 countries. About 5 percent of the world’s population get their water and sanitation services from private companies. Trailing behind on third and fourth place are Thames (part of the German water utility- RWE),which earned $2.746 million and SAUR (another French company), registering earnings of $ 2.494 million .

The dominance of the French might have something to do with their solid and protected position in the French domestic market, where they control 85 percent of the private water markets.[6]. These four top companies are involved mostly in urban water privatization scheme, mainly in mega cities with high-income residents.

Water has become a very big business for these water giants. And the states/governments have placed the groundwork for privatization and TNCs to be involved in the process.

Complicity of the State: The Case of Metro Manila Water Privatization

In the on-going debate on equitable water management, it is important to examine what has been the role of the state in the whole process. The states or governments have been centrally involved in organizing and regulating privatization. They are necessary to change and rewrite laws, regulations, and institutional and legal frameworks, which create an enabling environment for the private sector. They are also central in providing guarantees for companies against political and economic shocks. An example, is the Metro Manila water privatization project— touted as the biggest privatization project in the world.

In August of 1997 the Metropolitan Waterworks and Sewerage System (MWSS), a government-owned and controlled water utility, entered into two separate concessionaire agreements with two groups of companies for the sole right to manage and operate the facilities, including the right to bill and collect for water and sewerage services. In the west zone, the concession was given to Maynilad Water Services, Inc., a joint venture between the Lopez family and Suez-Ondeo and in the east zone to Manila Water Services, Inc a partnership between the Ayalas and Bechtel. These agreements affected nearly 12 million individuals or 2 million households. The government privatized the MWSS with the pretext that it could solve the looming water crisis in Metro Manila. The state’s role, on the one hand, has been relegated to a mere regulator, which is not independent but a creation of the concessionaire agreement.

The MWSS was a hugely inefficient and unpopular government agency pre-privatization. Its failure to provide universal access and efficient service, coupled with the lack of resources to finance its water work systems made privatization seem like an attractive and promising alternative at that time. And with the World Bank and the Asian Development Bank’s aggressive push for the private sector take over, coupled with the promise of cheaper water, better service and less wastage, understandably, there was little public opposition to this private venture at the outset. There was then a wide perception that the private sector can bring in foreign investments needed for the expansion of water services, thereby decreasing the fiscal burden on the national government which subsidizes the operation of MWSS. Private water companies would have to assume the fiscal burden of MWSS which totaled US $ 880 million debt (multilateral banks such as the WB and the ADB accounted for US $ 250 million of the total US $307 million long-term loans of the MWSS, the remaining amount are debts from corporate banks and other creditors).

However, less than three years into the privatization scheme, both water concessionaires sought for price adjustments owing to the depreciation of the peso. This gravely affected their capacity to service the loans they inherited from MWSS, which was brought about mainly by the Asian Financial Crisis and to an extent, the El Nino or drought weather phenomenon. The government gave in by allowing price increases in 1999. This package of rate hikes was included, along with the scaling down of target levels, in what was called as Amendment no. 1 that was introduced to the concession agreement. Despite these accommodations from the government, Maynilad, one of the water concessionaires, still had difficulties keeping its company afloat.

In early 2001, Maynilad unilaterally decided to stop its concession fee payments to MWSS. As a result of various disagreements, both MWSS and Maynilad sought the termination of the contract before an International Arbitration Panel based in Paris, France. On November 7, 2003 the appeals panel rendered a decision denying both parties’ claims for termination of the concession agreement. However, up to this date, the government and the private water firm remain trapped into a deadlock of messy litigations and lawsuits. It is even likely that the government would bail out the bankrupt water company through a debt-to-equity swap mechanism. The general public and consumers, unfortunately, could not participate in the on-going litigation because they are not part of the concessionaire agreement.

Exacerbating Unequal Access to Water

What seems to be exacerbating the people’s right to clean and safe water is the increases in water prices and secondly, the non-participation in price setting that is another way of alienating people. Water prices in Metro Manila’s west zone has increased to 300 percent from 1997. Privatization thus failed in its objective to provide everyone access to sufficient and quality water.[7]. The same experience shows us how price setting is left to the private company and the state to decide at the expense of the public.

Further, most major water privatization projects are less than a decade old but it is already apparent that these projects follow the pattern of privatization in other service sectors- no commitment to expanded accesses to low-income consumers (these are the areas which from the point of view of business is non-viable), inequity in the quality of service based on ability to pay, service cut offs, weak regulatory oversight and lack of accountability of consumer needs.[8]

Private sector companies fail to serve the need to expand access to potable water when large sector of the population are poor. Investment costs are too high to install a pipe system and future revenues are low. The fundamental question of whether the private is better than the public has to be rethought and re-evaluated in the wake of the failures of privatization.. And this failure stems from the fact that the private companies are organized to make profit rather than to fulfill a social responsibility of providing universal access to water and sanitation, which has been the traditional role of the state. The consumers are at the loosing end in the privatization process, where people’s rights to water subjugated to the “right” and might of private capital to profit from the business of water.

Voices of Dissent

When such a question as fundamental as access to water is at stake and when poor people and communities are deprived of their right to this basic need, people would likely resist and struggle for their rights. A positive trend in the recent years is that communities are “reclaiming public water” through mobilizations and campaigns. Water has also become one of the pivotal arenas around which social actions have been mobilized. There are so many cases that show local and global resistance movements and models of alternative water management but perhaps, the Cochabamba experience has become an iconic example of successful resistance.

In 1999, the World Bank recommended the privatization of Cochabamba’s municipal water supply company, SEMAPA, through a concession to a private consortium, Aguas del Tunari, which involved International Water, a subsidiary of Bechtel. A law was passed called the Drinking Water and Sanitation Law in October 1999 that basically paved the way for privatization.

The 40-year concession with Bechtel caused water prices to soar to 20 percent of family incomes. This is a big deal in a city where families earn less than $100 a month. In Spring of 2000, a broad coalition of community groups, trade unions, and irrigation farmers under the banner of “La Coordinadora del Agua” mobilized against the increased water prices and disastrous record of Bechtel. Despite heavy repression by the government, La Coordinadora was successful in launching a public referendum and several major mobilizations that ousted Aguas del Tunari. La Coordinadora has now reclaimed SEMAPA’S governing body and has embarked on building a fairer and more democratic system of water supply and more equitable distribution of the resource, especially to the poor. Still, much has to be done in order to sustain such a democratic system, overcome a legacy of mismanagement, huge debt, deteriorated pipe system, servicing a large part of the poor urban community, and ultimately to make the system work. Needless to say, it is significant to note that they have started to put up a “public-popular partnership”. Some of the initiatives and gains that La Coordinadora have achieved include[9]:

Rewriting the laws of the municipal and corporatized public water company SEMAPA through a participatory process

§ Establishing a popular participation on the Board of Directors by elected citizen representatives and managing to place three out of seven board members who were also elected by residents in the southern, central and northern part of the city. This revolutionalized the management structure inside SEMAPA and provided more room for transparency and accountability to consumers.

§ Laying the groundwork for other existing (informal) institutions managing the water resources of Cochabamba, such as the water committees that organizes the water supply of the most marginalized and most populous communities in the city through running wells, to be collectively connected to the services of SEMAPA.

§ And finally, in the words of Luis Sanchez and Raul Salvatierra, the Southern representatives of the Board of Directors, the water committees and other institutions have entered a “dialogue and consensus-building processes with the authorities to define a model of co-management or shared management of basic services, where each assumes their roles and functions”[10] and responsibility.


Experts predict that despite the seemingly wide failures of privatization, the process will likely to continue, especially in Southeast Asia. However, in managing water services and resources, the “one size fits all” policy pushed by the IFIs such as the Bretton Woods, TNCs and complacent governments have not worked. Alternative models of management have to develop from within the country, taking into consideration particular historical context and intricacies, rather than imposed externally. Cochabamba is one clear example. There is also evidence to show that there is direct correlation between increased participation of citizens in decision-making processes in managing their water and sustainability of that model of water management.

Water continues to be a contested resource. Those who own and manage water definitely have power over those who are deprived of this resource. But if governments fail to redistribute wealth and power by protecting local communities and vital water resources from the invasion of greedy corporations, who can the people rely upon but themselves. Stronger democratic movements at different levels that will demand and successfully obtain greater accountability from both governments and private corporations are therefore needed. And at the end of the day, when so many people are dying from lack of access to safe drinking water and sanitation, the struggle for water has to be transformed into a struggle for a fundamental human right.

(Published in: Focus on the Philippines No. 45, http://focusweb.org/oldphilippines/content/view/87/6/)

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