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There was a time, not all that long ago, when it was generally understood that certain basic services should be available to all people, as a fundamental human right. The right to food and shelter were typically seen as being on par with other rights such as a minimum right to drinking water. Of course, the realities of our unequal world meant that, even when this was generally accepted, it did not mean that all people actually did have access to these things.

However, the role of the state in attempting to provide some of these services, and particularly those which were seen as "natural monopolies", to its citizens was established. Indeed, it would have been hard to find even the most rabid of free-marketeers arguing that these were activities for the private sector.

All that has changed, not just rapidly but quite dramatically. There is now virtually no state activity (even defence, in some African states) which is seen as necessarily the sole preserve of the state. And the trend of privatisation of a range of public services has become so pronounced that it no longer raises any eyebrows. Almost all public goods are now seen as freely tradeable commodities, and private ingenuity works out ways to make people pay even when access is hard to limit, and governments fall into step with the dominant ideology.

Nevertheless, the news that from April Fools Day this year, the water supply of the city of Johannesburg in South Africa has been privatised and handed over to a single monopolist supplier, still comes as a shock. After all, the South African government is controlled by the African National Congress, which came to power in 1994 promising free public services to those who could not afford them, and in fact promised universal public access to clean drinking water only three years ago.

This privatisation of water supply is part of a larger plan, known as Igoli 2002, which aims to turn Johannesburg into a "world-class city". The strategy for this is the dubious one of privatising more than a dozen services, through cleaning hawkers off the streets, paying top executives millions of rands, building thousands of drop toilets with no flush facilities on top of the water table, and through selling off profitable assets.

There has been a massive two-year civic campaign against this privatisation led by the South African Municipal Workers' Union (SAMWU). Not only the workers affected, but hundreds of thousands of other citizens took part in this protest movement. Not only did SAMWU point out the numerous cases across the world where privatisation of public services led to higher prices and monopolistic practices, but they also specifically criticised this particular deal. They emphasised that the new supplier, Suez Lyonnaise des Eaux of France, had made no commitment to provide water supply to the poor.

Suez Lyonnaise's recent record does not give grounds for great optimism. In Santiago, Chile, the company has insisted on a 33 per cent profit margin in its operations. In the city of Casablanca, within the first year after the company took over the water supply, prices rose three times. Even in France, their record is less than spotless in terms of either consumer satisfaction or low prices.

While it remains to be seen what happens in Johannesburg, the writing on the wall is already fairly clear. The absence of adequate regulation in this sector and the fact the company will be effectively a monopoly in the area mean thatpoor people may face a large hurdle : covering both relatively non-subsidised recurrent (operating and maintenance) costs, and paying sufficiently high service charges so as to reward investors with the expected 32 percent rate of return.

The current mainstream discussion is replete with pious statements of how people must be prepared to pay for the public services they benefit from. This ignores the basic points that all citizens effectively pay for public service provision through taxation, and that the poor typically pay a much higher proportion of their income in indirect taxes that the rich. Those eager to raise "user charges" for public service provision need to be gently reminded that one major reason why many citizens of developing countries do not pay is because they cannot – they simply do not have the money.

This is why it is so widely found that the poor in any country are inevitably much worse off after a public service is privatised. As a recent literature review sums up : ‘The effects of privatisation bear most radically on the poorest in the community; there is widespread evidence of more cut-offs in service and generally a harsher attitude towards low-income "customers." Water in Britain is a case in point. Water and sewerage bills increased by an average of 67 percent between 1989/90 and 1994/95, and during roughly the same period the rate of disconnections due to non-payment by 177 percent. The inflexibility and hostility which often characterised public utilities attitude towards non-payment has, over the same period, been replaced by an emphasis on pre-payment meters and "self-disconnection" as public goods have been commodified.' [Hemson, 1997, quoted in Patrick Bond, "Privatisation, participation and protest in the restructuring of municipal services", 2001]

It is not only the poor who are worse off. It is now increasingly evident that private companies are less likely to observe safety norms, regulate production and distribution in socially desirable ways, and also that they tend to behave in monopolistic ways whenever they get the opportunity.

Of course, it is not hard to understand why there is such a strong private lobby for such privatisation within South Africa, coming from multinational companies. Privatised South African infrastructure is potentially highly profitable, with Internal Rates of Return approaching 30 percent. In South Africa such pressure was reinforced by systematic pressure form the World Bank and its sister organisation the International Finance Corporation, which have been systematically promoting what they call "public-private partnerships".

It is well known now that these are usually a combination of public risk bearing and private profit, but the World Bank has been plugging these as the only solution to the regions severe infrastructure inadequacy. The IMF also has been aggressively promoting these : a recent random review of 40 IMF loans issued in 2000, it was found that at least 12 of these loans (mainly to poor Sub-Saharan African countries) the IMF conditionalities required either the full privatisation of water supply or policies ensuring full cost recovery.

But soon, the World Bank may not be the only source of such pressure. There are strong indications that the United States and some other developed countries wish to incorporate public services into the ongoing negotiations of the General Agreement on Trade in Services (GATS). The potential for opening up in this area is immense, once all public services are targeted. It means that health, water supply, sanitation, education, social security, transport, postal services, general municipal, can all be opened up not only to private participation but also to free trade.

It is obvious that the potential for profits is immense. One estimate of the current size of the global health market is more than $3.5 trillion a year, which is more that the total value of exports from all OECD countries. Similarly, global expenditure on education is estimated to be 42 trillion, and even on water, as much as $2 trillion.

This is not a market that major multinational companies can afford to ignore, especially as the slowdown in a range of other sectors becomes more pronounced. We can thus expect to see such pressure mounting across the developing world, and of course in India as well.

The sad reality is that many of our policy makers do not even require much external pressure to go in for such privatisation. Thus, in the state of Andhra Pradesh whose government has already become the most eager beaver of privatisers, the Hyderabad Metropolitan Water Supply and Sewerage Board is considering privatising the operation, maintenance and functioning of water supply in Kukatpally as a pilot project for one year.

We have been seeing dismal pictures of farmers and weavers in Andhra Pradesh committing suicide because of the material stress which has been exacerbated by government policies. Perhaps, in the not so distant future, we will have to witness more instances of human misery stemming from deprivation of the most basic of human needs – water.



Themes > Current Issues	20.04.2001


Trading in Water

Jayati Ghosh

There was a time, not all that long ago, when it was generally understood that certain basic services should be available to all people, as a fundamental human right. The right to food and shelter were typically seen as being on par with other rights such as a minimum right to drinking water. Of course, the realities of our unequal world meant that, even when this was generally accepted, it did not mean that all people actually did have access to these things. However, the role of the state in attempting to provide some of these services, and particularly those which were seen as "natural monopolies", to its citizens was established. Indeed, it would have been hard to find even the most rabid of free-marketeers arguing that these were activities for the private sector. All that has changed, not just rapidly but quite dramatically. There is now virtually no state activity (even defence, in some African states) which is seen as necessarily the sole preserve of the state. And the trend of privatisation of a range of public services has become so pronounced that it no longer raises any eyebrows. Almost all public goods are now seen as freely tradeable commodities, and private ingenuity works out ways to make people pay even when access is hard to limit, and governments fall into step with the dominant ideology. Nevertheless, the news that from April Fools Day this year, the water supply of the city of Johannesburg in South Africa has been privatised and handed over to a single monopolist supplier, still comes as a shock. After all, the South African government is controlled by the African National Congress, which came to power in 1994 promising free public services to those who could not afford them, and in fact promised universal public access to clean drinking water only three years ago. This privatisation of water supply is part of a larger plan, known as Igoli 2002, which aims to turn Johannesburg into a "world-class city". The strategy for this is the dubious one of privatising more than a dozen services, through cleaning hawkers off the streets, paying top executives millions of rands, building thousands of drop toilets with no flush facilities on top of the water table, and through selling off profitable assets. There has been a massive two-year civic campaign against this privatisation led by the South African Municipal Workers' Union (SAMWU). Not only the workers affected, but hundreds of thousands of other citizens took part in this protest movement. Not only did SAMWU point out the numerous cases across the world where privatisation of public services led to higher prices and monopolistic practices, but they also specifically criticised this particular deal. They emphasised that the new supplier, Suez Lyonnaise des Eaux of France, had made no commitment to provide water supply to the poor. Suez Lyonnaise's recent record does not give grounds for great optimism. In Santiago, Chile, the company has insisted on a 33 per cent profit margin in its operations. In the city of Casablanca, within the first year after the company took over the water supply, prices rose three times. Even in France, their record is less than spotless in terms of either consumer satisfaction or low prices. While it remains to be seen what happens in Johannesburg, the writing on the wall is already fairly clear. The absence of adequate regulation in this sector and the fact the company will be effectively a monopoly in the area mean thatpoor people may face a large hurdle : covering both relatively non-subsidised recurrent (operating and maintenance) costs, and paying sufficiently high service charges so as to reward investors with the expected 32 percent rate of return. The current mainstream discussion is replete with pious statements of how people must be prepared to pay for the public services they benefit from. This ignores the basic points that all citizens effectively pay for public service provision through taxation, and that the poor typically pay a much higher proportion of their income in indirect taxes that the rich. Those eager to raise "user charges" for public service provision need to be gently reminded that one major reason why many citizens of developing countries do not pay is because they cannot – they simply do not have the money. This is why it is so widely found that the poor in any country are inevitably much worse off after a public service is privatised. As a recent literature review sums up : ‘The effects of privatisation bear most radically on the poorest in the community; there is widespread evidence of more cut-offs in service and generally a harsher attitude towards low-income "customers." Water in Britain is a case in point. Water and sewerage bills increased by an average of 67 percent between 1989/90 and 1994/95, and during roughly the same period the rate of disconnections due to non-payment by 177 percent. The inflexibility and hostility which often characterised public utilities attitude towards non-payment has, over the same period, been replaced by an emphasis on pre-payment meters and "self-disconnection" as public goods have been commodified.' [Hemson, 1997, quoted in Patrick Bond, "Privatisation, participation and protest in the restructuring of municipal services", 2001] It is not only the poor who are worse off. It is now increasingly evident that private companies are less likely to observe safety norms, regulate production and distribution in socially desirable ways, and also that they tend to behave in monopolistic ways whenever they get the opportunity. Of course, it is not hard to understand why there is such a strong private lobby for such privatisation within South Africa, coming from multinational companies. Privatised South African infrastructure is potentially highly profitable, with Internal Rates of Return approaching 30 percent. In South Africa such pressure was reinforced by systematic pressure form the World Bank and its sister organisation the International Finance Corporation, which have been systematically promoting what they call "public-private partnerships". It is well known now that these are usually a combination of public risk bearing and private profit, but the World Bank has been plugging these as the only solution to the regions severe infrastructure inadequacy. The IMF also has been aggressively promoting these : a recent random review of 40 IMF loans issued in 2000, it was found that at least 12 of these loans (mainly to poor Sub-Saharan African countries) the IMF conditionalities required either the full privatisation of water supply or policies ensuring full cost recovery. But soon, the World Bank may not be the only source of such pressure. There are strong indications that the United States and some other developed countries wish to incorporate public services into the ongoing negotiations of the General Agreement on Trade in Services (GATS). The potential for opening up in this area is immense, once all public services are targeted. It means that health, water supply, sanitation, education, social security, transport, postal services, general municipal, can all be opened up not only to private participation but also to free trade. It is obvious that the potential for profits is immense. One estimate of the current size of the global health market is more than $3.5 trillion a year, which is more that the total value of exports from all OECD countries. Similarly, global expenditure on education is estimated to be 42 trillion, and even on water, as much as $2 trillion. This is not a market that major multinational companies can afford to ignore, especially as the slowdown in a range of other sectors becomes more pronounced. We can thus expect to see such pressure mounting across the developing world, and of course in India as well. The sad reality is that many of our policy makers do not even require much external pressure to go in for such privatisation. Thus, in the state of Andhra Pradesh whose government has already become the most eager beaver of privatisers, the Hyderabad Metropolitan Water Supply and Sewerage Board is considering privatising the operation, maintenance and functioning of water supply in Kukatpally as a pilot project for one year. We have been seeing dismal pictures of farmers and weavers in Andhra Pradesh committing suicide because of the material stress which has been exacerbated by government policies. Perhaps, in the not so distant future, we will have to witness more instances of human misery stemming from deprivation of the most basic of human needs – water.



© MACROSCAN 2001