Abstract
This chapter explores the experience of private-sector participation (PSP) in the provision of water and sanitation services since the late 1980s. In particular, it examines the various justifications for PSP, including that PSP would be inherently more efficient than public water utilities, contribute to reduce the public sector’s deficit by providing fresh private investment, help to extend coverage of services to the poor, and improve social equity. The chapter finds that these claims are not supported by the evidence emerging from cases in Africa, Europe, and Latin America where PSP was strongly promoted. Not only have the promises of overall improvements in efficiency, fresh private investment, public sector relief, and extended service to the poor not materialized, but there are also good reasons to link the expansion of PSP with rising levels of social inequality and the weakening of democratic governance and substantive citizenship in the management of water and water services. The chapter also argues that achieving the Millennium Development Goals will require a radical change in policy options and a stronger commitment from OECD governments, international financial institutions, donors, and other key actors to strengthen public utilities, in particular at the regional and municipal level.
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Notes
- 1.
I wish to thank the International Food Policy Research Institute for the kind invitation to participate in the International Workshop on “Globalization and Trade: Implications for Water and Food Security,” Turrialba, Costa Rica, April 18–20, 2005. This chapter is a revised and shortened version of the paper originally submitted for discussion at the workshop.
I would also like to acknowledge the generous support provided by the European Commission that made it possible to carry out the research project on which much of this chapter is based. The project, “Barriers and Conditions for the Involvement of Private Capital and Enterprise in Water Supply and Sanitation in Latin America and Africa: Seeking Economic, Social, and Environmental Sustainability” (PRINWASS - http://www.prinwass.org), was funded by the European Commission’s 5th Framework Programme (INCO-DEV), Contract: PL ICA4-2001-10041.
I also want to express my warmest thanks to Professor Erik Swyngedouw, currently at Manchester University (UK), who provided strategic backing to develop the project at Oxford University during 2001–2004.
- 2.
By “mainstream” water policies we mean the policies of de- and re-regulation, liberalization, commodification, and private-sector expansion in WSS that have been the priority of the international financial institutions (IFIs) (e.g. World Bank), aid agencies (e.g. USAID), and the governments of OECD countries since the 1980s. We are aware that there are different approaches within this overall policy trend, and that there is no monolithic position even inside the institutions that have been at the forefront of these policies.
- 3.
We avoid using the concept of “privatization” wherever possible because its use in the literature and in public debates often obscures the fact that the private sector has always been involved in different forms in the provision of WSS and will continue to do so. Therefore, we choose the broader concept of “private-sector participation” to refer to the process in general and restrict the use of “privatization” for those specific cases involving the transfer of property rights over water sources or water infrastructure to the private sector (e.g. the full divestiture model as implemented in England since 1989 to date).
- 4.
- 5.
The MDGs aim at reducing by half the proportion of the global population that lack access to WSS by 2015. It is estimated that 17% of the world population lacks access to safe water, and 40% has no provision of basic sanitation (UN 2000, 2002).
- 6.
The notion that essential services such as WSS are “public goods” was developed in the process that since the late nineteenth century led first to the increasing regulation of privately-delivered services such as water supply and later to municipalization and then state takeover of these services. Welfare economists argued that this was necessary because of “market failures,” which arise because private markets are unlikely to provide the most efficient pattern of goods and services preferred by consumers (Roth, 1988: 6–7). See also Lee (1999).
- 7.
In this passage the World Bank implicitly acknowledged that another claim used to justify PSP, that it helps to expand WSS coverage to the poor, is also flawed. We have discussed this particular claim in more detail elsewhere (Castro 2007a; also see Laurie 2007).
- 8.
The well-established fact that many public operators in both developing and developed countries are highly efficient has been largely ignored or neglected in the mainstream literature as well. For instance, after around 15 years of PSP experience in the WSS sector, the best performing utilities in Brazil and Mexico are public: SABESP (the state water utility of Sao Paulo) and DMAE (the municipal water company of Porto Alegre, in Rio Grande do Sul), among others, in Brazil, and the state water company of Nuevo León, SADM, in the case of Mexico. In Colombia, the multi-utility Empresas Públicas de Medellín created in 1955, owned by Medellín municipality, is another outstanding example of sustained public sector efficiency rarely, if ever, mentioned in the mainstream literature (see also Balanyá et al. 2005).
- 9.
It is important to note here that the notion of public or social good does not imply that these services should be free of charge, as the two notions are often conflated in current debates.
- 10.
Interview with Eng. Atílio Todeschini, former Director of DMAE and currently elected municipal councillor, Chamber of Councillors of Porto Alegre, Porto Alegre, January 2005. The “bribing attempts” refer to situations where allegedly officers of the IFIs were trying to negotiate loans in exchange for consultancy contracts for private companies run by themselves, family relatives or friends. This reminds us of Joseph Stiglitz’s statement that privatization as promoted by the IFIs should be rather termed “briberization” (Stiglitz, 2002: 58).
- 11.
Interview with Eng. Antônio da Costa Miranda Neto, former Secretary of Sanitation of the Municipality of Recife and International Representative of the Brazilian Association of Municipal Water and Sanitation Utilities (ASSEMAE), Recife, 12 December 2003. We have omitted the details of the negotiations for reasons of space, but the interview provided good evidence of the strength with which IFIs use loan conditionalities to foster PSP policies in developing countries. The final negotiations for this project, called Prometrópole, took place in Washington in November 2002, and the contract was finally signed on 23 June 2003.
- 12.
An important calculation that is often missing in the debates is the cost of introducing PSP in developing countries: the cost in terms of the preparation of public utilities for privatization. In addition to this, in cases like Bolivia, the failed PSP contracts in Cochabamba (in the year 2000) and more recently in La Paz-El Alto (in 2006) have placed a heavy burden on the country, given that the private operators have sued the Bolivian government to claim compensation for the loss of future revenues over the remaining life of the contracts. A similar situation is faced by Argentina in relation to a number of failed PSP contracts and the country currently faces compensation claims from private companies that run in the hundreds of millions of dollars (for a discussion on arbitration tribunals created under international investment agreements, see Solanes, this volume).
- 13.
This figure includes 10% served by cooperatives (Azpiazu and Schorr 2004: 3–4).
- 14.
For an in-depth discussion of the challenges and opportunities for developing such alternatives see Castro and Heller (2009).
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Castro, J.E. (2010). Private-Sector Participation in Water and Sanitation Services: The Answer to Public Sector Failures?. In: Ringler, C., Biswas, A., Cline, S. (eds) Global Change: Impacts on Water and food Security. Water Resources Development and Management. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-04615-5_9
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