Transnational Corporations and Water Privatisation

1
Transnational Corporations and Water Privatisation

• Dr. Peter Robbins
• Development Policy and Practice

2
Global Water Problem

• The United Nations designated 2003 as the
  International Year of Freshwater in
  acknowledgement that there was still much to be
  done to address the unattained goals of the
  drinking water and sanitation decade of the
  1980s.
• The water crisis in developing countries
  continues 1.2 billion still have no access to
  safe drinking water and 2.4 billion are without
  access to sanitation.
• Given this crisis a number of questions
  surrounding water and sanitation provision remain
  pressing including who finances it, who organises
  it, and whether it benefits everyone equally.

3
Politics of Water Supply

• There is no doubt that the problem of water
  supplywill become more political in the 21st
  centuryin an urbanised planet, with nearly eight
  billion inhabitants by the year 2020, water will
  be as strategically vital for living as
  petroleum. (De Rivero, 2001)

4
TNCs and Water Supply and Sanitation

• This paper explores a shift that occurred in the
  early 1990s that provided the basis for the
  involvement of transnational corporations (TNCs)
  in water supply and sanitation in developing
  countries.
• Key to this change was defining water primarily
  as an economic good, as opposed to a human right.
• One of the central assumptions underlying this
  shift is that the state is unable to deliver
  infrastructure needs, due to inefficiency and
  corruption.

5
TNCs, World Bank and Privatization

• As a result, international development agencies
  such as the World Bank, and regional development
  banks, now focus on the management of water
  resources through the private sector rather than
  the development of infrastructure.
• Since this change took place, both TNCs and
  communities have struggled with privatisation.

6
Problems with Privatisation

• TNCs have had problems extracting a surplus from
  the sale of services to the poor, as well as with
  currency fluctuations and political instability.
• Local communities complain that companies have
  focused on lucrative aspects of service, such as
  water supply to wealthy urban residents, to the
  disadvantage of poorer customers.

7
Transnational Corporations (TNCs) Water
Privatization

• The largest TNCs have assets and annual sales
  that exceed the gross national products (GNPs) of
  most of the countries of the world.
• In 2000 73 countries out of 132 had GNPs
  exceeding US10b.
• In 2000 483 TNCs had annual sales exceeding
  US10b.
• Thus, such well known companies as British
  Petroleum, Coca Cola, Toyota, and many
  recognisable firms have more economic power at
  their disposal than most of the countries of the
  world.
• Two arguments on the role of TNCs in development
• Neoclassical
• Global reach

8
TNCs Development arguments

• Neoclassical
• Foreign investment is a capital flow that
  increases the stock of capital in a host country.
• This causes output in that country to increase.
• It assumes there is perfect competition, and
  lack of negative effects on local capital.

• Global reach
• Foreign investment is part of the strategy of
  firms, not simply a resource flow.
• TNCs have oligopolistic advantages (market power)
  that allow them to outcompete local business.
• TNCs create imperfect markets in order to control
  or reduce competition and maximise surplus
  acquisition.

9
Water Privatisation

• 1992 Dublin Conference on Water Development
  stipulated that water had economic value, and
  should be recognised as an economic good.
• Past failure to recognize the value of water in
  developing countries, it was argued, led to
  wasteful and environmentally damaging use of the
  resource.
• The state was held responsible for the failure to
  deliver basic services.

10
Integrated Water Resources Management

• It was argued that through integrated water
  resources management sustainable (water)
  development could be delivered in poorer
  countries.
• The World Bank (in 1993) stated that efficiency
  in water management must be improved through
  greater use of pricing and through greater
  reliance on decentralisation, user participation,
  privatisation and financial autonomy to enhance
  accountability and improve performance

11
Infrastructure TNCs

• The shift in emphasis (towards privatisation)
  promoted the development of infrastructure TNCs.
• Corporations ideal customer is the well-off
  urban customer who can pay the full rate for
  water supply without burdening the company with
  infrastructure costs.
• Establishing full cost recovery has been central
  to the privatisation process, as it consolidates,
  legitimates, and extends the ability of the
  utility to extract tarriffs, making investment
  more attractive to the private sector.
• There is some evidence that imposing full cost
  recovery, or market prices for water, in
  developing country settings allows the rich to
  use water as wastefully as they want, as long as
  they can pay, while the poor continue to suffer
  from lack of access to water.

12
Unbundling the water sector

• Related to full cost recovery is the idea of
  unbundling the water services sector, which
  involves decoupling the profitable and
  unprofitable sections of water services.
• This allows companies to negotiate more lucrative
  investment packages.
• The fundamental problem faced by TNCs is that the
  poor are not profitable, because they cannot
  afford to pay for a connection, or consume enough
  water to cover operating costs.

13
Ringfencing

• Ring fencing profitable customers has been
  emphasised by the companies
• There are two ways to do this redefine who is
  poor, and redefine the service.
• In Cartageña, Columbia, for example, shantytown
  areas were treated as not covered by the contract
  with the government since they were not in the
  city area.
• In La Páz, Bolivia, where the contract stated
  that there must be full coverage, including the
  shantytown of El Alto, Suez argued that
  connection does not mean a piped connection,
  but may mean access to a standpipe or tanker

14
Problem of Regulation

• Most developing countries do neither have the
  financial nor the human resources required in
  order to transform successfully and adapt their
  public administration and to create regulatory
  institutions to control TNCs.
• Generally the urban poor as well as the rural
  population will not get better water supply and
  sewerage services as a result of privatisation.

15
Problem of Decentralisation

• As recognized by water specialists, successful
  examples of decentralisation as advocated by
  the World Bank are few in developing countries.
• The main consequence of such a process is that it
  simply shifts the problem encountered by the
  central government to local municipalities, a
  problem which is further aggravated by the fact
  that they have even less financial, operational
  or technical capacities to face TNCs.

16
Pro Poor Water

• The World Bank insists that supplying clean water
  to the poor can, and must, be done through the
  private sector.
• Suez, in particular, claims that it has extended
  service to the poor in Latin America.
• The Bank, and others have argued that private
  water concessions can be made pro poor.

17
Buenos Aíres

• Suez asserts that it has a pro poor approach,
  largely based on its work in Buenos Aíres, where
  water supply was extended to some of the poorest
  shanty towns.
• Under pressure from the local authority,
  extensions were financed by a tax on all users.
• This financed the extensions, with little
  investment from the company, amounting to 110m
  over five years.
• In 2002, following the collapse of the economy,
  Suez wrote off 200m because of Argentina,
  costing the company 8 per cent of its global
  water business. The original agreement had
  allowed Suez to link Buenos Aíres prices with the
  US dollar, but the crisis ended dollarisation

18
Jakarta

• President Suharto contracted the Jakarta water
  service to Suez and RWE Thames in 1997.
• Since then, the companies have achieved a 31
  percent increase in water connections, and over
  33,000 additional connections in the very
  modest areas, in a city of 10 million around
  half of which are slum dwellers.
• New connections do not always mean that new
  people are getting running water it can mean
  that existing supply has been metered, or that
  people have access to a standpipe or tanker.

19
Jakarta (continued)

• Most of the poor still buy drinking water from
  street vendors, and about 70 per cent still lack
  running water.
• The companies instituted three increases, which
  varied from one neighbourhood to the next,
  depending on ability to pay, but the average
  increase was 35 per cent.
• The vast majority of new water customers were
  from the richer and industrial areas of the city.
  
• The Jakarta Post observed despite the entrance
  of two foreign companies, people in Jakarta still
  complain about the quality of the water they
  produce as well as disruption to water supplyThe
  two companies have also failed to expand their
  networks arguing that the city administration had
  increased water rates only a fraction of the
  amount they had requested

20
TNC Withdrawal

• SAUR International TNC involvement in water
  supply is central for sustainable development,
  but is it a good and attractive business?
• Suez We will concentrate on the soundest
  markets in Europe and North America.
• Vivendi We will limit our investments to big
  cities where the GDP/capita is not too low.

21
Water and Sanitation in China

• Approximately 50 million people in Chinas rural
  areas and Western regions have limited access to
  safe drinking water.
• Here access is defined as 20 litres per person
  per day from a source within one kilometer from
  ones home.
• Such source include household piped water, a
  public standpipe, a protected well or spring, or
  a rainwater collection system.

22
Water supply in China

• Chinas new and existing water projects have been
  built with insufficient attention to long term
  maintenance and operation costs.
• Water quality is another issue water may be
  available but unfit for consumption because of
  human activities (mining or industry) or
  naturally occurring contaminants (arsenic and
  fluoride) 80 of Chinas rivers no longer
  support fish.
• As development increases Chinas demand for
  water, wells are being drilled deeper and now
  frequently tap into arsenic rich aquifers..
  Numbers of arsenic poisoning cases are rising.

23
Water Quality

• Contamination of drinking water from faeces is
  another health problem causing illnesses such as
  diarrhoea and viral hepatitis.
• A recent survey by Unicef in the 11 provinces
  found over half of drinking water supplies
  contaminated by unacceptably high levels of
  bacteria.
• In January 2006, it was reported that around 300
  million people in rural areas in China drink
  unsafe water contaminated by chemicals and other
  contaminants.
• It was also reported that around 90 percent of
  Chinas cities have polluted groundwater.
• 136 Chinese cities report severe water shortages.

24
TNCs Operating in China Thames Water

• Thames Water has operated in China since 1989,
  and has been operating in Hong Kong for decades.
• It is one of the countrys leading private water
  companies, having a customer base of 6.5 million
  consumers.
• In 1995, it won the contract for Chinas first
  privately funded water treatment project in Da
  Chang, Shanghai.
• In July 2002, Thames acquired the largest single
  shareholding in the China Water Company, which
  has 4 million customers.
• It has also signed a memorandum of understanding
  with the Ministry of Water Resources to do
  integrated water resource management activities
  across China.

25
Other Water TNCs in China

• In March 2001, Vivendi secured a US20 million,
  20-year contract to operate and renovate a water
  plant in Tianjin.
• In 2002, both Suez and Vivendi signed long term
  deals, some for up to 50 years, to manage
  municipal water systems in China. At the
  time,Suezs CEO, Gerard Mastellart, announced
  China to be a prime market at the onset of
  this century.
• Saur has been operating a drinking water
  production plant in Harbin, China (225,000 m3 per
  day) serving 2.8 million people. SAUR is
  considering massive expansion in China.
• Since January 2001, a Saur subsidiary has been
  operating a Shanghai drinking water plant serving
  700,000 consumers.