UN report reaffirms water privatization amid MWSS rate hike controversy

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First published as IBON Features

The World Water Day quietly passed by last March 22. It’s a United Nations (UN) event that has been observed since 1993 to highlight the issues facing global water resources. For this year, the World Water Day had as its focus the water-energy nexus and how the world’s poorest survive without access to safe drinking water, adequate sanitation, sufficient food and energy services. Alas, it was also an occasion used by the UN to push for the further privatization and commodification of water and energy resources.

Seriously challenged

In the Philippines, the UN’s renewed support for the corporate takeover of water and energy sectors came at a time when these policies are seriously being challenged as consumers grasp a better understanding of how oligarchic firms are squeezing them dry with impunity under privatization.

The controversial pass-on charges that private water operators Manila Water Company and Maynilad Water Services Inc. that include their corporate income tax, among others, have forced the Metropolitan Waterworks and Sewerage System (MWSS) Regulatory Office (RO) to reject the bid for higher water rates of the said companies. Meanwhile, the obvious price rigging at the power spot market compelled the Energy Regulatory Commission (ERC) to order the recalculation of the electricity rate hike that the Manila Electric Co. (Meralco) is seeking.

In both cases, it was the vigilant public – through people’s organizations, consumer groups and progressive political parties – that challenged the onerous rate increases. Thus, for proponents of privatization who are grappling with legitimacy issues, the UN report could not have come at a better time.

Water report

In its 2014 World Water Development Report released on the eve of World Water Day, the UN said that 768 million people do not have access to an improved source of water, 2.5 billion do not have access to improved sanitation, while 1.3 billion are not connected to an electric power grid and 2.6 billion use solid fuel – mainly biomass – to cook. It noted energy production accounts for close to 15% of water withdrawal but could increase to 20% by 2035 due to population growth, urbanization and changing consumption patterns. The UN warned that the challenge of meeting the demand for energy might well come at the expense of water resources and thus called for coordinated water and energy management policies. (You may download the full report here.)

Such coordinated policies, according to the UN, include revising pricing practices to ensure that water and energy are sold at rates that reflect their real cost and environmental impact more accurately. Furthermore, noting that the scope of investments required to developing durable alternative infrastructures, the UN underscored that the private sector should play a major role in supplementing public expenditure.

Private participation, full cost recovery

International financial institutions (IFIs) notably the World Bank and the Asian Development Bank (ADB) are long propagating this idea of private participation in infrastructure, or also called Public-Private Partnership (PPP), and the associated principle of full cost recovery. They in fact played a central role in bankrolling neoliberal structural reforms in the water and energy sectors in many countries, mostly in the poor, debt-ridden Third World.

Available data show that World Bank lending to the water sector from 2004 to 2011 is pegged at $34.79 billion, of which $22.14 or almost 64% are in the water supply and sanitation (WSS) subsector. Almost a quarter of WSS lending, meanwhile, went to Asia and the Pacific region. (See Chart below, click on image to enlarge)

World Bank lending to water

Reflecting the real cost of water and energy is of course a euphemism for more expensive water and electricity bills which often result from privatization and deregulation. Proponents of these neoliberal policies peddle the distorted notion that when the true economic cost of water and power is reflected through full cost recovery, its wasteful use will be addressed or even reversed, and would promote the efficient and equitable use of resources.

The Dublin Principle – a product of the 1992 International Conference on Water and Environment held in Dublin, Ireland – for instance, voiced the neoliberal assertion that “water has an economic value in all its competing uses and should be recognized as an economic good” and that “managing water as an economic good is an important way of achieving efficient and equitable, and of encouraging conservation”.

Full-cost recovery means that user fees paid for by consumers reflect the entire cost of investment and the guaranteed profits of private operators including differentials in factors that could affect profits such as foreign exchange, fuel prices, inflation, and in some cases even so-called regulatory risks, among others. The real intention, however, is to attract and ensure the participation in these sectors of private business, which naturally seeks profit assurances and risks protection.

PPP trends

Already, private investors have had substantial participation in developing and operating water and sanitation and energy infrastructures. Data collated by the World Bank’s Private Participation in Infrastructure (PPI) online database show that from 1990 to 2012, 111 countries reported private investments in the energy sector with a total of 2,653 projects reaching financial closure worth about $715.13 billion. Meanwhile, PPI indicators in the water sector during the same period are as follows: 63 countries; 814 projects; and $69.25 billion.

Private participation in the energy sector continues to expand both in the number of projects and cost per project. Again using the PPI database of the World Bank, the annual average of PPI investment in the energy sector has grown almost four-fold between the 1990s and the 2010s while the annual number of projects has increased almost three-fold. The average cost per energy project also grew by almost 44% during the same period.

Meanwhile, private participation in the water and sewerage sector has slowed down between the 1990s and 2010s – the annual average of PPI investment dropped by 10%; the annual average number of projects fell by 51%; and the average cost per project declined by more than 40 percent.

This may be explained by the fact that several of the biggest urban water utilities were privatized in the 1990s, particularly in the Third World, most notable of which were in Buenos Aires (Argentina) in 1993; Cancun (Mexico) and Gdansk (Poland) in 1994; Kelantan state (Malaysia) and Santa Fe province (Argentina) in 1995; Senegal, Cartagena (Colombia), and Aguascalientes (Mexico) in 1996; and Gabon, Cordoba (Argentina), La Paz–El Alto (Bolivia), Budapest (Hungary), Barranquilla (Colombia), Manila (the Philippines) and Casablanca (Morocco) in 1997.

Another reason is the widespread public opposition to water privatization sharpened by the contradiction between water as a human right and public good versus the neoliberal claim of water as an economic commodity that private firms can profit from. In recent years, there is an observable trend towards what some call remunicipalisation or the reversal of water utilities privatization such as in Paris, France; Dar es Salaam, Tanzania; Buenos Aires, Argentina; Hamilton, Canada; and in various municipalities in Malaysia.

However, it must be noted that water privatization has started to pick up again after the 2008 global financial and economic crises. From 2009 to 2012, private participation in water and sewerage has been growing by 28% per year in terms of investment cost. In 2012 alone, PPI investment in water and sewerage jumped by almost 54% although bulk of it was accounted for by Brazil’s three large projects worth nearly $2.5 billion – or almost 62% of the reported $4.04 billion. (See Chart, click on image to enlarge)

PPI in water and sewerage

Trumpeting “success”

Neoliberal apologists trumpet privatization as the solution to the lack of access to safe drinking water in the world, especially in poor countries, since state-run water utilities are supposedly too inefficient, bankrupt and oftentimes corrupt to perform its task. One major indicator that privatization champions point to is the Millennium Development Goal (MDG) on water where the world has supposedly achieved the target of halving the proportion of population without access to improved sources of water five years ahead of schedule. But this obscures the reality on the ground that many poor communities are still without access to reliable potable water as “improved sources” in the MDGs could refer not only to individual household connection but also to public taps or standpipes, tube well or boreholes as well as dug wells.

Take the case of the privatization of the Metropolitan Waterworks and Sewerage System (MWSS) in Metro Manila, for example. Private concessionaires Manila Water and Maynilad claim almost universal coverage of water supply in their service areas. But parts of their claim are the bulk water connections – mostly in poor communities – where the safety and quality of water and of services are often compromised. Such bulk connections include setting up a single meter for several households, reaching a hundred in some cases. The responsibility of individually connecting to the so-called “mother meter” is up to the community (through its local association or cooperative). In some instances, rubber hoses are used to connect the households to the water supply system. In other cases, a common faucet is built from where the people fetch their water.

Challenged by people’s experience, opposition

Clearly, claims of universal coverage and continuous supply of safe drinking water are bloated to give the false impression of improved services. But what is undeniable is how water rates in Metro Manila and adjacent areas have skyrocketed under privatization effectively further marginalizing those who do not have the capacity to pay. Since MWSS was privatized in 1997, the average basic tariff has already ballooned by 585% (Maynilad) to 1,120% (Manila Water).

This as the concessionaires passed on to the consumers billions of pesos in questionable charges including their corporate income tax; cost of unimplemented projects; and cost of advertising, promotion and donations on top of passed-on charges due to inflation and foreign currency fluctuations – all while collecting profits at guaranteed rates. The process of arbitration over the rejected water rate hikes between the concessionaires and regulators being conducted by design away from public scrutiny and without consumer participation is a further reason that makes privatization oppressive and unacceptable.

The policy regime perpetrated by privatization that allowed private, profit-oriented companies to take over economically strategic and socially sensitive sectors with negligible state intervention explains why water and power rates in the country are very high – in fact, among the highest in Asia. Endorsements from institutions such as the UN to continue such policies are constantly and increasingly being challenged by the people’s experience and opposition on the ground. ###