GATS and Water

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Bertram Zagema, Milieudefensie (Friends of the Earth Netherlands)

Water is scarce, and increasingly so as reserves are depleted and populations (as well as per capita water consumptions) grow. Currently 31 countries, mostly in the Middle East and Africa, are facing water shortages. By the year 2025 a further 17 countries will be added to this list, including Ethiopia, India, Kenya, Nigeria and Peru. Because of its scarcity, many people believe that water may well become the oil of the 21st century, in reference to the wars that might be fought over it. Indeed, water is already a significant source of tension between countries such as Israel and Palestine, or Hungary and Slovakia.

Yet some big transnational corporations have now given a different meaning to the war over water. These companies look at water as an enormous potential market they can make money in. According to the World Bank, the water markets of the world are worth up to US$800 billion, which makes them comparable in scale to the fossil fuel market. And corporations see GATS as a vehicle for opening up these water markets.

Traditionally water management, from harvesting to distribution, has been predominantly a government responsibility. But governments are increasingly handing over authority to private corporations by giving them either ownership, operation concessions or management contracts over water delivery and treatment systems. Among the advocates of this trend, apart from the water companies themselves, is the World Bank, which in many cases has prescribed governments to privatise and has also offered loans to countries to facilitate water privatisation.

The main arguments used to support privatisation are that private capital can thereby be mobilised to invest in water infrastructure and/or the expectation that a private company can build and operate water systems more efficiently. Evidence, however, suggests that the contrary is true.

In 1989, when much of Britain's water was privatised, asset management plans and maximum price levels were agreed between the companies and the regulator. However, most companies underspent on investments and used their soaring profits to pay shareholders and management. Meanwhile, the infrastructure is crumbling, leakages are not repaired and sewers have been overflowing.

Between 1989 and 1997, the companies involved were successfully prosecuted 128 times. Among other things, they were charged with failure to meet leakage targets, as well as with water pollution and illegal sewage discharge. The penalties, however, have not been severe. Northumbrian, a subsidiary of Suez, was fined less than 10,000 for supplying contaminated water to 15,000 customers in 1997.

The Argentine capital Buenos Aires has had a similar experience. In 1993 a consortium of Suez and Vivendi was granted a 30-year concession. In 1999 the regulator concluded that "the main goals set at privatisation have not been met, in terms of the raising of water quality standards or in expansion of the system." Yet the regulator has little power to call the companies to account.

One universal feature of water privatisation seems to be that prices increase. Because of the monopolistic character of a water distribution system, privatisation does not involve consumer choice. At best, companies negotiate price levels with government regulators. The result is often that prices increase by tens or even hundreds of percent, wherever you are: from Paris, France (300% between 1984 and 1997) to the Bolivian city of Cochabamba (200% in 2000 alone).

In Cochabamba high prices sparked civil protest, with tens of thousands protesting in the streets against the privatisation imposed by the World Bank. The government eventually cancelled the contract with Bechtel, and now faces a US$40 million compensation claim.

The World Bank-induced privatisation of water in the Ghanaian capital Accra - already highly controversial even before its enactment - may meet a similar fate. Yet while consumers face (spectacularly) higher bills as a result of water privatisation, the chief executives of the water companies have seen their salaries increase by similar degrees. Privatisation of water management also changes the logic of the system. The public goals of sustainable water management and universal delivery are replaced by the profit orientation of private companies.

Commitments on water market liberalisation under the framework of GATS would make it very difficult for countries to regain control over their water once they have given it away. GATS is error-unfriendly: once a sector is liberalised and water companies have been privatised, it becomes very expensive to return the system to public hands, or even to renegotiate a contract. Had Bolivia's water system been included within the country's GATS commitments, it would have been virtually impossible to restore public ownership in Cochabamba.

The Dutch government decided not to privatise water in 1999 on the understanding that it was too vulnerable and too valuable a public good to gamble with. Any country should have the right to take such a decision, including countries which have in the past privatised their water system and now want to reverse that decision. Water management should be guided by public, not private interests. And decisions over the future of water should remain at all times under democratic control.

For further reading, see: The Final Frontier, Gil Yaron, Citizens' Council of Corporate Issues, March 2000.

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