When Water Is for Sale: What Water Privatisation Really Means

04/06/2013 13:01 | Updated 03 August 2013

The privatisation of state water companies around the world almost always has one common denominator: it is made ​​under the pressure of international lenders in countries with large debt or under the pressure of multinational corporations and politicians in countries with a strong economy.

The dominant argument is that the state takes too long to provide the necessary services which are deemed ineffective; in reality, however, the countries that have applied this doctrine were led to the creation of a powerful private monopoly where acquisitions and mergers shattered any sense of competition and hope for reduced tariffs.

From the beginning of 1980s until 2000, there was a huge pressure from international financial institutions and multinational corporations to privatise public water companies. The result was that 5 major corporations, Veolia, Suez, Agbar, RWE and Saur, held 71% of the global water market in 2001. But the reaction of citizens, led to renationalisation of the networks. Today, large corporations own only 34% of the market while 90% of the 400 largest cities in the world still have a public water network. In 2011 only 12% of the water on a global scale was in private hands. Privatisation has now taken the form of investment in hard technology and purchase of water rights.

But what has happened in countries where the network was privatised?

Argentina was one of the first countries to privatise the water network. In 1993 the government gave the municipal water supply in a consortium of multinational and local companies. The World Bank rushed to congratulate Argentina´s move, describing it as the most promising investment. But the joy did not last long. Companies placed their friends in key positions of the government paying them huge salaries, which led to imposing high tariffs that affected millions of poor. In many cases companies increased their profits by reducing maintenance costs and did not replace old pipes, thus the water flooded the poorest neighbourhoods. With the economic crisis that followed, consumers could no longer pay for their water bills in 2005, the corporations Suez and Aguas de Barcelona withdrew from the program. The government renationalised the network whose damages were so severe that it had to be restored from scratch.

In South Africa, the privatisation of water supply resulted in one of the worst cholera epidemics in the poor neighbourhoods of Johannesburg in 2000-2002. The outbreak started when residents of slams were disconnected from the private water supply because they could not pay their increased bills. Without safe sanitation and no access to clean water, residents were forced to drink water from contaminated rivers. The cholera epidemic resulted in more than 100,000 people becoming ill and at least 100 losing their lives. The government reacted vigorously and forced the private companies to provide at least 25 litters of water per day to every resident during the epidemic. While companies had strongly protested against this decision they complied but continued to disconnect the water for the poor.

In Africa, perhaps the most striking privatisation case is that of Tanzania. In 2003 the country was forced by the World Bank and the IMF to immediately privatise their outdated and inefficient public water supply network in exchange for loans. Since nobody wanted to invest in the market of Tanzania and the IMF exerted increasing pressure, the country was forced to sell off the network to the British company Biwater. The irony of the decision was that the Tanzanian government had to participate in the financing of the investment with Biwater, using the same loans that were given by the IMF and the World Bank in exchange for the privatisation. Within a year of the advent of Biwater, consumers saw their water bills tripling while the poorest got disconnected from the main water supply. In fact, 98% of the network served the wealthy few, leaving millions of people without water. The company made no investment which was against the agreement and accused the government of giving false evidence and claimed that the investment was unprofitable. Tanzania finally renationalised the water network and expelled Biwater from the country. Biwater then led Tanzania to court but lost the lawsuit in 2008 and was forced to pay 3 million pounds to the government in compensation.

The selling of the water supply network in the capital of the Philippines, Manila, was regarded as the most ambitious and "successful" privatisation experiment. In 1997 the government faced financial trouble and after following the World Bank's advice decided that, in order to fill the financial gaps, water must be sold. The network was already in poor condition and 4 out of the 11 million inhabitants had no connection. The network was divided into two zones and was given to a consortium of companies (among them was Bretchel, known by the subsequent invasion in Iraq). During the first years prices were reduced by half and connections reached 87% of residents, due to competition. As of 2001, however, the situation changed dramatically. Prices went up 500% compared to 1997 levels and the average family spent 10% of its income on water bills. About 40% of the bill was not related to consumption but to illegal charges. In 2003 more than 800 people were affected by a cholera epidemic in the network, caused by poor maintenance of piping and non-repair of leaks.

In 2008 in France, the city of Paris decided not to renew the contract with the companies Veolia and Suez who owned the network since 1985, and to assign the water system to the municipality. In 2010 the municipal company Eau de Paris was founded and the city managed to save 35 million euros per year while reducing the tariffs by 8%.

In Germany, water agencies are owned by the public sector everywhere except in Berlin while the Netherlands in 2004 declared by law the participation of any private agency in water services as illegal.

Thus, while privatisation of water has failed and there is a strong tendency worldwide towards renationalisation, the European Commission requires the selling of water supply as a condition for the financial bailout of Greece and Portugal. The Greek government and its supporters, regardless of the consequences, fully endorsed the legislation on privatisation, including the water supply network.

Who will pay the actual cost remains to be seen.

An earlier version of this article appeared in Greek as a part of a larger civil initiative to prevent the privatization of state water company by the Greek government and it was translated in English by Yannis Fanourakis