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Title: 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.
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