Water Privatization:


By Maude Barlow and Tony Clarke

Polaris Institute
January 2004

The impacts of World Bank and IMF structural adjustment programs on countries in the Global South have been well-documented in the areas of health and education, food security and jobs. However, less is known about the impacts of the World Bank's latest obsession -- the privatization of water services. In country after country in recent years, the World Bank has been quietly imposing a for-profit system of water delivery, leaving millions of people without access to water.

The Bank is taking advantage of the "Washington Consensus" model of development now adopted by its donor countries and promoting the interests of a handful of transnational water corporations. Instead of using its massive funds to promote expertise in the public sector, thereby acknowledging that water is a human right and an essential public service, the Bank is forcing many countries to commodify their water resources and put them on sale to the highest bidder.

There are ten major corporate players now delivering fresh water services for profit. Between them, the three biggest -- Suez and Vivendi [recently renamed Veolia Environment] of France and RWE-AG of Germany -- deliver water and wastewater services to almost 300 million customers in over 100 countries, and are in a race, along with the others such as Bouygues SAUR, Thames Water (owned by RWE) and Bechtel-United Utilities, to expand to every corner of the globe. Their growth is exponential; a decade ago, they serviced around 51 million people in just 12 countries. And, although less than 10 percent of the world's water systems are currently under private control, at the rate they are expanding, the top three alone will control over 70 percent of the water systems in Europe and North America in a decade.

The revenue growth of the big three has kept apace. Vivendi earned $5 billion a decade ago in its water-related revenues; by 2002, it had increased to over $12 billion. RWE, which moved into the world market with its acquisition of Britain's Thames Water, increased its water revenue a whopping 9,786 percent in 10 years. All three are among the top 100 corporations in the world; together their annual revenues in 2001 were almost $160 billion and growing at ten percent a year -- outpacing the economies of many of the countries in which they operate. They also employ more staff than most governments: Vivendi employs 295,000 worldwide; Suez employs 173,000.

The World Bank serves the interests of water companies both through its regular loan programs to governments, which often come with conditions that explicitly require the privatization of water provision, and through its private sector arm, the International Finance Corporation, which invests in privatization projects and makes loans to companies carrying them out. Lending about $20 billion to water supply projects over the last decade, the World Bank has been the principle financer of privatization. A year-long study by the International Consortium of Investigative Journalists, a project of the Washington-based Center for Public Integrity, released in February, 2003, found that the majority of World Bank loans for water in the last five years have required the conversion of public systems to private as a condition for the transaction. The performance of these companies in Europe and the developing world has been well documented: huge profits, higher prices for water, cut-offs to customers who cannot pay, little transparency in their dealings, reduced water quality, bribery, and corruption.

There are many examples. Bolivia's famed "water war" of 2001 was a direct result of a World Bank initiative involving a Bechtel subsidiary. When the price of water tripled after privatization was introduced, thousands took to the streets until the government backed down and told the company to leave. Now, Bechtel is suing the government of Bolivia for millions of dollars under a bilateral investment treaty for losses in future profits (see World Bank's ICSID to Hear Case on Bolivia Water Privatization, Economic Justice News, October 2002).

In July 2002, Suez terminated its World Bank-backed 30-year contract to provide water and sewerage services to the city of Buenos Aires, when the financial meltdown of Argentina's economy meant that the company would not be able to maintain its profit margins. To make matters worse, the company also left a mess behind it. During the first eight years of the contract, weak regulatory practices and contract re-negotiations that eliminated corporate risk enabled the Suez subsidiary, Aguas Argentinas S.A., to earn a 19 percent profit rate on its average net worth. Water rates, which the company said would be reduced by 27 percent, actually rose 20 percent. Fifty percent of the employees were laid off, and Aguas Argentinas reneged on its contractual obligations to build a new sewage treatment plant. As a result, over 95 percent of the city's sewerage is now dumped directly into the Rio del Plata River.

SAUR distributes the water on a for-profit basis for all of Senegal. In 1996, the company was awarded the contract with a $96 million loan from the World Bank. The deal explicitly states that its aim is "cost recovery" -- meaning profit for investors -- and stipulates the need to charge for the cost of water, even to poor households. As a result, as in many other countries in Africa, many Senegalese citizens are forced to turn to untreated water systems for their water needs. The government of South Africa, for instance, has cut off water supplies to over 10 million people in the last two years because they could not afford to pay for the newly privatized service -- despite a constitutional guarantee of access to water for all!.

In an effort designed to attract World Bank funds, President Vincente Fox of Mexico has established a national program called PROMAQUA. Now operating in 27 of the country's 30 states, PROMAGUA actively promotes the privatisation of water services in cities of over 100,000 people. Largely financed by a World Bank grant of $250 million, PROMAGUA encourages cities to open up their public water systems to private water corporations by signing concessions lasting between 5 and 50 years. As a result, the two water giants, Suez and Vivendi, together with United Utilities and Aquas de Barcelona, have developed joint ventures with Mexican companies to take over the running of public water systems on a for-profit basis. Close to 20 percent of municipal water systems in Mexico are now privatised. What's more, there are numerous examples where these private water companies have jacked-up water rates and cut-off services to those who can't pay the bills, while reducing water quality and refusing to make investments for the improvement of infrastructure such as leaky pipes.

Stories like these have produced a huge backlash against these companies and, in many countries, they are sounding a hasty retreat. Yet in spite of growing public opposition, the World Bank just announced that it has increased its funding for water privatization projects from US$1.3 billion in 2003 to US$4 billion in 2004. This is because the water corporations are demanding guaranteed financing to maintain their profit margins, even in communities where there is fierce resistance to their presence. The World Bank says it has learned from its past mistakes. Its actions around the world's growing water crisis shows that it is still the old, unreformed institution.

For more information, see the authors' landmark study, Blue Gold, The Fight to Stop Corporate Theft of the World's Water.

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