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OPINION - Confusing Cause and Effect


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Private to Public: International lessons of water remunicipalisation in Grenoble, France

By David Hall and Emanuele Lobina

A brief summary of the report follows. For the full text click here.

1 Introduction
Grenoble is a city in south-eastern France, with a population of about 150,000. Water supply and sanitation in the city of Grenoble were delegated under affermage contracts to a subsidiary of Suez-Lyonnaise in November 1989. The sanitation service in the region of greater Grenoble (population 372,500) was delegated earlier, in 1985, to a joint venture owned equally by Suez-Lyonnaise and Vivendi-GdE

These privatisations of water supply and sanitation in Grenoble were facilitated by bribery of local politicians; they were costly to the citizens of Grenoble, because the companies charged more than was justifiable by their expenditure, and exploited privileged access to subcontracting; and there was throughout a lack of transparency and accountability.

After a decade of political activity directed at the contractors, and a series of civil and criminal court cases, Grenoble city council finally decided in the year 2000 to terminate the private contracts and replace them (with one partial exception) by a municipal service through two new régies.

The experiences of Grenoble provide a number of important lessons about the management, regulation and financing of water supply and sanitation.


4.1 Problems of private water in France: the 1997 Cour des Comptes report
The problems of the delegated contracts are not unique to Grenoble, but have been seen in a number of cases in France. A report in January 1997 by the French audit office, the Cour Des Comptes, identified recurrent problems, including lack of competition, lack of transparency, excess pricing, and the problem of unequal relations between municipalities and multinationals:

- Lack of competition : "repeated use of the negotiated procedure, nearly always with the same companies" and "A tendency to extend existing contracts" without subjecting them to tender, which has created "substantial profit margins".
- Lack of transparency: "The lack of supervision and control of delegated public services, aggravated by the lack of transparency of this form of management, has led to abuses" - in one city, Metz, the private water company did not submit any accounts to the city council for 20 years; in Bandol-Savary (near Toulon) a Vivendi company charged the council twice over for the same treatment, every year.
- Price rises: Water prices have risen at an average rate of 10% per year in France since 1992, but most of all where water has been privatised. The companies claim that most of this is due to the heavy investments required, but the report found many cases where price rises had no possible link with investments: "The increase in prices has to be seen in relation to the privatisation of services"
- Unequal power - the report repeatedly emphasises the disparity between the local authorities and the three giant companies. The system "left elected councilors on their own, without support, to deal with conglomerates wielding immense political, economic and financial power" .
- Corruption - by the time the report came out there had also been criminal convictions for corruption to obtain water in Reunion, and Angouleme.

5.8 Final advice
There are some simple practical advice points to be offered. These steps should be taken before deciding whether to invite tenders for a privatisation or PPP of any kind:

· Develop a public sector proposal for the same service or project so that there is a real alternative, and a benchmark against which to assess any private bids

· Consider whether the state or municipality has the institutional capacity to audit and if necessary prosecute a multinational company which abuses a concession

· Consider whether there is enough vigorous political activity to effectively drive investigations and remunicipalisations if necessary

· Plan decision-making procedures, evaluations, and regulatory structures and economic forecasting on the assumption that the companies have every incentive to use the techniques of corruption and price-fixing if the rewards outweigh the risks.

The Folly of Water Privatization in South Africa

By Roger Ronnie
SAMWU General Secretary
Published in the "Sowetan" Newspaper
15th August 2001

For more information on the anti privatisation and trades union movement in South Africa, Click Here

The South African government has joined the governments of the rest of Africa, who, with little experience, are scrambling to attract investors and to privatise.

There are very few people who can figure out why the government is doing this. Privatisation of water certainly doesn't empower anybody - there are only four European multinationals that have the monopoly worldwide on water for profit. One of these, French Vivendi, has recently started putting up water prices in the poorest countries of the world because they need extra cash to inject into a Hollywood studio they acquired recently.

So why would our government sell off our water, which already most of us cannot afford to pay for? Does the government feel that it's okay if what we pay the private water companies (coming soon) gets used to subsidise new blockbuster movies? Maybe they do. If so, they are not alone. They have a rather large and powerful ally - the World Bank.

The Bank universally promotes privatisation, using the one-size-fits-all framework, which has dominated their policies for decades. They succeed in getting governments to privatise by either using strong arm tactics, like threatening to withhold future loans or making privatisation a conditionality for loans or debt relief that is needed right away.

This has been their practice across Africa, but in South Africa it was much easier for the World Bank because the ANC government simply invited them to write the whole economic policy, GEAR, instead. So they didn't need any threats or force.

In Europe, water privatisation has been failing for decades, and in several towns water has been "re-municipalised" or taken back from whichever multinational messed up the service.

In Africa, although water privatisation is not that old a practice, recent research conducted by London-based Greenwich University's Public Service International Research Unit uncovered that where water was privatised, it was as disastrous as the European experience.
The people of Nairobi, Kenya, for example, were forced to fork out over R160 million when

Nairobi's water was privatised to French multinational Generales Des Eaux. Soon after the company privatised, they decided to install a new, and not budgeted for, R1.5 billion billing and revenue collection service.
Although the Mayor complained, the company proceeded and put water prices up by 40% in order to pay for the new system.
During this time, 3 500 municipal workers were replaced by 45 foreign staff who earned massive salaries from a total R13.6 million in the second year of the contract, rising to R31.2 million per year by the end of the contract.
Just a week after this greed was exposed, the World Bank told the Kenyan government that it should privatise all the roads in the country.

Typically of the World Bank, they announced that nine months of research to be conducted by themselves would be followed by the appointment of a World Bank consultant but that private companies should start sending in their bids immediately! This is what the ANC government is doing - deciding to privatise before finding out whether it is a good idea or not.
Privatisation of water was also bad for the poor of Guinea.

Before privatisation in 1989, fewer than 40 percent of the urban population had access to piped water. The government was short of funds and needed donor finance. Private participation was a condition of World Bank lending.
The workforce was cut almost in half from 504 employees to 290 and right after privatisation, water prices were increased.
The connection rate only rose by 9% in 7 years leaving over 30% of Guineans still without water.
The high price of water meant people could not afford to get connected - it was difficult for even wealthy people to pay. (Prices in Guinea are higher than average in Africa and Latin America.)

There is a public sector alternative to privatising water, which clearly does not work in any case.
In South Africa, this public sector alternative is legislated in the Water Services Act.
The Act says that other service providers, such as multinationals, should only be brought in when all known public providers have been exhausted and found unwilling or incapable of doing the job.
Another agreement was signed in 1998 between local government and the trade unions for the public sector to be considered as the provider of first choice.
It concurs with national legislation that the public sector is the preferred deliverer of services and specifies that involvement of the private sector in service delivery should only be a very last resort--if there is no public sector provider willing or able to provide the service.
However, the privatisation of water in Johannesburg, Nelspruit and Dolphin Coast has been implemented in breach of these guidelines.
Technically water privatisation is unlawful in these three places.
It seems that laws and legal agreements are not worth the paper they are written on.

The government is still wasting money enriching the European multinationals at the expense of the poor. For example, the Portuguese government financed the building of a new water treatment plant in Matsulu, Nelspruit. The South African government constructed it, and will operate it for one year. After this it will be given as a gift to the multinational which is currently increasing prices in Nelspruit, even though this company contributed nothing to the project.

The ANC government is adamant that the people of South Africa will be forced to follow the path of hardship trod by masses in other African countries who have been subjected to Structural Adjustment Programmes.

The people of Mozambique were forced to submit to privatisation at the end of 1999, after the country was told it would only be eligible for debt relief if they agreed to sell off 70% of their water to European multinationals. One of the multinationals is IPE from Portugal, the former coloniser of Mozambique.
Liberation movement governments are bringing colonisation back into fashion through their constant capitulation to the World Bank's privatisation.

Similarly in Cameroon, last year, Suez Lyonnaise was selected as sole bidder to acquire majority stake in the state water company for 20 years. This privatisation had to be rushed through in order for Cameroon to qualify for debt relief from the WB and IMF.

The water of Tanzania, Lagos in Nigeria, Ghana, and Congo is currently up for sale.
Community organisations in Ghana recently invited South African trade unionists and community leaders to help formulate an anti-privatisation campaign in that country, now known as the Ghana National Coalition Against the Privatization of Water or the "CAP of Water".
Yet where the World Bank has funded some rural water schemes in Ghana, these have failed because the Bank demanded that rural communities pay an upfront cash amount towards constructing the water systems.
"The policy has resulted in excluding poor communities incapable of paying from enjoying their right to consume portable water," says the CAP of Water.
There is overwhelming evidence that privatisation of water does nothing except line the pockets of the four major multinationals who dominate the world market.
The companies themselves make no pretense that they want to deliver a decent service to the community.
For example, Biwater which privatised Nelspruit's water, withdrew from a Zimbabwean water privatisation project when it became clear that citizens could not pay the tariffs that would be required for Biwater to make a profit.

The ANC government is pushing the workers of South Africa into strike action at the end of this month. As workers of this country and members of impoverished communities, we are determined to fight for affordable, good quality water good delivered on the basis of need and not profit.

Monsanto Moves to Control Water Resources & Fish Farming in India & the Third World

By Vandana Shiva, June 1999

The writer is Director of the Research Foundation for Science,Technology and Ecology, New Delhi

This report comes from the globalisation 'watchdog' - Transnationale

In 1996, Monsanto bought the biotechnology assets of Agracetus, a subsidiary of W. R. Grace, for $150 million and Calgene, a California-based plant biotechnology company for $340 million. In 1997, Monsanto acquired Holden seeds, the Brazilian seed company, Sementes Agrocerus and Asgrow. In 1998, it purchased Cargill's seed operations for $1.4 billion and bought Delta and Pine land for $1.82 billion and Dekalb for $2.3 billion.

In India, Monsanto has bought MAHYCO, Maharashtra Hybrid Company, EID Parry and Rallis. Mr. Jack Kennedy of Monsanto has said, "we propose to penetrate the Indian agricultural sector in a big way. MAHYCO is a good vehicle." According to Mr. Robert Farley of Monsanto, "what you are seeing is not just a consolidation of seed companies, it's really a consolidation of the entire food chain. Since water is as central to food production as seed is, and without water life is not possible, Monsanto is now trying to establish its control over water. During 1999, Monsanto plans to launch a new water business, starting with India and Mexico since both these countries are facing water shortages."

Monsanto is seeing a new business opportunity because of the emerging water crisis and the funding available to make this vital resource available to people. As it states in its strategy paper, "first, we believe that discontinuities (either major policy changes or major trendline breaks in resource quality or quantity) are likely, particularly in the area of water and we will be well-positioned via these businesses to profit even more significantly when these discontinuities occur. Second, we are exploring the potential of non-conventional financing (NGOs, World Bank, USDA, etc.) that may lower our investment or provide local country business-building resources." Thus, the crisis of pollution and depletion of water resources is viewed by Monsanto as a business opportunity. For Monsanto, "sustainable development" means the conversion of an ecological crisis into a market of scarce resources. "The business logic of sustainable development is that population growth and economic development will apply increasing pressure on natural resource markets. These pressures and the world's desire to prevent the consequences of these pressures, if unabated, will create vast economic opportunity - when we look at the world through the lens of sustainability, we are in a position to see current and foresee impending-resource market trends and imbalances that create market needs. We have further focussed this lens on the resource market of water and land. These are the markets that are most relevant to us as a life sciences company committed to delivering food, health and hope to the world, and there are markets in which there are predictable sustainability challenges and therefore opportunities to create business value."

Monsanto plans to earn revenues of $420 million and a net income of $63 million by 2008 from its water business in India and Mexico. By 2010, about 2.5 billion people in the world are projected to lack access to safe drinking water. At least 30 per cent of the population in China, India, Mexico and the U.S. is expected to face severe water stress. By 2025, the supply of water in India will be 700 cubic km per year, while the demand is expected to rise to 1,050 units. Control over this scarce and vital resource will, of course, be a source of guaranteed profits. As John Bastin of the European Bank of Reconstruction and Development has said, "Water is the last infrastructure frontier for private investors."

Monsanto estimates that providing safe water is a several billion dollar market. It is growing at 25 to 30 per cent in rural communities and is estimated to rise to $300 million by 2000 in India and Mexico. This is the amount currently spent by NGOs for water development projects and local government water supply schemes and Monsanto hopes to tap these public finances for providing water to rural communities and convert water supply into a market. The Indian Government spent over $1.2 billion between 1992 and 1997 for various water projects, while the World Bank spent $900 million. Monsanto would like to divert this public money from public supply of water to establishing the company's water monopoly. Since in rural areas the poor cannot pay, in Monsanto's view capturing a piece of the value created for this segment will require the creation of a non-traditional mechanism targeted at building relationships with local government and NGOs as well as through mechanisms such as microcredit.

Monsanto also plans to penetrate the Indian market for safe water by establishing a joint venture with Eureka Forbes/Tata, which controls 70 per cent of the UV Technologies. To enter the water business, Monsanto has acquired an equity stake in Water Health International (WHI) with an option to buy the rest of the business. The joint venture with Tata/Eureka Forbes is supposed to provide market access and fabricate, distribute, service water systems; Monsanto will leverage their brand equity in the Indian market. The joint venture route has been chosen so that "Monsanto can achieve management control over local operations but not have legal consequences due to local issues."

***** Another new business that Monsanto is starting in 1999 in Asia is aquaculture. It will build on the foundation of Monsanto's agricultural biotechnology and capabilities for fish feed and fish breeding. By 2008, Monsanto expects to earn revenues of $1.6 billion and a net income of $266 million from its aquaculture business. While Monsanto's entry into aquaculture is through its sustainable development activity, industrial aquaculture has been established to be highly non-sustainable. The Supreme Court has banned industrial shrimp farming because of its catastrophic consequences. However, the Government, under pressure from the aquaculture industry, is attempting to change the laws to undo the court order. At the same time, attempts are being made by the World Bank to privatise water resources and establish trade in water rights. These trends will suit Monsanto well in establishing its water and aquaculture businesses. The Bank has already offered to help. As the Monsanto strategy paper states: "We are particularly enthusiastic about the potential of partnering with the International Finance Corporation (IFC) of the World Bank to joint venture projects in developing markets. The IFC is eager to work with Monsanto to commercialise sustainability opportunities and would bring both investment capital and on-the-ground capabilities to our efforts."

Monsanto's water and aquaculture businesses, like its seed business, aimed at controlling the vital resources necessary for survival, converting them into a market and using public finances to underwrite the investments. A more efficient conversion of public goods into private profit would be difficult to find. Water is, however, too basic for life and survival and the right to it is the right to life. Privatisation and commodification of water are a threat to the right to life. India has had major movements to conserve and share water. The pani panchayat and the water conservation movement in Maharashtra and the Tarun Bharat Sangh in Alwar have regenerated and equitably shared water as a commons property. This is the only way everyone will have the right to water and nobody will have the right to abuse and overuse water. Water is a commons and must be managed as a commons. It cannot be controlled and sold by a life sciences corporation that peddles in death.


DFID resource paper by Richard Franceys, Loughborough University, July 1997

The full report is available as an occasional paper from WELL

3. The PPP Solution

Notwithstanding the solutions outlined above, for the average government owned and managed system at this time it is perhaps only PPP (or the consideration of it) that cuts through the confusion and forces the necessary clarification of the goals of water and sanitation providers and the price at which they can be supplied. The private sector is used to surviving through an understanding of this need for balancing product, price, promotion and place/service through marketing. PPP is also then seen to deliver the necessary efficiency gains and, potentially to facilitate the funding for the capital investment.

PPP is seen by many to be too expensive in having to generate profits which should not be necessary in supplying a basic need in a lower income country. But if the desired efficiency gains are realised it can in the end be less expensive overall. PPP is also seen as threatening the needs of the poorest. However, because many of the poorest are already having to purchase from private vendors at a high price due to the failure of the public organisation, in a privatised system that achieved the necessary service coverage prices paid by the poor would come down and the services they receive should improve - 'if the [official suppliers] could attract even 15-20% of the outlay that now goes to water vendors they could provide a lower cost service that would pay for itself within a few years (UNICEF, 1991). It should be noted that there is little discussion in the literature as to how concessions and affermage contracts meet the lifeline water needs of informal settlements which are a key target to receive public health benefits.

It is acknowledged that there are risks in involving the private sector whose goal has to be generating profits. There may be 'asset stripping' where the contractor does not maintain the assets adequately and runs them down so that complete rehabilitation is required before a new contractor could take-over. But this is not significantly different from the present publicly managed situation. Contractors may be tempted to force tariffs too high too quickly in order to 'profiteer'. But a competent contract and an appropriate level of regulation should reduce this risk. PPP can be seen as a very expensive way of, in effect, replacing a failed public sector manager (and/or organisational culture) but if the alternatives are to continue that failure through political inability to make internal changes then the cost is not so high.

The private sector, because it is seen to be more focused and better at escaping political interference, is presumed to be able to use all the techniques of the new managerialism in order to generate profits. It can become more efficient through using fewer staff and fewer resources (optimising use of plant and equipment and materials) in order to cut costs to generate more profits; it is believed to be more effective in achieving wide coverage in a desire to maximise its sales (through selling more to more customers); it is more performance oriented and customer focused in order to be better at generating revenue; it invests more wisely because of the need to generate cash from new investment; it has better (cheaper) sources of capital because it can be trusted to repay; it has better managers because it pays more, not being constrained by government salary scales; it is better at motivating staff because it can fire and hire (not always true even for the private sector in some countries) and use pay and bonuses in a flexible way; it has better management through focusing on more limited objectives; and it is driven by an underlying survival mentality which produce continuous improvement so as not to lose sales or a contract to the competition.

Such an idealistic view of private sector management has to be tempered by the equally common view that private companies are profiteering, self-serving undesirables who will corrupt any regulator to deliver the lowest quality product/service they can get away with for the highest possible price, focusing only upon the high income consumers, never investing any of their own money whilst running down any assets that a government has been unwise enough to entrust to them.

It is possible to reduce all these risks by developing the appropriate level of PPP 'Experience suggests that the efficiency benefits from involving the private sector are closely linked to competitive pressures, rather than deriving simply from the presence of a private owner' (World Bank, 1996). The task in the sector is to find the most appropriate forms of PPP and competition (competitive bidding and sub-dividing areas and functions to provide comparators), regulation and contract monitoring which make it in the private companies best interests to produce in the desired way with the desired benefits.

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