Privatisation has been a predominant theme in the water and sanitation sector for many years. However, there is little evidence that private sector participation (PSP) can deliver better water services than those offered by the public sector. Nevertheless, international agencies and donors relentlessly continue to promote the concept.

Research from the United Nations Research Institute for Social Development takes stock of lessons learned from 15 years of water and sanitation privatisation. The author shows that policies promoting PSP in developing countries’ water supply are economically flawed.

PSP was introduced in developing countries as a foundation stone of the Washington Consensus – the ideology emphasising the importance of the market, fiscal discipline, financial liberalisation, deregulation, privatisation and a reduced role for the state. It was argued that PSP would introduce much-needed investment, increase access and improve the quality of the water supply. However, donors pushed developing countries to privatise water without first insisting on strengthening regulatory governance.

Unlike some other fields of public infrastructure – such as electricity and telecommunications – water is seen as a social resource by nature and its privatisation has provoked a lot of resistance. Experiences with PSP worldwide suggest a significant conflict between social development, public health and environmental concerns and poverty reduction, on the one hand, and the private sector’s profit motive on the other.

Foreign capital is only interested in large markets with very limited risk, and overseas development assistance to water and sanitation does not go to the least developed countries. Only 13 percent of the countries in South Asia have PSP, compared to 64 percent in East Asia and the Pacific.

It is now clear that

• dominant water multinationals are not interested in low-income countries which lack commercially viable water supplies
• from the private sector’s perspective, low-income countries, and poor people in particular, have high levels of risk
• to reduce this risk, the private sector targets better-off customers in urban areas and/or seeks subsidies, soft loans and renegotiation of the contractual agreement in order to provide services to poor people
• privatisation generally raises water prices and increases inequality.

PSP has not achieved the desired results and examples of failure and difficulty in the private water sector are increasing. However, pro-privatisation groups are well-organised and are repackaging the concept as public-private partnership.

The author calls on policymakers to acknowledge that:

• the diverging interests of the public sector, the private sector and water consumers cannot be readily reconciled
• privatised companies are using the same sources of funds as the public sector – loans from donors, aid money and tariff revenue from customers: the private sector can only  provide services to poor people through public funds
• even enthusiastic former PSP advocates like the World Bank and International Monetary Fund have acknowledged that PSP is not necessarily superior to the public sector in providing water services
• Social policies relating to water supply (such as increasing block tariffs, fixing lifeline consumption, cross-subsidies and a ban on disconnection) should not be ignored when reforming the water sector.

Source(s):
‘Privatisation Results: Private Sector Participation in Water Services After 15 Years’. Development Policy Review, 24(6), pp 669-692, by Naren Prasad, 2006 (PDF) Full document.
‘Social policies and water sector reform’, UNRISD Programme Paper 3, July 2007, by Naren Prasad Full document.
‘Beyond regulation: social policies and private sector participation in Water supply’, Palgrave Macmillan/UNRISD, edited by Naren Prasad, 2008 (forthcoming)

id21 Research Highlight: 14 August 2007

Further Information:
Naren Prasad
United Nations Research Institute for Social Development (UNRISD)
Palais des Nations
121 Geneva 10
Switzerland

Tel: + 41 (0)22 9173020
Fax: +41 (0)22 9170650
Contact the contributor: prasad@unrisd.org

United Nations Research Institute for Social Development

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'Giving public water utilities a chance'

'Taps run dry in Dar es Salaam as prices soar after water privatisation'

'Will water privatisation deliver the services?'

'Private sector participation in water supply: too fast, too soon?'

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