The Perils of Privatization

If adequate water for drinking and sanitation is essential for life, shouldn't we consider water a human right? Not everyone thinks so. In February, the United Nations Human Rights Council missed a critical opportunity to recognize a human right to water. As a result of lobbying by the United States and Canada, the council derailed a European-backed declaration, accepting instead a weaker resolution that actually protects a corporation's right to sell water.

As illustrated by the February United Nations vote, our government and its corporate allies believe that water is a new profit center. They are promoting markets and privatization as the solution to providing water to the world's poor -- 1.4 billion people without access to drinking water and 2.5 billion without sanitation services. International finance institutions, funded by the United States and other developed nations, provide loans to developing nations on the condition that they privatize services and charge steep user fees. Indeed, the very institutions that are charged with alleviating poverty, like the World Bank, are implementing policies that force people who make $1 or $2 a day to choose among food, housing, or water.

Contrast this with the United States where, at the turn of the 20th century, reformers concerned about the high levels of water-borne disease successfully campaigned for public funding of municipal water and sewage systems. Today, public utilities provide 86 percent of household drinking water and 98 percent of sewer services. But the same economic interests promoting privatization in the developing world are clamoring for it in the United States.

Over the past 15 years, private water corporations, mostly European, have begun targeting American cities for privatization. Equity research firms predict that privatization of water services and private investment in pipes and infrastructure could provide large and stable profits. Proponents of privatization cite economic efficiency as one of its biggest selling points. But studies by independent researchers and even dissenting voices within the World Bank refute this claim.

A Record of Empty Promises

Communities all over the world have suffered from the empty promises of water-privatization profiteers. Whether in Dar es Salaam, Tanzania, or Guayaquil, Ecuador, or Atlanta, the results have been devastating. They include cost-cutting measures that jeopardize public safety, job cuts to essential staff, maintenance and water quality problems, lack of infrastructure investment, sewage spills, corruption, environmental degradation, outrageous rate hikes, and political meddling.

Almost across the board, private corporations deliver poorer service at a higher cost than do most public utilities. Surveys of U.S. utilities show that privately owned water utilities charge customers significantly higher water rates than their publicly owned counterparts charge -- anywhere from 13 percent to almost 50 percent more, according to an analysis by Food & Water Watch, the advocacy group I direct. The reality is that any "efficiency" is realized by firing staff -- often up to half of existing staff -- -undermining the ability of the utility to maintain pipes and other infrastructure.

Case studies from recent practices around the globe tell the story. In 2005, the government of Tanzania canceled its 10-year contract with the British-based firm Biwater after two years of poor management and unmet obligations left people without water and the government short about $3.25 million. The East African country enjoyed some measure of justice in early 2008 when an international tribunal ruled that Biwater must pay almost $8 million in damages and fees to the state water utility in Dar es Salaam. Not coincidentally, the company had taken control of the city's water supply in a controversial, noncompetitive privatization process favored by the British government and the World Bank. One critic was quoted as saying: "The evidence clearly shows that water privatization has been a disastrous policy for poor people around the world, but the World Bank insisted on imposing water privatization in Tanzania in return for much needed debt relief."

Halfway around the world, the same disastrous model also was foisted upon the people of Ecuador. There, the wheels were set in motion by the Inter-American Development Bank (IDB), whose lending policies are as damaging as those of the World Bank because they require privatization of water utilities without considering restructuring and rehabilitating public utilities. In this case, the IDB loaned $40 million to the government of Ecuador to prepare a subsidiary of the U.S.-based contracting giant Bechtel to operate the water and sewer system in the country's largest city, Guayaquil.

Shortly after the subsidiary, which became known as Interagua, took over in Guayaquil in 2001, it dismissed all the workers from the previously public-owned utility. The company partially bowed to public pressure by rehiring 20 percent of them the following year. But mass firings were only one installment of the nightmare. The media reported in 2002 that Interagua was treating only 5 percent of the sewage and releasing the rest directly into the Guayas River. The Guayaquil health department began issuing reports of skin ailments, including rashes; respiratory problems such as asthma; and diarrhea and other gastric illnesses. Authorities found that Interagua's poor service also contributed to a major outbreak of Hepatitis A in 2005.

Unfortunately, a similar story can be told by communities across Latin America. The World Bank and IDB provided loans to Bolivia for water and sewer systems in its capital, La Paz, and neighboring El Alto, only on the condition that private companies supply these services. In 1997, Aguas del Illimani, led by Paris-based Suez, the world's second largest water and wastewater corporation, obtained a 30-year contract to operate the cities' water and sewer systems, but by 2005 long-festering anger over massive rate hikes and poor service contributed to public protests, a general strike, and social unrest.

The contract written by the company had "red lined" poorer neighborhoods, leaving 200,000 people without water services. In addition, some 80,000 families who should have been served were denied water. A connection fee of $450 -- a poor family's food budget for two years -- was charged to hook up to water and sanitation services. The Bolivian government audited the company's performance and found it had not complied with the contract, had not made the required investments in infrastructure, and had a dismal environmental performance.

Rough Waters in America

Sadly, Suez and the other water corporations have had a similar record in the United States. United Water, a Suez subsidiary, began a 20-year, $428 million contract in 1999 to operate and manage Atlanta's water and sewer system. At the time, United Water bragged that "Atlanta for us will be a reference worldwide, a kind of showcase."

Instead, a fiasco ensued. The company overstated the amount of money it could save the city and underestimated the work needed to maintain and operate the system. In Atlanta, the company cut costs by firing almost 400 employees -- half of the utilities staff. United Water tried to add $80 million to the contract and then, after the city refused, inflated billable costs, even billing the city for work it hadn't performed. It raised sewer rates an average of 12 percent every year it had the contract.

There were other problems, as well. In 2003, the city's deputy water commissioner told The Atlanta Journal- Constitution, "My biggest concern is a lot of people have lost confidence in the water itself. Over the past year, we've had so many boil water advisories and dis-colored water around the system." Finally fed up with United Water, Atlanta terminated the contract later that year.

In other cases, concerned citizens are fighting back. The town of Emmaus, in Pennsylvania's Lehigh Valley, is one such example. Facing costly repairs and improvements in their public water system, borough leaders in 2005 entertained bids from private corporations, promising that proceeds from the sale of the town's water supply would be invested in tax cuts for residents. Then came the bad news: The prospective corporate buyer would likely raise rates by three or four times.

A grass-roots effort soon mobilized, urging the town council to "stop the corporate water grab" and "save our water for future generations." Paul Marin, one of the organizers, remembers asking: "Why turn this or any other public resource that the community already owns and has paid for over to a private entity? You're paying twice. It's like selling your house and then paying the buyer's mortgage over the next 30 years."

Eventually, town leaders relented, and Emmaus kept its water. Rates did go up enough to restore the town's water fund and buy needed upgrades, but customers are still paying among the lowest water prices in the state.

Unfortunately, the happy ending for Emmaus does not ensure public control of water in other American communities. Private corporations continue to approach local leaders with promises to repair water infrastructure and increase efficiency.

Indeed, in the United States, our drinking water and sewer systems, many of which are more than 100 years old, do need upgrades. The Environmental Protection Agency estimates that we are falling short on water-infrastructure funding by a whopping $22 billion yearly. Fortunately, a real solution does exist. Instead of allowing irresponsible private-investment schemes, we need to plan ahead for future generations by creating a dedicated source of public funding so that communities across America can keep their water clean, safe, and affordable. Water is a vital resource, critical for all of us. It deserves no less than the trust funds that currently help finance our highways, harbors, and wildlife habitats. It is time for a federal trust fund for clean and safe water.

And in the developing world, it's time for a new model. The answer to providing safe, affordable drinking water and sewer services to developing nations is not giant corporations. It's time that the world's richest nations, including our own, use their influence to change the policies of the international finance institutions they fund. The World Bank and the IDB should stop predicating their loans on privatization. These powerful institutions must stop forcing poor countries to structure their economies in a way to benefit multinational corporations, and instead prioritize public health and increased access to clean and affordable water for all people. Because water is, after all, a human right.